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Kaiser Media Watch Blog - November 1, 2022 to November 30, 2022

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The KRO Blog is where unrestricted content of a time sensitive nature is posted. It includes the Kaiser Media Watch Blog which features content involving John Kaiser produced by third parties such as the Discovery Watch series by HoweStreet.com, interviews by outfits such as Investing News Network, SDLRC related commentary, the KRO Monthly Summaries, and just about anything else John writes that is not intended exclusively for the fee based KRO Membership.

Posted: Nov 24, 2022JK: Kaiser Watch November 24, 2022 with Jim Goddard and John Kaiser
Published: Nov 24, 2022KRO: Kaiser Watch November 24, 2022: From Diamonds to Lithium
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.

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Kaiser Watch November 24, 2022: From Diamonds to Lithium
Jim (0:00:00): What is the Vancouver Kimberlite Cluster?

This week's Kaiser Watch will be an overview of a 90 minute video presentation I gave to the Vancouver Kimberlite Cluster on November 16, 2022 on the topic "Why have investors lost interest in diamond exploration and what will it take to bring them back?" In the presentation I review the successes and disappointments of 3 decades of diamond exploration and address the 7 key obstacles that today discourage investor interest in diamond exploration.

While preparing this presentation I was able to remember many of the emotions I, subscribers and investors experienced as we followed various diamond plays during the past 3 decades. And I recognized a remarkable similarity with what I am experiencing today with Lithium Mania 2.0, the hunt for lithium enriched pegmatites which will deliver the second half of the ten-fold lithium supply expansion needed to make EV replacement of ICE cars a reality by 2035. Furthermore, the Great Pegmatite Hunt does not suffer from any of the 7 obstacles that discourage investors from betting on diamond exploration. I also realized that Lithium Mania 2.0 is only in the early awakening stage, equivalent to exactly 30 years ago December 1992, four months before the diamond boom inflected on the upside. In a sense my VKC presentation is my diamond swan song as I pass the torch to lithium pegmatites. To make it easier to digest the VKC presentation I have broken down the topic segments below.

Vancouver Kimberlite Cluster November 16, 2022: Why have investors lost interest in diamond exploration and what will it take to bring them back?
0:00:00) Slides 1-4 Introduction: It all started November 5, 2021 with a fax from Dia Met (Presentation PDF)
0:05:52) Slides 5-7 The Sheahan Diamond Literature Reference Compilation
0:07:39) Slides 8-12 The global diamond market and Canada's declining share
0:13:59) Slides 13-19 Reason 1 for lost diamond investor interest: Limited Story Paths for Rethink Plays
0:26:26) Slides 20-28 Reason 2 for lost diamond investor interest: Long Timelines for Exploration-Development Cycle
0:34:55) Slides 29-37 Reason 3 for lost diamond investor interest: Unreliability of Micro Diamonds & Indicator Mineral Chemistry in assessing target prospectivity
0:51:50) Slides 38-44 Reason 4 for lost diamond investor interest: Delayed outcome visualization & S-Curve: Grade does not indicate Value
1:01:44) Slides 45-47 Reason 5 for lost diamond investor interest: Diminished new field or cluster discovery potential except in difficult covered settings
1:05:39) Slides 48-49 Reason 6 for lost diamond investor interest: Title Risk in Frontiers
1:06:36) Slides 50-55 Reason 7 for lost diamond investor interest: Ethical Concerns - Natural vs Lab Grown
1:16:52) Slides 56-58 Who is left and where are they looking?
1:22:14) Slide 59 Arctic Star: An attempt at a diamond rethink story path
1:23:28) Slide 60 Younger Generation Obstacle: knowledge barrier and rules that prevent non-millionaires from participating in private placements, the primary funding mechanism for resource juniors
1:25:36) Slide 61-63 Lithium: the new kid on the block
1:28:01) Slide 64-66 Lithium Mania 2.0: The Pegmatite Hunt will be the new Diamond Boom
Q&A Discussion: about 40 minutes

The Vancouver Kimberlite Cluster is a seminar series sponsored by the University of British Columbia and SRK Consulting started in 2012 which presents a talk every one or two months on a topic related to diamond exploration. It used to be held in downtown Vancouver with a visit to a pub afterwards where participants could loosen up and say what they really think. Since Covid hit in early 2020 it has been a virtual event, which isn't as much fun after the main presentation and recorded Q&A, but it does allow people from around the world to plug in to the live event and participate in the subsequent Q&A. The presentations are posted on YouTube and you can access past events through the VKC Web Site.

Normally the presentations are done by technical people and academics, but UBC's Dr. Maya Kopylova, a diamond expert, asked me to do a presentation from the perspective of a market analyst who has closely followed the diamond exploration sector for the past three decades. Back in the nineties the Ekati discovery by Dia Met in the Canadian Arctic unleashed a tremendous exploration boom that went global and involved hundreds of juniors. Today there are less than a dozen still engaged in diamond exploration and they have a hard time raising capital and attracting investors.

Dia Met's brief Nov 5, 1991 News Release launched a 3 decade Global Diamond Exploration Boom

The Global Kimberlite Map as of 2010
Jim (0:04:05): In your presentation you contrast two diamond juniors, Arctic Star Exploration Corp and Craton Minerals. Why did you focus on these two companies?

Buddy Doyle's Arctic Star and Brooke Clements' Craton Minerals represent opposite ends of the exploration spectrum.

Craton Minerals, which is still private, is engaged in grassroots exploration in one of the few areas of North America which is prospective for diamondiferous kimberlites but has seen very little exploration. The reason is that this region does not have a sampling medium that allows regional exploration for indicator minerals which tell you that kimberlites which sampled the diamond stability field are waiting to be found. Craton has to rely on stream sediment sampling to generate peripheral clues and geophysical surveys to generate drill targets. Looking for kimberlite pipes, clusters and even fields through grassroots exploration was what drove the first two decades of diamond exploration. The problem 3 decades later is that this exploration wave was quite successful and while it is always possible to discover new kimberlites within known fields or clusters, finding a brand new cluster with world class scale potential in North America is doubtful except in areas like the Western Superior Craton. But back in the nineties the discovery potential in Canada was wide open. Only De Beers had made a serious earlier effort which included discovery of the Fort a la Corne and Attawapiskat kimberlite fields though nothing had resulted in a Canadian diamond mine. Ironically, the limitations of De Beers' own early assessment tools, micro diamond analysis and pyrope chemistry, delayed recognition of Victor's diamond potential. Brooke Clements has spent his career in diamond exploration and provided the VKC Dec 3, 2020 Presentation: Diamond exploration in COVID-19 times: challenges and opportunities which is an excellent tour of the past 3 decades of diamond exploration from the perspective of a diamond geologist.

Arctic Star is a public company which I featured as part of my September emerging discovery MIF session. About 5 years ago Arctic Star staked the Hardy Lake block next to Ekati and Diavik which De Beers dropped after holding it for more than 2 decades. De Beers discovered a couple dozen kimberlites within the first decade of Ekati's discovery using a combination of indicator mineral sampling and geophysical surveys. Many of the pipes were diamondiferous but De Beers did not see the scale needed for a standalone diamond mine and never took any of these kimberlites to the mini bulk sampling for grade stage. Apart from the location of the kimberlites De Beers has not shared any of the data generated by its exploration effort, which is a terrible shame. When the claims came open in 2016 Arctic Star grabbed them with the goal of demonstrating that there are kimberlites present which could become future feed for the Ekati and Diavik mines which are threatened with depletion within a decade or so. The strategy is to rethink the Diagras project in two ways: use newer geophysical methods to find pipes De Beers missed, and revisit some of the existing pipes which might me better than De Beers thought, or at least good enough to feed Ekati or Diavik. Part of the rethink strategy is the potential for high value gem diamonds within lower grade pipes.

Arctic Star has already been successful in finding 5 new kimberlites, one of which, Sequoia has yielded micro diamond results that suggest a macro grade in the 20-60 cpht range. It also appears to have a decent size. During Q2 of 2022 Arctic Star drilled additional holes to further delineate this body and beef up the micro diamond profile. The first step will be to confirm macro grade through mini bulk sampling. But the most important challenge will be to establish carat value. The problem with diamond pipes is that the lower the macro grade, the larger and thus more expensive a bulk sample you will need to get a representative parcel of diamonds. Arctic Star may also revisit the Finley pipe discovered by De Beers and on which it did the most work, though not enough to establish carat value.

The poster child for this rethink approach is Lucara's Karowe kimberlite in Botswana which De Beers discovered and named AK6 but discarded because it was small and low grade compared to the nearby giant Orapa pipe. Karowe ended up producing big and valuable type IIa diamonds such as Lesedi da Rona. Recent work by the GIA's Dr. Evan Smith suggests that these type IIa diamonds form deeper in the mantle and are unrelated to the peridotitic and eclogitic diamond populations which a kimberlite magma entrains and which represent the bulk of a diamond mine's output. His VKC February 27, 2019 Presentation: Origin of Type II diamonds and their super-deep genesis provides an excellent overview. In a recent VKC presentation Andy Moore made the case that the big diamonds with evidence of having formed spotaneously within a super deep metallic melt are only a fraction of the large gem quality diamonds that have been recovered. Dr. Andy Moore believes many of these "big diamonds" formed fairly quickly within the deeper portion of the lithosphere, possibly triggered by an approaching kimberlite magma which itself is not a source of diamonds. He provided the VKC October 5, 2022 Presentation: Framesite and CLIPPIR Type II diamonds - a link to the megacryst suite. This is not a trivial question because if Type IIa diamonds only form super-deep within the mantle courtesy of subducted ocean slab, the places where they might show up in a kimberlite with any meaningful abundance will be very few. But if they form in association with an eclogitic megacryst setting, which, unlike the peridotitic megacryst that features the G10/G9 pyrope garnets everybody has heard about, was also fed by subducted ocean slab, the locations where you might find Type IIa diamonds in meaningful abundance would be much more widespread. A lot of diamond experts are trying to figure out where and how such diamonds are formed, and whether there are any clues within a kimberlite's rock chemistry that point to the presence of Type IIa diamonds.

Arctic Star Exploration Corp (ADD-V)

Bottom-Fish Spec Value
Diagras Canada - Northwest Territories 2-Target Drilling D
Lucara Diamond Corp (LUC-T)

Unrated Spec Value
Karowe Botswana - Other 9-Production D

Two Diamond Story Paths: Craton Minerals Grassroots and Arctic Star Rethink

Arctic Star's Rethink of De Beers' Hardy Lake

Lucara's Karowe Mine discarded by De Beers as AK6 is the Rethink Poster Child

The Quest for Big Diamonds
Jim (0:13:30): What is the main message of your VKC presentation?

The main message of my VKC presentation is that investors are not interested in betting on a new kimberlite field or cluster discovery because of the long and expensive timeline needed to demonstrate economic value which always requires bulk sampling. If the juniors are to attract investor interest they need to revisit existing kimberlites and build a case why although not high grade they may have high value. A curse that seems to afflict Canada is that the combination which makes Jwaneng world class - high grade, high value carats and large tonnage - never happens. It's as if Canadian pipes can only have two of these features like the "fast, cheap and good" curse of IT solutions. My presentation walks through various kinds of diamond disappointments experienced by investors.

The heartbreaker was the Chidliak field on Baffin Island whose discovery benefited from sound exploration methods including indicator mineral chemistry and micro diamond analysis. This resulted in high grade kimberlites with high value diamonds but small tonnage, with the result that a project with an after-tax NPV of $450 million was acquired by De Beers for $110 million, a little more than Peregrine Diamonds and its partners had spent bringing the project through the PEA stage with bulk sample supported carat values. Because the historical exploration bias was towards high grade pipes, not much effort was invested in kimberlites that early on showed low grade potential. The future opportunity for juniors lies in revisiting large, lower grade pipes which have never been assessed for carat value. What is missing is a coherent argument based on micro diamond data and indicator mineral chemistry as to why high value diamonds may be present. This is the challenge that the exploration and academic community must overcome in order to bring investor interest back to diamond exploration.

