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 as Bottom-Fish and Spec Value Hunter picks and will include projects that may be of interest only because they are in the limelight. Jim and John will periodically circle back to review the projects and if necessary close them out as no longer worth watching. KRO will keep track of projects mentioned through Discovery Watch with HoweStreet.com. Discovery Watch is available via YouTube or Podcast.
Sonoro Resources Corp was assigned a Bottom-Fish Spec Value rating on December 14, 2018 based on the company's plan to advance the 100% optioned Cerro Caliche gold-silver project in Mexico as an open-pit, heap leach operation that would start at a small scale with the dual purpose of demonstrating the recovery model and generating sufficient cash flow to fund future expansion of a much larger scale operation. Tracker April 11, 2019 describes the recent history of Sonoro, in particular the role of John Darch who emerged in late 2018 after a decade long sabbatical from the resource sector to take on the funding and marketing role at Sonoro after Gary Freeman unexpectedly passed away in early 2018. Sonoro was introduced to Discovery Watch in May 2019 based on management's rather unique plan to attract a Chinese "engineering, procurement and construction" (EPC) entity to fund and build a small open pit heap leach mine focused on a maximum 200,000 ounce resource. If this "pilot" operation was successful, Sonoro and the EPC would negotiate a deal for an expanded operation that tackles ten or so zones which have a tonnage footprint approaching 100 million tonnes, which, if definition drilling confirms the expected 0.4-0.6 g/t gold range with a 3-4 g/t silver kicker, would represent a 1.5-2.0 million ounce gold resource. In May 2019 gold was still below $1,300, so the Cerro Caliche plan clearly was an optionality bet on higher gold prices which hoped to minimize dilultion while demonstrating the mining plan plan with the help of the EPC. Gold began an uptrend in H2 of 2019 that remains intact today, so the original plan to mine 0.5 g/t ore is no longer an optionality story at $1,800 plus gold. But the arrival of Covid-19 in Q1 of 2020 sabotaged the ability of the Chinese EPC staff to travel to complete their due diligence of this project in Mexico's Sonora state. This created an existential crisis for Sonoro which needed to make staged property payments to keep title intact, which was accomplished by selling a royalty in another property and insiders loaning money to the company while allowing payables to accrue, resulting in an ugly balance sheet of a $1.3 million working capital deficit. To make matters worse, while the Chinese remained stranded offshore, Bay Street continued to sneer at a 0.5 g/t open pit heap leaching plan in Mexico. Management, noting that Bay Street was attracted to discovery exploration plays involving the rethink of existing gold systems, undertook a geological review of Cerro Caliche which included alteration studies of the ten or so zones that had been indentified within 200 metres of the surface. These zones consist of veinlets which individually can have high grades but when averaged deliver 0.4-0.6 g/t. The review led by Mel Herdrick concluded that most of the drilling of this low sulphidation epithermal system took place above the boiling zone where the veins tend to coalesce and bonanza gold-silver grades develop. The team also took heart from the Mercedes system 10 km to the southeast which was generated by the same intrusive center, which started as a low grade open pit operation, and which Prmier Gold was now mining underground for much higher grade ore. In late June 2020 Sonoro started marketing the idea of a USD $2 million financing for a 20 hole core program designed to test all the zones at a 150-350 m depth for bonanza grades, clean up the trade payables, and create a reserve for the next round of property payments in Q1 of 2021. Sonoro thus transformed itself from a low grade gold optionality play nobody but the Chinese wanted which would benefit from higher gold prices, into a dual play with bluesky high grade discovery potential that tapped into the dynamic driving the awakening resource junior bull market. Securing that financing will be critical to Sonoro's success potential. (Jul 22, 2020)
Zephyr Minerals Ltd has been a KRO Bottom-Fish Spec Value rated company since late 2017 based on the Dawson-Green Mountain gold project in Colorado where the junior has a small 111,300 oz resource for which a PEA supporting a small 300 tpd underground mine was published in early 2017. This resource in the Dawson segment has been outlined only to a depth of 275 m because it dips into a mountain and it is not practical to drill deeper. The idea is that if a small scale mine were developed a much bigger resource could be delineated by drilling from underground. The upside for the Dawson segment thus hinges on a gold bull market to bring in the required CapEx. In 2018 Zephyr acquired the Green Mtn segment to the west where it hopes to establish a similar system. Zephyr was introduced to DW in May 2019 on the basis of a Broken Hill type zinc-lead-silver target that emerged in 2018 within the El Plomo segment, a down-dropped block between the Green Mtn and Dawson segments. It features a high grade Zn-Pb-Ag horizon that was tested to a shallow depth decades ago but given up on because although it strikes for 3 km it is narrow. In the