Reasons why investors are not interested in diamond plays

Reasons why investors are interested in lithium plays
Jim (0:16:55): At the start of your presentation you talk about the Sheahan Diamond Literature Reference Compilation. What is that all about?

The Sheahan Diamond Literature Reference Compilation is the work of Patricia Sheahan who has spent the last 4 decades documenting every technical article relevant to diamonds, news releases by companies engaged in diamond exploration, and media articles about diamonds. She would assemble them into a monthly publication which she initially mailed for a fee, but when the Internet came along she emailed it as a free pdf to a list of about 400 people from around the world interested in diamond exploration. In 2015 I approached her with the idea of migrating all this information stashed away in excel spreadsheets into a relational database and post it online. It was a huge amount of work involving over 100,000 references but it is now available on KaiserResearch.com in the Diamond Resource Center which is free to the public.

You can check out everything published in each year. You can look up the references by individual author to see what he or she has published. You can look up references based on key words such as indicator minerals. And you can look up references by regions. If anybody wants to write a book about the past 40 years of diamond exploration everything is there. Stockwatch has all the news releases and Sedar, the government repository for regulatory filings, is a treasure trove of technical reports.

Pat also organized the March PDAC 1993 diamond short course which was hugely popular with resource junior geologists who literally knew nothing about diamonds other than that they were pretty and expensive. She also organized each year's PDAC diamond technical session, all of which I attended during the past 3 decades to learn the latest about the diamond industry. Unfortunately Pat learned in May that she has terminal cancer and is unable to continue the monthly reference compilation or run the next PDAC diamond technical session. My web site has a Collection of Tributes written by diamond exploration people which reveal what a vast impact Pat Sheahan has had on the diamond exploration sector. If PDAC were to ever consider somebody for its Mining Hall of Fame that wasn't a mine finder or builder Patricia Sheahan would be a perfect candidate.

The Sheahan Diamond Literature Reference Compilation
Jim (0:22:03): Your first reason why investors have lost interest in diamond exploration is that there are limited story paths for rethink plays. What do you mean by that?

Although I am best known as a resource junior bottom-fisher, what I really am is a story hunter. Yes, capital, structure and people are important, but the path to success is the value creation story. I use my KRO Search Engine to screen for capital, structure and people, but to figure out a junior's story you have to dig into the company's web site, corporate presentation and news releases. My four decades covering the exploration sector has given me an intuitive feel for the range of stories that answer the basic question: what are you doing differently from others before you that will be your path to fundamental success understood as a future mine? The simplest story path which is also the beginning for all other story paths is grassroots exploration, using various exploration methods to discover new deposits. Ekati was found in this manner. Almost the entire Canadian diamond exploration history of the past 3 decades was of this nature. It is what made diamond exploration exciting for investors during the 1990s and 2000s. But it has also created a sense that very little of world class scale remains to be found, at least in Canada. Angola, because it was trapped in a multi-decade civil war, is perhaps the only bluesky exploration frontier left in the world. But it is a difficult place for resource juniors to succeed because of Angola's history of corruption. Canada has, of course, been hit hard with grassroots exploration for over a century and while it is harder to make world class discoveries, that doesn't stop juniors from trying and attracting investors to precious and base metal plays, and these days also critical metals such as rare earths and lithium.

Earlier this year I created a visual story path template to make it easier to recognize the story paths juniors are pursuing. Most of the 100 plus resource junior buyouts during the China super cycle that ran from 2003 to 2013 were based on a rethinking of an existing deposit discovered in past exploration cycles and never developed for a variety of reasons, chief among which was that they were not economic at prevailing metal prices. The rise of China into the world's second biggest economy boosted metal demand by an order of magnitude, and after decades of declining real prices the resource sector experienced substantial real price gains that dragged many of these forgotten deposits into the money. The resource juniors, which used to be focused mainly on discovery exploration, expanded into feasibility demonstration. This so called Lumina model of a rethink play has not worked very well during the past decade as metal price trends flattened or retreated.

A more popular story path during the past decade is to rethink a mineralized system to see if it is bigger and better than previously understood. New geological concepts and exploration tools such as deeper penetrating geophysical surveys plus digital compilations are keys to success for these rethink style story paths. There is no shortage of such stories resource juniors can come up with and it is the investor's job to assess their plausibility.

The problem with diamond exploration is that kimberlites are mini volcanoes that exist as discrete deposits. Often they have internal complexity created by multiple eruptive phases. Dykes and sills are more like vein deposits except that like pipes there is no zonation nor are there any structural traps for concentrating metals from fluid flow.

Although diamond prices have increased over time, they are largely tracking inflation with demand following macro-economic trends. Gem diamonds have only one usage and that is vulnerable to fashion trends and increasingly ESG concerns which turn lab grown diamonds into cheaper competition. If a diamondiferous kimberlite has already been assessed as marginal, there really isn't an optionality play on dramatically higher real prices. Gold benefits from the dream that financial crises will dramatically expand ownership demand and raise real prices. Base metals like copper and nickel face expanded demand from an entirely new usage such as the electrification of the transportation sector driven by climate change policy.

The story path of looking deeper or along trend of an existing mineralized system for something better makes no sense for a known marginal kimberlite. You can explore for brand new pipes within a cluster, as Arctic Star is doing with its Diagras project, but you are not going to find a Jwaneng scale pipe because De Beers would not have missed it when it explored the Hardy Lake block. And while dykes may not have made it to the surface, all pipes did, and those that have been buried by younger sediments or volcanic flows are nearly impossible to find and certainly not with the help of indicator mineral chemistry.

One story path available for other metal deposits involves metallurgy, often a reason a deposit proved sub-economic. Coming up with a new processing flow-sheet can be a story path to success. The only rethink style story path for a kimberlite is the one demonstrated by Lucara for the Karowe pipe, namely demonstrating that the value of the diamond content is higher than previously assessed. Diamonds are unique in this regard because their value is based on the 4 Cs: color, clarity, carat weight and cut (crystal shape). Crush a 100 carat type IIa diamond and the total value of the pieces will be a fraction of the original stone's value. Because a kimberlite's diamond content can be a blend of unrelated diamond populations formed at different depths it is difficult to predict from micro diamonds or indicator mineral chemistry how the quality and size of considerably rarer high value diamonds will behave without the results of a bulk sample.

The rethink story path for a large, low grade diamond deposit is available, but a plausible argument that justifies the expense of a bulk sample does not exist. The argument that you cannot be sure type IIa diamonds aren't present until you spend the money on a bulk sample does not interest investors. If the academic community could develop a way to predict the "big diamond" potential from the kimberlite's rock chemistry, the rethink story path would become available to resource juniors. Chuck Fipke claims he has developed a method to predict "big diamond" potential based on kimberlite chemistry but he has not shared the basis for this claim. One has to ask, if his method is valid, why has his post-Dia Met diamond exploration vehicle Metalex accomplished nothing of value during the past two decades?

Dia Met's Ekati grassroots story path to success

Arctic Star's Digras proposed story path to success
Jim (0:27:11): Does lithium share this rethink story path obstacle?

Every story path is available for lithium pegmatites. What people generally do not know is that the rough diamond market was worth $6-$8 billion during the 1990s when the Canadian diamond boom started, and in 2021 had only grown to $14 billion. The uranium market was worth only $4-$5 billion in 2021 but it most of the story paths are available for uranium juniors. In 2015 when Lithium Mania 1.0 erupted as the market began to take electric vehicles seriously the lithium market was worth less than $1 billion. Prior to 2005 its annual value was only $100-$200 million because its usage was mainly for the glassware and ceramics sector. But in 2021 the world's lithium supply of about 100,000 tonnes metal was worth $18 billion at the average price of $15/lb lithium carbonate and with the price double that this year its value will have swollen to $40 billion. Various groups like Rio Tinto predict that annual lithium supply will have to grow ten-fold if policy goals of replacing ICE car sales with EV sales by 2035 are to be achieved. Those projections assume that the holy grail of a solid state electrolyte that allows lithium metal to substitute for graphite in the anode to make the lithium ion battery truly good will never happen. The current lithium price is not sustainable for the simple reason that EVs will never become affordable for the masses. But a long term price range of $10-$15/lb lithium carbonate, which is needed to justify mining hardrock lithium, suggests a future lithium market worth $100-$200 billion. That is huge, putting lithium in the same league as copper, gold and aluminum.

This emerging monster change allows resource juniors to embrace both grassroots and existing system rethink story paths. Numerous LCT type pegmatites have been documented over the decades as a by-product of exploration for other metals in places. Until recently nobody has ever explored specifically for new LCT pegmatites because the market was tiny and readily supplied by the giant Greenbushes deposit in Australia and the brine salars in Chile. Lithium Mania 1.0 involved grabbing and advancing the known pegmatites at which Australian juniors proved particularly adept, in fact so much so that their supply helped crash the lithium carbonate price below $3/lb in 2018.

In 2021 EV demand caught up and surpassed lithium supply, driving the lithium price up ten-fold. Now the carmakers have gone beyond the point of no return with their EV plans, and policy mandates in places like California and Europe have been cemented. Hundreds of billion dollars are being invested in gigafactories and even lithium refineries for converting spodumene concentrates into battery grade lithium chemicals. But only now are car and battery makers waking up to the problem of where the lithium feedstock is going to come from. You can zone and build a gigafactory or refinery within two years, but discovering a new deposit and turning it into a mine requires at least ten years. An intense urgency is building about future lithium mine supply. Even if we suffer a nasty recession next year which dampens precious and base metal prices, extending the current bear market for juniors, the lithium supply problem will be unaffected and Lithium Mania 2.0 will attract investors who get the story. Grassroots exploration within pegmatite trends and the rethinking of known pegmatites are equally valid story paths to success.

The recent and anticipated growth of lithium demand is staggering
Jim (0:35:16): Why are long timelines for the exploration-development cycle a problem for diamond plays but not lithium plays?

Diamond projects have long timelines for two reasons. One is the nature of diamond deposit evaluation which does not deliver an indication of economic value until the stage where a junior with almost any other metal deposit is already doing cost discovery in the form of economic studies such as a PEA. The other is that government agencies do not feel any urgency in timely approval of a new diamond mine. Diamonds are not perceived as essential for anything other than generating revenues. Lithium exploration reveals the size of the prize with the first few drill holes. The rock value isn't as easy to calculate as it is with a gold or copper intersection, but investors will soon enough figure out how to do it. Eyeballing the tonnage footprint of a pegmatite will be a lot easier than trying to figure out the tonnage potential of a high grade gold system. Pegmatites have shapes ranging from narrow parallel dykes to fairly wide elongated bodies. The latter are preferable to support open pit mining. Compared to sulphide metal deposits pegmatites are environmentally benign.

Grades of 1% Li2O or higher have a rock value of $545/tonne at $10/lb lithium carbonate and $1,636 at $30/lb. That's equivalent to a gold grade ranging from a third of an ounce to one ounce per tonne. Where is a junior going to come up with a 100 m intersection grading 1 opt gold? It is possible that lithium carbonate prices rise higher in the interim while new lithium supply is not yet matching demand growth, and that will make investors crazy. Lithium pegmatites can be turned into a resource estimate within a year, during which metallurgical studies can also be done because they outcrop or are close to surface. Governments recognize the urgency of the lithium supply problem in the context of climate change and are not going to let their permitting bodies drag out the permitting cycle just because they can. The window to identify the future mines is the next 3 years, with economic studies and permitting unfolding 2025-2028, and mine construction in 2028-2030 so that the lithium supply is available when EV demand goes exponential in the 2030s. As they say where there is a government will there is a permitting way.

Jim (0:38:12): Why are micro diamonds and indicator mineral chemistry unreliable in assessing diamond targets? What tools are available for assessing pegmatite targets?

Pegmatites are spawned like magmatic missiles from granitoids in a continental collision setting. During the mini magma's journey something called fractionation takes place, which is the concentration of certain elements within the magma. Pegmatites that chill close to the granite source tend to be barren with just background levels of critical elements. But as they travel abroad from the granite source they become enriched. There are various types of enriched pegmatites but the one of interest to the lithium sector are the LCT type, which stands for lithium-cesium-tantalum enrichment. The pegmatite magma cools slowly which allows big crystals to form, of which the most common minerals are spodumene, petalite and lepidolite. These minerals need to be processed into a concentrate which must then be cracked to liberate the lithium, similar to what needs to be done with rare earths. Petalite is the lithium mineral historically mined because it has a higher purity than spodumene which makers of glassware and ceramics prefer. But a petalite concentrate hits a maximum of about 3.5% lithium compared to 5%-6% for spodumene which is why spodumene concentrates are preferred by refineries that convert concentrates into battery grade lithium hydroxide or carbonate.

The lithium grade of a pegmatite is measured by assaying drill core. Because lithium's value resides in its elemental properties the physical form in a deposit is irrelevant except in terms of the cost to extract and purify the lithium. Because pegmatites consist of quartz and feldspar they do not show up in geophysical surveys though when they outcrop they are visually very distinctive. Pegmatites that are not exposed are difficult to develop as targets. When a company talks about doing geophysical surveys the goal is to identify structures which formed paths of least resistance along which the pegmatite magma traveled and crystallized within. While pegmatite bodies are visually distinct from the surrounding country rock, this does not tell you if they are LCT enriched. Assaying a rock sample will provide a grade, but that can take 8-12 weeks.

Geologists consequently use an XRF unit to read the X-ray fluorescence generated by the various elements in a rock. This portable "gun" costs about $50,000 and is very useful for assessing base metal grades. It does not work for gold, nor for lithium. However, rubidium, which has very few commercial uses, is always present in LCT pegmatites and its presence can be detected with an XRF gun. Field geologists use the XRF gun to prioritize pegmatites for sample collection. If assays indicate a decent Li2O grade, ideally 1% or higher, and the pegmatite body appears to have decent tonnage potential, ideally 5 million tonnes or higher, then it becomes a drill target. The lithium assays tell you very quickly whether you have a development candidate.

While pegmatites tend to be harder than the country rock, they can be covered by swamp, overburden and vegetation. In glaciated terrains, such as Canada, the pegmatite will have been eroded by the ice sheets and theoretically there should be pathfinder elements that till sampling can identify and trace back to the source. However, lithium crystals don't travel far before breaking down and diluting to background levels. Rubidium, however, will show up in lake bottom sediments at elevated levels at quite a distance from an enriched pegmatite, and geologists can use this data to ballpark the general source area for LCT type pegmatites. But at the end of the day it is all about drilling and assaying.

Kimberlites form as magmas in the mantle. As they work their way through the lithosphere towards the earth's surface where the magma either chills out as a dyke or erupts as a mini volcano, the magma will encounter diamonds that form in various parts of the diamond stability field which is a combination of pressure and temperature that allows carbon to crystallize into a diamond with an octahedral crystal structure rather than form graphite with a hexagonal crystal. Sometimes the diamonds grow around other mineral crystals which we call inclusions. Scientists extract these inclusions and document their chemistry. The two most important inclusion types are pyrope garnets better known as G9s and G10s which are associated with peridotitic diamond populations, and eclogitic garnets associated with eclogitic diamond populations which exhibit a carbon isotope formed only when exposed to sunlight. Through careful studies led by people such as John Gurney the diamond sector has been able to establish which garnet chemistry only forms under the same conditions that foster diamond formation. But while indicator mineral chemistry will tell you that a kimberlite magma sampled a part of the lithosphere favorable for diamond formation, it cannot tell you whether diamonds were present, what their quality might be, nor how much was entrained by the magma. Furthermore, diamonds with an eclogitic paragenesis will have formed at a different depth than those with a peridotitic paragenesis, but the kimberlite magma may have picked up both populations and mixed them.

Once a kimberlite is discovered the next step is to assess the micro diamond content which involves dissolving the kimberlite sample with caustic fusion which leaves behind the diamonds and other heavy minerals. The diamonds have to be picked out of this concentrate and then they are measured through a sieve system. Diamond crystal abundance has a lognormal distribution which means there are a hell of a lot more tiny diamonds than diamonds big enough to cut and polish for setting in a piece of jewelry. During the first decade of the diamond boom juniors reported micro diamonds as micro and macro counts based a 0.5 mm measurement in the longest dimension. This was nonsense started by Dia Met and copied by everybody else even though there is no scientific basis for predicting macro grade on the basis of an arbitrary 0.5 mm distinction. The Torrie pipe was the first of many macro-micro based disappointments generated by this disclosure method. The controversy over Winspear's Snap Lake dyke in 2000 coincided with the arrival of a new square mesh sieve based reporting standard that CIM formalized in 2003. Snap Lake proved to be high grade in the 150-200 cpht range which was established by bulk sampling. Winspear never reported micro diamond results using this standard, but when Diamondex was spun out to hold the down dip extension of the dyke on the King property and it drilled a deep hole, we did get a micro diamond curve that shows what a high grade kimberlite should look like.

Today the term "macro" diamond is only used to refer to diamonds large enough to be cut, polished and set in jewelry. Only a very high grade kimberlite will yield micro diamonds that qualify as macro diamonds caught by a 1.18 mm sieve unless the sample is in excess of 1,000 kg, far more than a typical kimberlite drill intersection weighs. There are complex calculations for projecting the macro grade from micro diamond distributions but I use a simple system where I normalize the counts per sieve to a per tonne basis and plot them on a log scale against the sieve sizes. Since 2003 when CIM formalized the guideline for reporting micro diamond results I have been able to build a database of micro diamond curves for kimberlites whose macro grade has been established by at least mini bulk sampling. In principle, the higher and flatter the curve, the higher your grade will be. But there are lots of things that can go wrong with this approach. One is that for lower grade kimberlites the sample tested may not be large enough. In some cases the micro diamonds are depleted, which almost caused De Beers to overlook the Victor pipe which turned out to be large with a 25 cpht grade and high value diamonds. The worst part about micro-diamond based grade projections is that it is not enough to allow you to calculate rock value as you can with a lithium pegmatite.

Original micro-macro distinction based on 0.5 mm in longest dimension was worthless

Winspear's Snap Lake marked the transition to a new micro diamond reporting standard

The CIM Micro-Diamond Reporting Guidelines became official January 1, 2003
Jim (0:46:13): What is an S-Curve and why does it happen at a later stage for diamond plays than for other metals such as lithium?

(Jim's question and the start of my response is missing from the audio). Investors love discovery focused resource juniors because they typically start with a low valuation, but if they pull a discovery hole that justifies advancing the target to the discovery delineation stage, the stock's value can expand 5, 10, or even 100 times very rapidly. I call this S-Curve action and it has also been called the Lassonde Curve. The exploration-development cycle involves 9 stages from grassroots through production. My rational speculation model assigns an uncertainty range for each stage. As exploration moves a project through the various stages the uncertainty about what the outcome will look like and be worth diminishes. The market's ability to dream fades away and market valuation reverts to the betting principle that what you should pay now is the certainty of an expected outcome multiplied by the value of that expected outcome. But during the early stages of a new discovery the market does not know what the limits of the outcome will be.

With a typical metal discovery, and this includes lithium, you can calculate the rock value of a discovery hole by multiplying the grades by the metal prices that you can look up. You can then do a tonnage footprint guess by calculating the volume represented crudely by length times width times thickness in metres, and then multiplying the volume by the specific gravity which is 2.6 for a typical host rock like granite or 4.0 if it is a massive sulphide zone. There is lots of information about the cost of building and operating a mine published through other companies' economic studies, so it is possible for non-engineers like myself to create an outcome visualization.

An OV is a simple life of mine discounted cash flow model that generates an after-tax net present value. I then multiply that potential outcome by the uncertainty range for the stage of the project to get a fair value range for the discovery. At the discovery delineation stage that certainty range is only 2.5%-5.0%, so if you think you have hooked a prize with a $1 billion size, the implied project value should be in the $25-$50 million range for the stock price to represent fair speculative value. If the stock started with a $5-$10 million implied value, that means the discovery will have handed you a very quick 5-10 bagger gain. But S-Curve action is even better. Until the limits of the discovery are known, under the right market conditions investors may speculative that the size of the prize could be $10 billion. So the stock may reach a $1 billion implied value during discovery delineation.

Strangely, what I have observed in the case of what turns out to be a valuable mine, is that the future value eventually established by the entire exploration-development cycle will have been reached by the S-Curve peak valuation during the discovery stage. The lithium pegmatite hunt is primed for S-curve market dynamics because at current lithium carbonate prices the rock value of a 1% Li2O plus grade is very high, pegmatites will be open-pit mined, and while you can see some of the dimensions at surface, usually there is room to imagine that there is a lot more beneath the surface. And there are enough economic studies for Canadian lithium pegmatite projects to allow me to construct an outcome visualization.

Unfortunately, this does not work for diamond plays because during the discovery delineation stage you may get tonnage and projected macro grade, but the carat value will not be known until after stage 4 is completed. With metal deposits stage four involves infill drilling to support a resource estimate and preliminary metallurgical studies to support a PEA in stage 5. With a diamond discovery the junior spends stage 4 conducting mini-bulk samples to convert macro grades projected from micro diamond data into measured macro grade. This level of bulk sampling does not yield enough diamonds to allow a meaningful assessment of carat value. That comes in stage 5 when a large and expensive bulk sample is extracted to yield a parcel of diamonds big enough to allow valuation.

During the 1990s diamond plays experienced S-Curve market action during the kimberlite discovery stage based on indicator mineral chemistry and micro diamond results. Today investors know better and are unwilling to engage in S-Curve style speculation until some understanding of grade and carat value has been achieved. Because it is so expensive both in cost and time to establish the carat value of a new diamond bearing kimberlite discovery, the diamond juniors gets stuck on a dilution treadmill because the stock price does not rise. This deferral of S-Curve dynamics is the biggest reason investors have lost interest in diamond exploration plays.

Dia Met's Ekati experienced S-Curve action much earlier than it would today

The Rational Speculation Model and S-Curve Dynamic for most metal plays

Today S-Curve is not possible for diamond plays until stage 5 when carat value is established

S-Curve contrast between a diamond and precious-base metals play
Jim (0:52:22): Why is there diminished discovery potential for new kimberlite fields but not pegmatite fields?

Since the Ekati discovery in 1991 billions have been spent exploring Canada's cratons using till sampling in glaciated terrains or testing geophysical targets in places like Alberta's Buffalo Hills and Saskatchewan's Fort a la Corne region. The best discoveries have been developed as mines. Some have failed. Some like Victor were depleted. And the two biggest operations, Ekati and Diavik, are facing depletion and reclamation within a decade unless brownfield exploration reveals new development candidates. There are few places left to look for a new kimberlite field or cluster that might contain a Jwaneng scale kimberlite. Exploration is limited to poking around within known clusters for pipes that may have been overlooked, or perhaps revisiting known kimberlites with low grade implications. The Chidliak experience has taught Canadian investors that finding high grade kimberlites is not good enough if tonnage is small. I think a revival for rethinking lower grade kimberlites with the goal of demonstrating that they contain high value "big diamonds" is possible, but what is still missing is an early stage, low cost argument as to why a low grade kimberlite might contain high value diamonds.