Broken Hill model metamorphism will have folded and remobilized such a system to create structural thickening and higher grades. Regional geochemistry suggests such a process could have taken place, so during the summer of 2019 Zephyr conducted an airborne Mag-EM survey over the property to see if there is a magnetic anomaly associated with the El Plomo trend that supports the hypothesis that a much thicker Broken Hill type deposit exists at depth. In September 2019 Zephyr revealed that there is such a magnetic anomaly worth drilling from 4-5 locations along the trend.An analog which fits the target's tonnage footprint is the Cannington deposit in Australia, a smaller but richer version of the original Broken Hill deposit. A KRO Cannington Clone Outcome Visualization indicated such a deposit would be worth more than CAD $7 billion at current metal prices, which, if Zephyr could avoid dilution beyond its current 74 million fully diluted, implied an ultimate price target of $100. Further support for the BHT model emerged when an electronprobe study revealed that silver occurs within a rare mineral uniquely associated with BHT deposit. Testing this target, however, is not simple because El Plomo is bighorn sheep habitat where drilling is restricted to July 1 to Oct 31. Zephyr's plans to drill during the 2020 summer were nearly disrupted when an anti mining NGO appealed the drill permit. The appeal was heasrd on July 22 and unanimously dismissed. Drilling is now expected to begin in the second week of August. Due to the visually obvious massive sulphide nature of a BHT system a new discovery could become evident early in the drill program, launching the stock into S-Curve speculation territory. If a discovery were to demonstrate Cannington scale and similarity, it would have a profound effect on the resource junior bull market awakening after a decade long drought. (Jul 22, 2020)
FPX Nickel Corp has had a Bottom-Fish Spec Value rating since 2017 while the junior worked on over-coming the limitations embedded in the PEA Cliffs delivered in March 2013 for a 114,000 tpd open-pit nickel mine at Decar which required a $9/lb plus nickel price to be viable. Most of this work has been completed and 2020 promises to be a relaunch of the Decar nickel story with an updated PEA expected in September 2020. FPX was introduced to Discovery watch in November 2016 as a different type of discovery in the sense that the Decar deposit, recognized in 2009, is unusual in having a very low 0.12% nickel grade as defined by a Davis Tube assay which only measures nickel recoverable through crushing and magnetic separation. This is different from a fire assay which will yield a similar grade for almost every ultramafic body that is economically worthless because it reflects nickel trapped in an olivine lattice. The Decar nickel is different because it occurs as awaruite, a nickel-iron alloy that is in effect natural stainless steel. The result is a very homogenous 1 billion tonne deposit that can be large scale open pit mined for 40 years without any sulphide related acid drainage and which, thanks to the magnesium content that ends in the tailings, could operate as a carbon sink which could bring Decar close to the holy grail of a carbon neutral mine. The key changes achieved by FPX management headed by Peter Bradshaw and Martin Turenne since buying back 100% ownership from Cliffs in 2015 are 1) replacing gravity separation with a flotation stage that generates a concentrate with 65% nickel that can be fed directly into stainless steel mills, delineation of the SE Baptiste zone that allows front-loading the ore schedule with higher grade ore, and preliminary studies that indicate that the concentrate can be converted directly into nickel sulphate, the form required by the EV battery market. FPX is unusual in that it has been funded by insiders and close associates through private placements that did not include warrants, a sign of strong internal belief that Decar is a winner. A key question the PEA will answer is the cost structure of Decar using the new flowsheet, which will make it easier to assess the potential economic value of developing Decar, expected to have a CapEx of $2 billion or more. The wild card is the future price of nickel which during the past decade has suffered from a glut of low grade laterite ore mined in Indonesia and the Phillipines and shipped as whole rock to Chinise blast furnaces where it is converted into nickel-pig-iron, a feedstock for lower quality stainless steel that meets China's standards. Indonesia no longer allows direct shipping of ore, and the Philippines is rapidly depleting the laterite resources suitable for this NPI market. The FPX PEA will show what nickel price is needed to achieve an NPV at least 50% of CapEx. Given that it will take another $40-$50 million to push Decar through feasibility to a permitted production decision, the speculative question is who might pay what percentage of the NPV at what stage for the privilege of investing another $2 billion to develop Decar as a 40 year mine in a secure jurisdiction that threatens little variation during the life of the mine. A decade ago the FPX team scoured the world in search of similar deposits, but concluded that Decar is pretty much unique. (Jul 22, 2020)
Disclosure: JK owns FPX Nickel; FPX Nickel is a Bottom-Fish Spec Value rated Favorite, Zephyr is a Good Spec Value rated Favorite; Sonoro is Bottom-Fish Spec Value rated