The opposite is the case for lithium pegmatites which occur in settings similar to where kimberlites occur. Lithium pegmatites were geological curiousities because the lithium market was tiny for decades compared to the diamond market. But the shift to electric vehicles is changing the lithium market dramatically. Not only is every known pegmatite being revisited to see if it is LCT type, but exploration is now surging in areas that are prospective for LCT enriched pegmatite fields. For example, take southern Finland. Pegmatites were quarried for feldspar and never considered as lithium mines. All that is changing and fleet-footed resource juniors like Brunswick Exploration are going to become champions.

Peregrine's fundmental Chidliak outcome redeemed diamond exploration

The economic reward for shareholders broke the diamond exploration market's heart

What is left to keep Canada in the diamond production game?
Jim (0:55:14): How does title risk in exploration frontiers differ between diamonds and lithium?

Canada no longer qualifies as a major diamond exploration frontier. Russia could qualify but not even De Beers can operate in Russia. During the first decade of the diamond boom a junior called Archangel Diamonds discovered the Grib pipe in the Archangel region just east of Finland. It was large, high grade and had high value diamonds. De Beers invested over $35 million in Archangel in order to assess the Grib discovery. At the end of the day the 49% interest to which Archangel was entitled was simply never transferred. An oil producer called Lukoil ended up owning the Grib pipe. Angola is the best remaining diamond exploration frontier because during the first two decades of the global diamond exploration boom it was trapped in a civil war. That war is over, but Angola is also among the most corrupt African nations. Lucapa has dared to explore in Angola, but for most resource juniors Angola has too much title risk.

Exploration of lithium pegmatite fields is a frontier in its own right, and the best potential is in secure jurisdictions like Australia, Brazil, Canada and Scandinavia. The biggest risk will be in the form of NIMBY and First Nations opposition.

Archangel's Grib Discovery - Large, High Grade & High Value - was stolen by Putin's Russia

True diamond exploration frontiers like Angola are too risky for resource juniors

Lithium Pegmatite Exploration Frontiers are most in low title risk jurisdictions
Jim (0:58:14): Why do diamonds raise ethical concerns but not lithium?

Civil war during the nineties in places like Sierra Leone and Angola was bankrolled by rebels through the mining of alluvial deposits with forced labor. Initially called conflict diamonds, these illegally mined diamonds became a marketing nightmare for the diamond sector when they were rebranded as blood diamonds by the likes of Leonard DiCaprio. The Kimberley Process was established to allow differentiation of properly mined diamonds from conflict diamonds so that consumers could be confident their purchases were not supporting brutal conflicts.

More recently, however, the ESG movement has turned its attention to the carbon footprint of mining in general. There is plenty of anti-mining hand wringing about future lithium mines, but because lithium is essential to the new generation of electric vehicles, one has to accept tradeoffs. As one article recently pointed out, why should we fret about future small open pit lithium mines when the future tradeoff of climate change mitigation is the elimination of open pit mining. Mining companies are making an effort to reduce their carbon footprint and this includes diamond mining.

However, diamond mines have a problem because natural gem diamonds are not essential to the world's future. One can argue that diamond mines in many parts of the world support local communities. What would Botswana be like without its Orapa and Jwaneng diamond revenue? The threat to diamond exploration comes from the emergence of lab grown diamonds where chemical vapor deposition technology allows gem quality diamonds to be manufactured from basic carbon sources. The younger generations, in so far that they are interested in the cosmetic aspect of diamond jewelry, are quite happy buying cheaper lab grown diamonds. Investing in diamond exploration for future mines that will likely have a carbon footprint makes no sense to them. But investing in lithium exploration so that there is adequate future lithium supply to replace ICE car sales with EV sales makes a lot of sense. And betting on the next big lithium discovery as a way to make a lot of money while helping save the planet has to be much more attractive than betting on the greater fool scam called crypto.

Ethical concerns have shifted from conflict diamonds to the carbon footprint of mined natural diamonds

Only a dozen juniors still engaged in diamond exploration

More than a hundred juniors exploring for lithium and the list grows every day

Sigma Lithium and Brunswick Exploration at opposite ends of the exploration-development cycle

Lithium Mania 2.0 with its focus on the Pegmatite Hunt is on the verge of inflecting
Disclosure: JK owns Brunswick Exploration; Arctic Star and Brunswick are Bottom-Fish Spec Value rated

Posted: Nov 18, 2022JK: Kaiser Watch November 18, 2022 with Jim Goddard and John Kaiser
Published: Nov 18, 2022KRO: Kaiser Watch November 18, 2022: Is Twitter good for Resource Juniors?
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.

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Kaiser Watch November 18, 2022: Why is Twitter good for Resource Juniors?
Jim (0:00:00): Will Elon Musk's ownership of Twitter change how you use Twitter?

The Twitter controversy is mainly about how it is used to spread mis-information and hate, and to what extent Twitter should try to moderate the worst abuses. It is possible that under Elon Musk Twitter could become a free for all that channels online and physical harm at people. But Twitter is also used by dissidents to push information into the public domain which has made abusive governments like Iran very unhappy and eager for access to the actual identities of such people. Elon's quest for cash flow may require accommodating the demands of thug governments. Twitter could see a big drop in membership usage. But none of that affects me because I only use Twitter Kaiser Research as a notification system. The public can choose to follow or unfollow me at its leisure.

When I publish a Kaiser Watch Episode I also create an unrestricted blog comment on my KaiserResearch.com web site which includes links to its location on YouTube. I include written comments and graphics with the blog comment to illustrate the audio version on YouTube. It is also set up so that if somebody is just interested in the Bell Copper question they can click on the YouTube link and start the audio at Bell Copper. I then tweet a link to the latest KW Blog comment which alerts my followers that the latest KW is available. This brings them to my web site which does not require blue check verification. I use Twitter as a one way broadcast system.

I also include the Twitter handles of companies that I mention so that people can go to their profiles and find out more. I am busy collecting corporate Twitter handles and adding them to the KRO profiles so that members who use the KRO Search Engine to research the juniors can easily follow those companies that interest them. I myself follow the Twitter accounts of companies that interest me because I expect these companies to tweet whenever they have a press release or new presentation on their web site. The tweet should include the headline and a link so that I can go to their web site and review the new content. I also like it when they tweet a link to third party web site hosted content relevant to their story. Public companies should not engage in Twitter conversations with their followers. Like me they should just use it as an alternative to email.

Email is dead as a notification system. Spam filters, opt-in requirements and blacklisting have made email unreliable as a one to many broadcast tool. The fact that my Twitter feed is polluted by sponsored tweets sucks, but anything that is truly free won't survive. There is always a price.

I encourage resource juniors to set up a Twitter account and use it as a notification system, not just because it dispenses with the headaches of email, but because it also allows organic audience growth. Kaiser Research is a membership fee based information portal for whose content I alone am responsible. But I also run a Slack Forum. New KRO members are sent a slack invite that allows them to register for KaiserResearchOnline at Slack. I've created 30 theme based channels into which I post off the cuff comments and links to anything new I have posted on KRO. Members can also post links, ask questions, engage in conversations. If anybody becomes uncivil or uses it to pump some garbage I can deactivate their membership. Most KRO members just lurk and read. A small percentage are active posters. This is where I engage in conversations.

There are no advertisements. It is like a private forum on CEO.ca, except nobody is running analytics to extract knowledge from our private activity. Slack is not free. It is now owned by Sales Force and its target market are businesses whom it wants to charge $10 or so per month for every employee that is a member. Because Slack facilitates collaboration and direct messaging this $120 annual cost per employee is a good deal. But it would be a quarter of the annual $450 membership fee which is not a good deal for me. Slack is free to me and my members because there is a price. It used to be that only the last 10,000 posts were visible, which, based on the level of activity in my Slack space, meant that only the last year's posts were visible. In September Slack switched to a new policy where it displays only the last 90 days of posts. This means KRO Slack will be mainly useful to KRO members for current conversations. That still is hugely useful to me and my members.

I mention Slack because the real value of Twitter for myself and resource juniors is that Slack is an example of the millions of social media clubs out there whose members engage in conversations. Slack is ideal for an investment club run by a moderator who also controls who has access. Public forums like Stockhouse and Hot Copper in Australia inhibit thoughtful posting because there is an army of anonymous pumpers and bashers ready to trash the poster or pollute the thread. Twitter is the place where influencers hang out to market products and ideas. Some of these influencers follow the resource juniors and develop their own following. When they receive a tweet they like they can publicly like or retweet it to their followers, who in turn can do likewise. Or, when they are members of a social media club such as KRO Slack, they can post the tweet link or the tweet's embedded link in the channel where appropriate.

The benefit for resource juniors is that their audience can grow virally with only the effort of tweeting the latest news release, corporate presentation, or third party web site link relevant to their story. And it doesn't cost them a penny.

Example of Interactive/Collaborative Activity in KRO Slack
Jim (0:09:30): Is Bell Copper any closer to resuming work at its Big Sandy emerging copper discovery?

Kaiser Watch October 6, 2022: Cheering for Bell Tower Endurance has graphics and a good description of Bell Copper's Big Sandy story so I include only a couple here. The question then was financing needed to resume drilling at Big Sandy. On November 15 BCU bit the bullet and announced a private placement to raise up to $3 million by offering 25 million units at $0.12 with a full 2 year warrant at $0.20 whose expiry will be accelerated to 30 days if the stock's VWAP price is $0.40 or higher for 20 consecutive trading days. If it closes in its entirety this would push fully diluted to 204 million shares. This is not an automatic trigger because BCU will have 20 days after it is hit to make it effective.

The potential 50 million share dilution is a disappointment in light of the stock trading in the $0.30-$0.70 range in February through March after announcing that hole BS-3 encountered 287 m of chalcocite mineralization at a hole depth of 1,302 m in the Big Sandy target. The stock had jumped from the $0.20 level because the market interpreted this intersection as confirmation that the truncated top of the Diamond Joe porphyry root 13 km to the southwest across a basin had finally been discovered. Explorers have searched in vain for decades for the missing top because the width of the root and the remnant mineralization indicated a world class scale porphyry deposit. Arizona's basin and range faulting assumed that the top had slid to the east and was lurking somewhere under the gravels of the 13 km wide basin valley through which the Big Sandy River flows. Even Bell Copper under Tim Marsh took a crack at it a decade ago but gave up when the bedrock proved a couple thousand metres deep. The conclusion was that wherever it ended up, it was too deep and expensive to find, and perhaps too deep to mine, even though it had the potential for a copper rich supergene enrichment blanket above the primary copper zone.

Marsh shifted BCU's attention to finding the missing top of the Wheeler Wash porphyry stock farther north which used to be called Kaaba but is now called Perseverance. Robert Friedland's Cordoba Minerals optioned it in 2018 and has yet to find the missing top. Bored with waiting for Cordoba to find the prize and meditating on what the effort was revealing, Marsh decided in 2020 to revisit Diamond Joe. This time he went all the way across the basin, much farther east than he had ever imagined the truncated top could have wandered, and started exploring the range front east of the Big Sandy River. There he observed exotic copper of the kind that forms when groundwater dissolves copper, carries it towards the surface, and precipitates the copper in rocks unrelated to the original porphyry system. This is different from a supergene enrichment blanket which forms when circulating groundwater leaches primary chalcopyrite and drops its copper payload as another sulphide called chalcocite father down. This repetition leaves the upper part of the zone barren but enriches the copper grade of the deeper chalcopyrite zone.

Since there wasn't any room for the Diamond Joe top in the eastern range, Tim Marsh came to the stunning realization that it must be buried east of the Big Sandy River near the eastern edge of the basin, over 13 km from the source. So he staked the Big Sandy claim, whose outlines he has never revealed in any corporate graphics, conducted an MT survey which indicated a major conductive body at 400 m depth, and started a drill vectoring strategy. The conductor turned out to be fake, probably caused by clays in the basin, and bedrock proved 1,000 m deep. This first hole hit the edge of a porphyry system, confirming the truncated Diamond Joe had traveled this far east. The second hole hit older country rock that the Diamond Joe had intruded and would have traveled with the porphyry zone when it faulted off the root. The third hole excited the market because the presence of a leach cap followed by supergene mineralization confirmed that the missing Diamond Joe head had finally been found.

Tim, however, knew, with the help of his XRF gun, that the grade was not going to be the 0.6% plus copper needed to support an underground block-caving operation and he made no secret about that. But as the hole passed into the underlying primary chalcopyrite zone it was too low grade to have been the source from which the chalcocite grade was enriched. It resembled the pyritic shell which flanks the richer primary copper shell that is draped around the low grade core of a porphyry stock. This led him to conclude that the chalcocite enrichment was partly created by lateral flow from the center of the stock. He had also observed that the Diamond Joe top was tilted, with the unfortunate result that hole BS-3 hit bedrock deeper than where the fully enriched blanket would be located. But because of the tilt angle it was possible that if he pushed BS-3 deeper it might hit the edge of the primary copper shell, delivering definitive confirmation of Diamond Joe's location. He pushed the hole another 524 m to a depth of 2,026 m, but the copper mineralization never improved and he finally quit the hole. After surveying the hole he understood why, namely that the angled hole had straightened and was in effect coring parallel to the primary copper shell if it was where he expected it to be. The key benefit was that he now knew exactly where to spot the fourth hole to hit the supergene blanket above the primary copper shell.

When BCU reported 200 m of 0.42% copper for the chalcocite zone and 524 m of 0.16% copper for the chalcopyrite zone the market reacted very negatively because together they seemed to suggest a low grade copper system that could only be mined underground and thus had zero economic potential. Part of this reaction was due to the resource sector having finally also gotten caught up in the 2022 equity market decline, but also because the market did not understand the geological context. For that Tim Marsh was partly to blame, because although his written descriptions made sense to competent geologists, who realized Marsh had landed a major emerging copper discovery, lay people need cartoons to understand geological word salads. Later in the summer he capitulated by creating graphics for the presentations he was giving to geology societies whose members like retail do actually prefer staring at cartoons rather than converting words into mental graphics. But by then the market perception damage had been done, and the cost of pushing the hole to 2,026 m had left the junior with a near empty treasury. By the time he secured a permit and a special rig to pre-collar hole BS-4 through the gravel, which should reduce the prior hole's 3 month gravel drilling ordeal to 1 month, the market was no longer interested, and majors which had signed NDA's were distracted by the declining copper price. And so in mid November Tim Marsh bit the bullet so that he could drill what could be a make or break hole.

The financing, while appearing hideously dilutionary, is well thought out. First of all, the press release says up to $3 million. Closing is not conditional on all $3 million being raised. Bell Copper will close it in tranches. If it all comes in at once, so be it. But if $1 million comes in the door quickly, Bell will close that tranche and start hole BS-4. The hope is to start BS-4 in early December so that it is poised to intersect bedrock in early January. Once that milestone is reached BCU will close the financing because the visuals will reveal lots about how the hypothesis is playing out. The private placement has a four month hold, so it won't be free trading until April, and even if the trigger is reached in Q1, BCU is unlikely to pull the trigger until the four month hold is over. By March BCU would be in a position to report visuals, setting the stage for assays by June.

BCU has 9,648,922 warrants at $0.25-$0.26 from earlier financings that expire in March through June of 2023 (mostly in early June) which could raise about $2.4 million. If the results are good enough to allow the stock to trade above $0.40 and generate the trigger, it would be wise for BCU to pull the trigger, because clip and flippers will be tempted to dump their $0.12 stock. A discovery hole that inflects Big Sandy from emerging discovery to confirmed discovery, unleashing S-Curve speculation, would bring in new buyers that can absorb the selling created by placees being forced to exercise their $0.20 warrants. If the older and accelerated warrants end up exercised, BCU would start H2 2023 with an extra $7.4 million in the bank, and no warrant overhang left. With 204 million fully diluted and 100% ownership of Big Sandy confirmed as a major new copper discovery in Arizona, the stock, carrying an implied value of only $100 million at $0.50, would have upside room to deliver a 5-10 bagger as BCU gets to work delineation drilling the new discovery.

Bell Copper Corp (BCU-V)

Bottom-Fish Spec Value
Big Sandy United States - Arizona 3-Discovery Delineation Cu Mo

Aerial View of the Diamond Joe Displacement Hypothesis at Big Sandy

Geological Cartoon of Big Sandy Target
Jim (0:24:13): Can you give us a summary of Verde Agritech's third quarter conference call?

The third quarter financials were released on Monday Nov 14 and the conference call was held Thursday Nov 17. The entire call was 1 hour 17 minutes. The first 21 minutes has the CFO going through the results. In summary for the first 9 months of 2022 NPK has generated CAD $63 million in revenues, almost 3 times that for last year, and generated $23 million in cash flow, almost 5 times last year. In terms of volume they have sold 503,000 tonnes of K Forte compared to 266,000 tonnes last year. The stock, which almost hit $8 on Monday, has since retreated below $6. The best explanation is that the market has realized that NPK may not make its revised 2022 guidance of $87 million revenue and $31 million cash flow. Plant 2 is now fully operational at its 2.4 M tpa capacity, bringing total capacity to 3M tpa, but the road access problem that emerged in early September and was not fixed until late October cost the company over 100,000 tonnes of K Forte in cancelled orders because it could not be delivered from Plant 2. Q4 and Q1 are low demand quarters because it is the rainy season and if the farmers don't have the fertilizer in time they won't need it until the next planting season which starts in Q2. Cris Veloso made it very clear that the company is working very hard to meet its 2022 guidance of 700,000 tonnes which is a warning to the market that when the full year results are announced in mid April they may fall short of guidance. As far as I am concerned it doesn't matter to me because it was always optimistic that Plant 2 would be operational in time to ship K Forte during the third quarter. The company is now positioned to expand sales and revenues four-fold in 2023 and by the time we get the annual results the market will be focused on the extent that orders have been booked for delivery in Q2-Q3.

The interesting part of the conference call was the nearly hour long Q&A. Here are a few themes that caught my attention.

The first batch of questions were of a technical accounting nature. I am not a financial analyst so these sorts of questions are boring. But they are an important sign that Verde Agritech has graduated into the league of an operating company and is attracting analysts who care about revenues and costs.

Verde Agritech attracted a lot of market attention earlier this year after Russia invaded Ukraine and concern arose about Russian and Belarusian potash supply which is about 37% of global output. Potash, however, was never put on the sanctions list, and Belarus managed to figure out an alternative route to market when Lithuania stopped being a transportation corridor. The Brazilian ports are now bulging with potash and some of it is being diverted to other countries. The price, however, is still $740/t KCl, well above the $360/t the company uses in its feasibility study. NPK's pricing strategy allowed Plant 1 to operate at capacity, and in May NPK boosted its guidance on the expectation that Plant 2 would be operational by July, but it didn't happen until late August, and then came the water problem that prevented them from operating Plant 2 while they built a new bridge and upgraded the access road. Apparently NPK has only 15,000 tonnes of storage capacity, so its plants operate only to fulfill orders that can be immediately trucked to farmers.

There were several questions about providing K Forte in a granular form which is the form preferred by the bigger farms. Apparently there is a limit to how much powdered K Forte NPK can sell to farmers, but apparently that limit will not be hit by the current 3M tpa capacity. The problem with converting K Forte powder into a granular form is that it requires adding water and a binder to the powder and then drying the result to remove the moisture. Drying is a significant cost and the company has been researching a method to create granular K Forte that avoids the drying step. Their bigger concern right now is boosting sales to 3M tpa and they are planning to use discounted prices for Q4-Q1 deliveries which is shaping up to be a difficult period for all fertilizer companies.

There was a question about BioRevolution being sold at a 90% discount from its list price which CV explained was necessary to persuade farmers to try out the microbe loaded K Forte as a soil rehabilitation strategy. That makes sense because this is a brand new concept and farmers will want to see it work before committing to use it.

There was a question about carbon credits which the company is exploring and which is a benefit of Lula's election and Brazil's pivot back to caring about climate change.

There were also questions about the US listing with no definitive timing offered though they are still working on it. They are also close to unveiling a brand new web site which will include translations of the 100 Portuguese testimonials about the efficacy of K Forte. That in itself could help investors overcome concern about how quickly sales grow in 2023.

Verde Agritech Ltd (NPK-T)

Good Spec Value
Cerrado Verde Brazil - Other 9-Production K

Verde Agritech Q3 & YTD Income

Verde Agritech Q3 & YTD Operational Summary

Verde Agritech Quarterly History 2018-2022

Verde Agritech Yearly Product and Revenue History

Verde Agritech Yearly Cash Flow History 2018-2022

Potash and Diesel Price History
Disclosure: JK owns Verde Agritech; Verde Agritech is a Good Spec Value rated KRO Favorite; Bell Copper is Bottom-Fish Spec Value rated

Posted: Nov 10, 2022JK: Kaiser Watch November 10, 2022 with Jim Goddard and John Kaiser
Published: Nov 10, 2022KRO: Kaiser Watch November 10, 2022: Canadian Stupidity & Hypocrisy
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.

Podcast Download

Kaiser Watch November 10, 2022: Canadian Stupidity & Hypocrisy
Jim (0:00:00): What do you think of Canada's recent order that Chinese companies divest their holdings in three lithium juniors?

On October 28, 2022 the Government of Canada announced a new Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals under the Investment Canada Act and François-Philippe Champagne, Minister of Innovation, Science and Industry, ordered that three Chinese entities divest themselves of their equity stakes in three Canadian listed resource juniors. These orders are a demonstration of monumental stupidity and hypocrisy. They make absolutely no sense and should be opposed because they jeopardize the role of Canadian resource juniors in identifying and mobilizing new critical mineral supply. If Prime Minister Justin Trudeau were truly serious about the energy transition he should streamline the exploration-development permitting system, resolve issues with First Nations that encourage them to block mining, provide support for downstream processing capacity, and reform securities law so that Canadians who do not qualify as "millionaires" can easily participate in private placements, the primary mechanism through which resource juniors raise risk capital.

At this point the lithium market is not vulnerable to a single point of failure or Spof for short. Lithium Mania 1.0 which started in 2015 when the EV sector took off has mobilized plenty of supply from Australia and the Lithium Triangle which over the next 5 years will deliver half the supply needed for total demand projected for 2035-2040. Lithium Mania 2.0 which began in 2021 when lithium carbonate prices started a 10 fold rebound from the 2020 gutter below $3/lb will deliver the other half from Archean cratons in eastern Canada, Scandinavia, Brazil and Africa. The supply will come from many small to medium sized mines. A Chinese state owned enterprise having a stake and even offtake agreement in one of hundreds of contenders does not alter the collective outcome, but it does help the inflow of capital from a wide range of sources.

The 3 orders seem arbitrary and capricious. What does it matter to Canada that a Chinese entity invests indirectly in a project in another country? Does this perhaps give that country the right to expropriate the project from the Canadian company and sell it to the foreign investor? And even with a Canadian based project, why interfere with what is a collective race to develop new lithium supply? So what if concentrates get exported to China for refining? The government should focus on supporting the construction of refineries in Canada and facilitating the permitting cycle. Let's look at the 3 juniors targeted by the Canadian government divestiture orders.

Lithium Chile Inc raised $28 million at $0.95 from Chengze Lithium International Ltd for its brine projects in Chile and Argentina. What business does Canada have ordering a Chinese company to not have a stake in Lithium Triangle brine projects via a Canadian listed company? Is that not the job of the Chilean and Argentine governments? If the Arizaro project does not advance because of lack of capital, maybe Argentina should take it away from the Canadian junior and give it to the Chinese investors.

Power Metals Corp has the Case Lake project which hosts a set of narrow dykes that include high grade cesium. Sinomine Rare Metals Resources Co bought 7.5 million shares in late 2021 to invest $1.5 million. As part of the financing Sinomine secured an offtake for all lithium, cesium and tantalum. But Case Lake does not even have a resource estimate yet, and Exploration VP Julie Selway, an expert on Canadian pegmatites, is still trying the find the best pegmatites at Case Lake. The offtake agreement is meaningless at this stage. Furthermore, Case Lake is very unlikely to become a future single point of failure. There are lots of other potential LCT type pegmatites in eastern Canada that will emerge as Lithium Mania 2.0 unfolds. And if by any chance 5-10 years from now it becomes necessary to allocate lithium and cesium supply to domestic users, the government can create export controls. The United States just did that to China with high end chip technology. The age of globalized free markets is over. Telling Sinomine to sell its stake in an exploration stage junior makes no sense. Sinomine already owns the Bernic Lake operation which used to produce cesium but Sinomine now wants to mine the spodumene left behind. Wouldn't it make more sense to force Sinomine to divest itself of the former Tanco operation in Manitoba it bought from Cabot?

Ultra Lithium Inc owns the Laguna Verde brine project in Argentina and a net 40% stake in its Georgia Lake area properties after selling 60% to a Chinese company called Yahua which has been busy doing deals with Australian companies. Zangge Mining Investment (Chengdu) Ltd invested $4.1 million at $0.18 to acquire 23 million shares earlier this year. The junior has 2 China based directors from a decade ago who together own 40.5 million shares. Why not also create a ban on Chinese nationals owning shares in any Canadian listed company? Do we really want to decide who is allowed to invest in resource juniors? Maybe it might make sense to block a Chinese entity from buying out a Canadian junior with a critical metals project in Canada that is ready to be built. But worry about that later. None of Ultra Lithium's projects are at an advanced stage.

What the Canadian government should really focus on is its permitting cycle and unresolved First Nations problems. Consider the Spof vulnerability created by Brazil's domination of niobium supply from a single giant world class deposit called Araxa. Niobium is indirectly critical to the energy transition for its role as an alloy that strengthens steel which in turn allows light-weighting, meaning lower energy consumption when transporting goods. There is only one other deposit like Araxa, and it is also in Brazil in a hopelessly remote corner of the Amazon Basin. All other niobium enriched carbonatites are substantially smaller and lower grade. Global supply comes from 2 other such mines, one in Brazil controlled by a Chinese company called China Molybdenum, and the other is privately owned Niobec in Quebec. Araxa supplies 85% of global niobium output which goes mainly into steel. Toshiba is working on a niobium-titanium anode which would be a superior replacement for the graphite anode in the lithium ion battery. Brazil just went through a tumultuous election. Araxa is a huge single point of failure risk.

Canada's second best niobium deposit after Niobec is the James Bay deposit in northern Ontario owned by NioBay Metals Inc. A PEA done in 2020 shows that the deposit is viable at current niobium prices which Araxa's owner CBMM cultivates to maximize its domination of global supply, just high enough to allow some other deposits to be profitable, but not others such as Niocorp's Elk Creek carbonatite in Nebraska. Niobay has a drill permit that would let it take James Bay through the PFS stage. Local politics involving the Moose Cree First Nation has stalled work on advancing James Bay. The stock, which should be in the $2-$5 range while it advances James Bay toward a production decision with a future target price range of $10-$20, has collapsed to a dime after raising $10 million plus in 2020. Why doesn't Prime Minister Justin Trudeau step in and get exploration of the James Bay deposit back on track? Lithium Mania 2.0 will deliver dozens of potential pegmatite lithium mines in eastern Canada. Right now there is only one potential additional niobium mine in Canada and it is blocked by a local anti-mining lobby encouraged by outsiders who do double duty railing about the need to ban fossil fuels. Shame on Trudeau for his stupidity and hypocrisy.

Lithium Chile Inc (LITH-V)

Unrated Spec Value
Arizaro Argentina - Other 2-Target Drilling Li
Power Metals Corp (PWM-V)

Unrated Spec Value
Case Lake Canada - Ontario 3-Discovery Delineation Li Ta Cs
Ultra Lithium Inc (ULT-V)

Unrated Spec Value
Laguna Verde Argentina - Other 2-Target Drilling Li
NioBay Metals Inc (NBY-V)

Bottom-Fish Spec Value
James Bay Canada - Ontario 6-Prefeasibility Nb

Lithium Chile's Lithium Triangle Focus

Power Metals Case Lake Project

Ultra Lithium's Early Stage Brine & Pegmatite Projects

NioBay Metals Solution to Niobium Single Point of Failure Risk

NioBay NPV per Share Model for James Bay Niobium Project

NioBay NPV Model for James Bay Niobium Project
Jim (0:11:32): How did the scandium conference affect the outlook for Scandium International?

Scandium International Mining Corp has now updated its web site and posted both the slide presentation and script for Peter Evensen's speech at the 1st International Scandium Symposium held October 20, 2022. The stock has since fallen because Evensen makes it clear that the company is not going to work on helping end-users discover uses for Al-Sc alloy as George Putnam attempted in 2018-2019 through the LOI strategy, nor will SCY build Nyngan until it has committed offtakes for at least 20 tonnes of scandium oxide with a minimum $1,500/kg price. That is the price Friedland uses for his Sunrise scandium output and Peter Cashin's Imperial Mining Group uses for the Crater Lake project before ramping it up to $6,000/kg by switching to selling master Al-Sc alloy.

Nyngan's DFS was done at $2,000/kg, but it still is profitable at $1,500/kg. However, the USD $87.1 million CapEx is probably over $100 million today, and OpEx will also be higher, so at $1,500/kg the NPV for a 35 tpa Sc2O3 operation will be lower than the AT NPV of USD $177 million (8%) projected by the DFS. The message the market has taken from Peter's speech is that SCY has become a scandium optionality play waiting for Rio Tinto to build up scandium demand incrementally through its Sorel-Tracy operation where it recovers scandium while upgrading the titanium slag to the rutile equivalent grade the pigment makers demand. Sorel-Tracy has a scandium output limit of about 40 tpa scandium oxide, and it make take Rio Tinto several years to hit this limit. That means SCY ownership will be dead money while Lithium Mania 2.0 ramps up over the next few years as it delivers a Canadian exploration boom bigger than the diamond boom Dia Met launched in 1991.

The emphasis on having refinanced the company and being prepared to wait 5 years for Rio Tinto to max out its Sorel-Tracy scandium supply potential is a downer, but there were clues in the speech that SCY may not just sit back and wait for Rio Tinto to build scandium demand. If Rio Tinto can build current scandium demand of 20-25 tpa to 50 tpa, that will be a tipping point where demand growth can accelerate toward a future potential of 1,000 tpa, provided there is a primary, scalable supply operational. Unfortunately, the permitted 35 tpa capacity of Nyngan would be woefully inadequate for Rio Tinto. And while Nyngan's modular nature allows capacity to be expanded to 100 tpa over time processing only the limonite resource, Rio Tinto or an Alcoa would want to start with a higher output capacity.

When Peter mentioned seeking a partner for the development of Nyngan that has negative implications if the partner is an entity like Rio Tinto. Ideally CapEx gets funded with debt rather than equity or ownership dilution. One of the companies at the conference was Materion which started out as the world's dominant beryllium producer through its small Spor Mountain operation in Utah, but has since branched into a wide range of specialized materials, some of which require scandium. Materion makes its margin from the IP embedded in these products, but is also the world's only vertically integrated beryllium producer. Bloom Energy is similar in that its Bloom Boxes which require scandium in the electrolyte of the solid oxide fuel cell also are unrelated to aluminum alloys. One path SCY could immediately pursue is to partner with Materion or Bloom in exchange for 20 tpa offtake agreements at $1,500/kg with rights to increase offtake down the road should their products take off. The Nyngan operation is really a giant pilot plant. It can be expanded once it is operating as expected, but there is an alternative supply growth path.

Peter mentioned the possibility of revisiting the nearby Honeybugle deposit which SCY drilled in 2014 when it thought it would lose Nyngan. Grades are similar to Nyngan, and Honeybugle may even be bigger and richer than Nyngan. Drilling shallow RC holes to support a JORC resource estimate would likely cost less than $1 million. If SCY can find a partner for Nyngan sooner than later, which would allow it to demonstrate the flowsheet, the availability of the Honeybugle resource would make SCY a future buyout target for Rio Tinto because it could be permitted to start at 100 tpa capacity to feed surging Al-Sc alloy demand. Peter also indirectly alluded to the Kiviniemi deposit in Finland which has a similar size and grade as IPG's Crater Lake project but with a much better location and simpler mineralogy. Earlier this year he was dismissive of Kiviniemi, but with the EU becoming more supportive critical mineral supply in its backyard, Kiviniemi deserves additional metallurgical studies. It might even attract the interest of Heinz Schimmelbusch's AMG Advanced Metallurgical Group NV, a billion dollar revenue company that produces alloys and specialty metals. It even has an aluminum alloy operation in Pennsylvania. I do recommend carefully reading the script of Peter Evensen's speech, because while a quick read will leave you with the impression the company will hibernate for the next few years, a closer read hints at steps that could launch SCY into an uptrend.

Scandium Intl Mining Corp (SCY-T)

Bottom-Fish Spec Value
Nyngan Australia - New South Wales 8-Construction Sc

Cover of SCY's Conference Presentation

Potential Partners for Nyngan?
Jim (0:21:54): Where is Canalaska Uranium with its West McArthur emerging discovery?

Canlaska Uranium Ltd has an emerging uranium discovery at its 78.91% owned West McArthur project in Saskatchewan's Athabasca Basin. Since reporting the discovery hole last summer within the C10 South corridor 6 km SW of the 42 Zone where Canalaska has spent most of its effort during the past 5 years it has drilled 7 additional holes from 3 drill pads. The first 2 drill pads are near each so that the seciond rig could help sort out the geometry of the new zone within the basement at a depth of 800-1,000 m. The C10 South corridor has a SW strike and contains graphitic metasediments below the sandstone unconformity that dip to the SE. Hole #67, which assayed 9 m of 2.4% U3O8 within the basement, tested a part of the corridor where a north-south fault structure is present and which was the gateway for the hydrothermal activity that allowed the fluids to drop their uranium payload when they encountered the graphite.

3 of the holes encountered segments of uranium mineralization. Of these #72-3 drilled from the second drill pad had a 12.4 m interval with multiple sections of uranium mineralization including a 20 cm interval of massive pitchblende that will have a very high grade. The other 3 holes did not hit mineralization but did encounter bleaching and alteration. None of the holes have yet intersected the location where the basement hosted graphite bed encounters the basin sandstone, the so called unconformity target where one can hope for McArthur River scale volume and grade.

The last hole #73 was drilled from a pad 160 m NE of the original #67 fence. It was intended to hit the unconformity target but appears to have overshot it by 60 m. Canalaska plans to resume drilling in January with a rig that allows better control of directional drilling from pilot holes to test the 800-1,000 m depth of the emerging discovery at West McArthur. Canalaska has presented a $10 million budget to Cameco which has 30 days to decide if it will contribute or continue to dilute.

Last week Canalaska closed a $10 million flow-through financing first announced on October 6 as an $8 million financing. The regular flow-through was done at $0.52 per unit and the charity flow-through at $0.70. The unit included a 3 year half warrant at $0.75. $6.9 million was raised from the regular FT and $3.1 million from the charity FT. Flow-thru is both a blessing and a curse. It is a blessing because the company can raise capital at a premium to the market. But it is a curse because the purchasers tend to be interested only in the tax benefits and don't plan to hang around for a fundamental success outcome. So after the 4 month hold ends, which will be early March, the market will have to eat the flow-thru paper. Although Canalaska will resume drilling in January, it won't be reporting assays that elevate West McArthur from emerging to full-blown discovery that launches S-curve style speculation until Q2 of 2023.

Canalaska Uranium Ltd (CVV-V)

Bottom-Fish Spec Value
West McArthur Canada - Saskatchewan 3-Discovery Delineation U

West McArthur Emerging Discovery Drill Plan & Section

Photo of Hole 72-3 Mineralized Core Interval

OV Chart for Nexgen style Outcome
Disclosure: JK owns NioBay Metals and Scandium Intl; Canalaska, NioBay & Scandium Intl are Bottom-Fish Spec Value rated; Lithium Chille, Power Metals & Ultra Lithium are unrated

Posted: Nov 3, 2022JK: Kaiser Watch November 3, 2022 with Jim Goddard and John Kaiser
Published: Nov 3, 2022KRO: Kaiser Watch November 3, 2022: Death by Perpetual Permitting & Inflation
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.

Podcast Download

Kaiser Watch November 3, 2022: Death by Perpetual Permitting & Inflation
Jim (0:00:00): What does the world of resource juniors look like at the start of November?
Based on the latest quarterly filings which are now up to date as far as June 30, 32% of the 1,175 TSXV listed resource juniors have negative working capital, 15% have between zero to $500,000, and 51% have betweern $500,000 to $50 million. In terms of bottom-fishing strategy this latter group will be the target at the end of 2022. When you separate the companies into those with postive and negative working capital, those with negative working capital owe about $3 billion which is unlikely to ever be repaid and will probably be converted into stock. Of that amount $2.4 billion is owed by companies trading below $0.10. If you assume a $0.05 conversion price that translates into 48 billion new shares for which there is no market, and consequently will be dealt with by 10:1 or higher rollbacks after parties connected with the company have bought the debt at a deep discount to the paper settlement price. On the plus side there is still $893 million positive working capital lurking inside the treasuries of companies trading below a dime. There are 560 companies or 48% of 1,1175 trading below a dime, so the trick is to find those below a dime that have a meaningful amount of working capital. About 30% of the TSXV resource listings trade in the $0.10-$-0.29 range of which those with money are sitting on $1.25 billion in positive working capital while the rest owe $310 million.

The chart which shows how traded value is split between TSXV resource and non-resource listings indicates that since mid December 2021 the resource listings have consistently represented over 50% of traded value. The occasional exceptions, such as on October 11 and November 3, 2022, are due to an oddball listing called Topicus.com which trades at abput $70, has 82 million shares issued, has software-related revenues approaching 1 billion euro on an annulaized basis, and is profitable. It usually trades less than 50,000 shares a day but on bigger volume days it single-handedly drags up the traded value of TSXV non-resource listings. Without this company that doesn't belong on the TSXV exchange the relative performance of non-resource listings is truly dismal. But that doesn't mean things arw wonderful for resource juniors.

During the past week there has been a spike in traded volume by TSXV resource listings, but that was not for positive reasons because this was due to capitulation selling involving two juniors from opposite ends of the exploration-development spectrum. One was Nevada Exploration Inc which suffered a market blowout at the bid that took it to a half penny after announcing it would be pursuing a reorganization. NGE has been a long running KRO bottom-fish recommendation based on its innovative gold-in-groundwater based strategy of generating targets under Nevada's basin gravels where there are no clues in the ranges that might suggest a Carlin type gold system may be lurking under the gravel as proved to be the case with Twin Creeks, Pipeline, Cortez Hills and Goldrush. These world class gold deposits, however, had modest gold mineralization in the nearby ranges to arouse curiosity about the adjacent shallow gravel covered pediments. NGE did succeed in finding a highly altered Carlin-style Lower Plate window at the southern end of Grass Valley where there is no gold whatsoever in the nearby hills, but whatever Carlin-style gold is present it is deep beneath the gravel and layers of unpermissive stratigraphy the junior has had a difficult time testing. The story is not definitively dead, but existing shareholders will be wiped out by whatever rollback is coming, and, if gold is ever found at SGV, the reward will go to the newcomers. Such is the tragedy of innovative resource junior exploration. The other is Pure Gold Mining Inc which put the Madsen gold deposit west of Red Lake into production and filed for bankruptcy protection on Monday. On Wednesday the TSXV shoveled Pure Gold into the garbage can it calls the NEX. As I have mentioned before, we are in a bear market so severe shareholders have no patience left for a comeback from failure.

Most resource juniors this year have a downhill ski slope chart pattern which usually bottoms in December as shareholders collect their tax losses by selling stock which bottom-fishers accumulate at rock bottom prices. But this year bottom-fishing may be far more dangerous than usual because of the macro-economic backdrop of rising interest rates and concern that inflation will not ease without a harsh global recession. So when looking for bottom-fishing candidates one must look very hard for an underlying story that can still inspire fundamental optimism. If fundamental success hinges on higher metal prices, such as is the case with ounce or pound in the ground plays, one has to make sure that there are some big shareholders in place who will not let the asset be raided by predators with a long time horizon.

In this regard I will be looking for a chart pattern different from the usual bottoming washout. 2022 was a year when the market tended not to reward fundamental progress in the form of a higher stock price. What I will be monitoring for when I use the KRO Search Engine to screen for other parameters such as working capital is a chart pattern that has largely gone sideways in 2022. Two companies that are part of the KRO 2022 Bottom-Fish Collection are Endurance Gold Corp and Eagle Plains Resources Ltd. Check last week's KW episode for my discussion of EDG which this week not only confirmed closing of its $1.5 million private placement but confirmed that it had been increased to $2 million with just over half taken down by insiders.

Eagle Plains was a KRO Favorite in 2021 but I did not include it in the much shorter 2022 KRO Favorites because I did not think the prospect-generator-farmout model would interest the market in 2022 though in retrospect I should have had only Verde Agritech on the list given that the rest except FPX Nickel are down at least 50%. At the start of 2022 Eagle Plains was waiting for SSR to complete its acquisition of Taiga for cash which did occur, turning EPL's Taiga "marketable securities" into hard cash and making its $10 million working capital position very real. Not surprisingly none of its farmed out prospects have delivered any upside joy for EPL, but the junior did spend money drilling its 100% owned Vulcan project. Sullivan 2 was not delivered but the results have yielded a much better understanding of why Sullivan 2 was not found by previous campaigns, plus peripheral evidence that a big zinc-lead-silver system is present at not unreasonable depths. The market shrugged, perhaps because it now expects EPL to farm the project out to somebody else. But with such a rich treasury, and a bear market lingering into 2023 likely to hinder farmout activity, some shareholders such as myself are urging Tim Termuende to spend another $1-$2 million on Vulcan in 2023.

Many of EPL's farmouts involve a combination of staged cash, share issuances and exploration expenditure that allow the other junior to earn a majority interest. But in a lot of cases EPL lets the other junior earn 100% and keeps a royalty. The market is assigning no value to this portfolio of royalties which includes one covering part of Banyan's gold project in Yukon. So EPL is trying to figure out a way to monetize this royalty portfolio which could include a spinout to shareholders. In late 2021 EPL also staked the Adamant project in southeastern BC which Critical Elements had explored during Rare Earth Mania 1.0. It covers a trend of nepheline syenite intrusions that includes meaningful heavy rare earth values whose local distribution is not understood. This year EPL did its own prospecting survey over the project while compiling historical work. While a gold or base metals prospect might be hard to farm out in 2023, the rarity of REO prospects could attract a good deal in 2023 for Adamant. All these developments help explain why Eagle Plains, like Endurance Gold, has flat-lined all year within a narrow range despite fundamental progress. Such examples typically indicate a supportive and knowledgeable shareholder base engaged in fundamental outcome slow gambling rather than short term momentum chasing. 2022 has harshly and deservedly punished momentum gamblers. So if you see a flat-lining resource junior, use that as an excuse to look a little closer, not under the surface, but what is there in plain view that only solid long term shareholders can see.

Nevada Exploration Inc (NGE-V)

Bottom-Fish Spec Value
South Grass Valley United States - Nevada 2-Target Drilling Au
Pure Gold Mining Inc (PGM.H-V)

Fair Spec Value
Madsen Canada - Ontario 7-Permitting & Feasibility Au
Eagle Plains Resources Ltd (EPL-V)

Bottom-Fish Spec Value
Vulcan Canada - British Columbia 2-Target Drilling Zn Pb Ag

Price Range Breakdown for TSXV listed Resource Juniors

Working Capital Range Breakdown for TSXV listed Resource Juniors

Positive & Negative Working Capital for TSXV listed Resource Juniors based on Price Range

Relative Daily Value Traded for Resource & Non-Resource TSXV Listings

The Price of Failure in 2022 - A Wipeout

The Reward for Progress in 2022 - Go Nowhere
Jim (0:08:25): Are there any positive trends in the junior resource sector?
The only sector whose members are registering uptrends is lithium whose demand thanks to the EV sector is outstripping supply, which has enabled lithium carbonate to undergo a ten-fold price increase since the 2020 nadir and remain strong throughout 2022 even while all other metals are undergoing price declines as the world braces for a serious economic slowdown. Backstopping this uptrend is the realization that if policy goals of replacing new ICE car sales entirely with EV sales by 2035, as now mandated by California and in Europe, lithium supply will have to undergo a ten-fold expansion from the 100,000 tonnes of elemental lithium produced in 2021. Last year's output at the average lithium carbonate price of $15.33/lb indicated a value of $18 billion for 2021. This year supply is likely higher, but at an average price double that of 2021 at a minimum the lithium supply market will have been worth $36 billion in 2022. At a ten-fold supply expansion this would be a $360 billion market by 2035, which is so outlandish it is prudent to assume the long term price will be $10/lb which is still a staggering market worth more than $100 billion annually. Why pick $10/lb? Because that is the minimum needed to mobilize the second half of that future supply from pegmatite sources outside Australia which, along with the Lithium Triangle in South America, will deliver the first half of the projected demand expansion. The rest will have to come from pegmatite deposits in eastern Canada, Brazil, Scandinavia and Africa. Lithium Mania 1.0 which ran in 2015-2017 put in motion the Australian pegmatite and Lithium Triangle brine supply, and those juniors that persisted despite the brutal lithium carbonate price decline below $3/lb in 2018-2020 are reaping big rewards for their shareholders as the EV sector scrambles to secure the lithium supply needed to feed the gigafactories on which it is spending hundreds of billion dollars as the multi-trillion dollar car industry shifts from oil to electricity powered cars over the next decade. Lithium Mania 2.0, which is just waking up, represents the scramble to secure the second half of the future demand. It has to happen now because everybody is starting to understand that it takes 5-8 years to bring brand new supply into production. So the great pegmatite hunt beyond Australia needs to ramp up now. None of this matters if we end up in a global depression that leads to war and destruction, because humanity will have accepted the End Timer mentality. Greta Thunberg's generation will end up inhabiting the Planet of the Apes. But this doesn't have to happen, and embracing Lithium Mania 2.0 is the mark of an optimist.

Last week the market capitalization of Sigma Lithium Corp briefly exceeded CAD $5 billion when the stock hit $54.33. Sigma is in the final stages of putting into production phase 1 of the Grota do Cirilo lithium project in Minas Gerais state of Brazil. The project was assembled by a private group in 2012 and vended into a CPC in late 2017. A bankable feasibility study for the Xuxa deposit completed in 2019 generated an after tax NPV of USD $249 million based on a LOM China cif price of $733/t spodumene concentrate (6% Li2O). The mining plan has since been expanded to include the Barreiro deposit as phase 2 which together represent an open-pit mining rate of 9,200 tpd. Together these 2 deposits are 33.6 million tonnes proven and probable at 1.43% Li2O (diluted grade) which at $34.65/lb lithium carbonate represents an in situ rock value of $2,700/t or about $91 billion total of which 60% is recoverable. When you include 3 additional deposits the M+I+I resource is 85.7 million tonnes of about 1.43% Li2O. Clearly there is production expansion potential. When the RTO was completed in early 2018 the lithium carbonate price had already cratered. SGML plans to ship its spodumene concentrate to China. The updated 2022 numbers indicate a starting price of $2,840/t concentrate, 4 times higher than in 2019. The economic analysis uses Benchmark lithium hydroxide price forecasts which Sigma converts into concentrate prices, as shown in its cirrent corporate presentation slide 68 for the Phase 1&2 mining plan through 2035. It shows the concentrate price peaking at $3,606/t in 2024 and settling back into a $1,600-$1,800/t range. The pricing scenario generates an after tax NPV of USD $4 billion at 8%. Concentrate prices are currently above $7,000/t. The CAD valuation of Sigma Lithium is fair and may represent good value to a major company seeking to develop tthe additional resources. Blackrock funds came on board in January 2022 as part of a $137 million financing at $11.75. Sigma Lithium is a real company that by the start of 2023 will be producing lithium concentrates from pegmatites in Brazil. The race is now on to repeat this success elsewhere in Brazil and in other parts of the world that have LCT type pegmatites grading 1%+ Li2O.

The other example, Tearlach Resources Ltd, is a shell whose disclosed insiders own less than 1% of the 63 million shares created since a 20:1 rollback in 2011. Nothing of value was created during the past decade of cheap financings. In July former Teck exploration boss Lindsay Bottomer helped Tearlach acquire 3 lithium prospects in northwestern Ontario that seem to have no virtue other than being near properties already staked by lithium explorers. The web site has the look and feel of lifestyle battery metal juniors: rotating background images, EV charging photos, ESG blather, pages that fade in and out - and very little useful information. And yet when this $0.10 shell announced the acquisition of lithium pegmatite pasture and had 2 people from the cannabis world join the board, it popped to $0.50 for a $30 million valuation. When it announced a $5 million unit private placement at $0.50 the stock shot past $2 to represent a fully diluted implied value of $136 million. On Thursday somebody broke rank and dumped a pile of stock on the bid, but by Friday the stock was recovering. The only reason I mention Tearlach is to use it to illustrate that the promoter crowd smells Lithium Mania 2.0 and is positioning itself. Most likely, similar to Li-Ft Power, a recent CSE listing with grassroots James Bay properties optioned 100% from Kenoraland that sports a $200 million plus valuation, Tearlach will acquire a more substantial lithium asset with the help of a puffed up valuation. No point complaining by those of us who accumulate Lithium Mania 2.0 pegmatite hunters such as Bob Wares' Brunswick Exploration which has a coherent and fully deployed strategy for assembling a truly prospective portfolio of grassroots lithium prospects in eastern Canada. We should welcome the likes of TEA and LIFT as validation of our belief that Lithium Mania 2.0 will become the biggest exploration game ever in Canada, much bigger than the diamond rush kicked off by Dia Met in late 1991.

Sigma Lithium Corp (SGML-V)

Unrated Spec Value
Grota do Cirilo Brazil - Other 7-Permitting & Feasibility Li
Tearlach Resources Ltd (TEA-V)

Unrated Spec Value
Wesley Canada - Ontario 2-Target Drilling Li

Lithium Price and Supply Trends

Sigma Lithium and Tearlach: A contrast between Lithium Mania 1.0 and 2.0

Sigma's Grota do Cirilo Reserve and Resource Estimates

Economic Analysis of Sigma's Phase 1&2 Mining Plan

Sigma Lithium's Spodumene Concentrate Prices based on Benchmark Hydroxide Forecast
Jim (0:16:02): Is the perpetual permitting cycle of Perpetua Gold Corp potentially coming to an end?
The USFS has finally released a Supplemental Draft Environmental Impact Statement that reflects the modifications Perpetua Gold Corp made in response to the comments generated when the USFS released the original Draft EIS in August 2020. In Q1 of 2021 PPTA's largest shareholder John Paulson fired the Canadian team led by Stephen Quin and replaced them with Idahoes and his pals. Two years later we are where we were two years ago: waiting for a 75 day comment period to end on January 10, 2023 that finally results in a Final EIS in mid 2023 that kicks off application for dozens of other permits needed to begin mine construction. But it no longer matters.

When the Stibnite feasibility study was filed in late 2020 it used $1,600 gold as a base case price. Stibnite cleared the IRR hurdle and made the hurdle of after-tax NPV matching CapEx provided you used a 5% discount rate. But during the past year we have seen two bad things unfold: inflation has reached 3 decade highs and gold has retreated from the $2,000 level almost back to the base case level of $1,600. Perpetua was made a Good Spec Value rated KRO Favorite based on the feasibility study and the expectation that $1,600 gold was likely the low end of the gold price range going forward. I still believe that.

To understand the upside of Stibnite I created a DCF model that closely follows all the assumptions in the feasibility study. This allows me to see the impact on after tax NPV at both 5% and 10% discount rates as well as IRR at different gold prices. It also allows me to convert those absolute figures into per share figures in CAD using the latest exchange rate and fully diluted. The first two charts below illustrate this in NPV/share and aboslute NPV terms. The NPVsh chart shows that PPTA has a target range of $16-$26 at $1,600 gold, soaring to $31-$46 at $2,000 gold.

But gold has sunk back close to $1,600 as the Federal Reserve cranks up interest rate to fight inflation. So I did what I did the other week with FPX Nickel and its Decar PEA: I escalated all costs by 20% which is not unreasonable to do for a mining project whose costs were figured out for the 2020 FS. The result in the second set of charts is horrific. The NPV at $1,600 gold collapses to USD $377 million at 10% and $715 million at 5%, well below the new $1.6 billion CapEx. The per share target of CAD $8-$15 looks good for a current stock price below $3, but it is fictitious because the NPV is far below the CapEx, and with only a 15 year mine life this is not going to be built, which is different in a scenario like Decar with a 40 year mine life producing a metal the world can never do without (keep in mind that BitCoin is the new gold as pumped by the libertarian crowd which will continue to rely on stainless steel until Ray Kurzweil shows them how to migrate into quantum space as disembodied Q like beings). At $2,000 gold the hurdle gets cleared with a $1 billion NPV at 10% and $1.6 billion at 5%, though again only with the 5% discount rate just as was the case with the original FS assumption. The price target range would be $22-$34.

If the Stibnite permit is ever granted Perpetua will have to redo its feasibility study with current numbers. And if gold is not $2,000 plus by the end of next year, Stibnite will be just another gold optionality play. The juiciest rony would be if the government is forced to step in to bankroll CapEx so that Stibnite is not just a reclamation project funded by a gold mine, but antimony supply security funded by a gold mine. But I'm not sure what that triumph will be worth on a per share basis. To stay enthusiastic about Perpetua you have to be optimistic that the perpertual permitting cycle is coming to an end, that my cost inflation assumptions are excessive, and that gold will charge through $2,000 while inflation succumbs to a high interest rate induced recession.

Perpetua Gold Corp (PPTA-T)

Good Spec Value
Stibnite United States - Idaho 7-Permitting & Feasibility Au Sb

Feasibility Study based NPV Sensitivity of Stibnite to Gold Price on Per Share Basis

Feasibility Study based NPV Sensitivity of Stibnite

20% Cost Escalation applied to 2020 Feasibility Study presented as NPV per share

20% Cost Escalation applied to 2020 Feasibility Study presented as NPV
Jim (0:21:15): Your 2022 KRO Favorites Index finished October down about 25% but that is up from being down 39% in mid October. Is the worst over for your KRO Favorites?
The KRO 2022 Favorites Index is down 28.1% as of November 3, 2022, up from its October low of being down 39.4%. The only stock that is up is Verde Agritech which is up 163.6% after a good week during which it announced that the full 2.4 million tpa K Forte capacity of Plant 2 is now operational. So far it looks like Jair Bolsonaro will accept his narrow defeat but I think he is just waiting to see what happens with the American mid-terms on November 8. FPX Nickel is the next best performer down 20% at $0.40. It seems that the RBC selling has dried up, but the market remains nervous. All the rest are down 50% or more and probably are close to the bottom if not already off the bottom like FPX Nickel. The one exception that makes me nervous is Eskay Mining Corp which is a Favorite because of its potential to deliver an Eskay Creek clone discovery at its Eskay project in the Golden Triangle. The company announced on October 7, 2022 that it had completed 29,500 m of drilling that started late May in the TV-Jeff area and then moved on to the more exciting Scarlet Ridge target in the northern part of the property not that far from Eskay Creek 1 but within the east anticline of this former marine rift basin. This area has never been properly explored so it held the greatest hope for a discovery in 2022. ESK has reported sulphide visuals which support the VMS model but no assays yet for any of the holes.

I am not expecting anything significantly new for the TV-Jeff area based on the visual descriptions published, and the market will not care about short isolated high grade silver-gold intervals. It wants to hear that enough of a zone has come into view to allow a resource estimate. If a resource estimate is not in the cards we know it is no longer a real discovery in the sense of something with mine potential. As far as I am concerned everything now hinges on what Scarlet Ridge assays. And therein lies my problem. The two IPV charts below show the fair value and S-Curve channels for an Eskay Creek equivalent outcome which would be worth CAD $3.7 billion at today's metal prices, or $18.04 per share assuming no further dilution. At a $1.20 stock price the project has an IPV of CAD $241 million based on 203 million fully diluted. That pricing represents poor speculative value in terms of the rational speculation model, but it is within the lower end of the S-Curve range for a project at the discovery delineation stage. However, given that TV-Jeff assays are still pending, one has to conclude that this target is no longer at the discovery delineation stage, and should be dropped back to target testing stage where Scarlet Ridge is currently at. Scarlet Ridge needs to replace TV-Jeff as the new discovery focus.

ESK is already down 56% from its $2.77 starting price, but if assays lead the market to conclude that Scarlet Ridge has not yet reached discovery stage, or if it has, with a much more modest outcome than Eskay Creek 1, the stock will be vulernable to another 50%-80% drop. The stock has held up remarkably well, in part because it has developed a cult style shareholder base, but even cultists are not stupid when it comes to financing. At the current price none of the warrants are in the money, including the 1.6 million at $1.30 that expire in early December. And even these won't solve ESK's working capital problem. As of August 31 it had only $5.3 million working capital, much of which will be gone by the time the final assays are paid for. There is a $2.7 million debenture due to Seabridge at the end of the year which Mac Balkam can maybe persuade Rudy Fronk to defer for another year. But if ESK is to follow up next year with a similar scale work program, it will need to finance with flow-through in December or hard dollars in Q1 of 2023. Unless Scarlet Ridge delivers spectacular results that turn it into the new Eskay Creek 2 discovery delineation play, such future financing will happen at much lower prices. Even if the faithful hold steady, the algos will tank the stock. Eskay Mining Corp poses the greatest risk for dragging the KRO 2022 Favorites Index lower. May John Dedecker's enthusiasm prove prophetic.

Eskay Mining Corp (ESK-V)

Fair Spec Value
Eskay Canada - British Columbia 3-Discovery Delineation Au Ag Cu Pb Zn

KRO 2022 Favorites Index

KRO 2022 Favorites Performance Table

IPV per Share Chart for Eskay Creek 2 Outcome Visualization

IPV Chart for Eskay Creek 2 Outcome Visualization
Disclosure: JK owns shares of Brunwsick, Eagle Plains and Endurance Gold; Eskay Mining is a Fair Spec Value rated Favorite and Perpetua Gold is a Good Spec Value rated Favorite; Brunswick, Eagle Plains Endurance are Bottom-Fish Spec Value rated; Sigma Lithium and Tearlach Resources area unrated


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