|Kaiser Watch January 13, 2023: The first grade smear of the year!
|Jim (0:00:00): How is the new year treating the 2023 Favorites Collection?
So far 2023 is shaping up to be very promising for the resource juniors. Gold has made it above $1,900 as the USD weakens against other currencies. December CPI came in at 6.5%, down from 7.1% in November and continuing a retreat the market hopes will cause the Federal Reserve to pause its interest rate hike strategy though the signaling suggests ongoing incremental 0.25 point hikes rather than 0.75 point hikes. Gold is supposedly going up because inflation is going down, which is a new story for me. During the past decade inflation below the federal target of 2% kept gold below $1,300 while the general equity market boomed. But given the costs of the energy transition and the post-globalization push to reshore into secure but more expensive jurisdictions I have a hard time seeing inflation dropping back to 2% anytime soon unless they jam rates even higher to create a recession that finally discourages workers from demanding more money.
Metal prices are shrugging off recession worries, perhaps because Xi Jinping has given up on its zero-covid policy so that the Chinese economy can grow again. Copper has clawed its way back above $4/lb. Iron ore is perking up as are other base metals such as tin and zinc though nickel is lagging because of the Indonesian expansion of supply. Molybdenum has surprised everybody with a 50% move in December that took it over $30/lb. This move is being attributed to Chinese gas pipeline construction and ship-building which seems a bit ominous. The magnet rare earths continue to inch higher. Lithium carbonate which was the only star metal performer in 2022 has eased back ahead of the Chinese lunar new year which runs January 21-27. China is not publishing any meaningful data about covid infections but it is clear that it is rampaging through the big cities. When people travel home for the new year the rest of the country will get infected so post holiday economic activity may be slow picking up and nobody wants to be holding raw material stock. The general view is that supply chain bottlenecks will disappear which could help ease inflation when goods become more readily available. The rebound in metal prices seems to be based largely on the notion that China will focus its attention in 2023 on growing its economy rather than suppressing covid and lusting after Taiwan.
Although TSXV trading volume and value have not increased significantly above levels from Q4 of 2022, resource junior traded value is now consistently above 70% of total traded value. And this week we not only had the first day since a year ago where there were more new highs than new lows, but we had two days in a row like that. Of my 16 Favorites 10 are up while 6 are down modestly with the KRO 2023 Favorites Index up 6.5% as of January 13, 2023, lagging the TSXV Index which is up 7.9% while gold is up 5.2%. We are not seeing the degree of increased market activity one normally associates with a January Effect, but at least the wind is so far blowing at the backs of the resource juniors and I am feeling optimistic we will have a good year for juniors with strong stories.
KRO 2023 Favorites Index
KRO 2023 Favorities Index Daily Performance
USD Nominal Borad Currency Index, CPI, Prime Rate
Selection of Metal Charts ordered by leaders and laggards
Relative Traded Value of TSXV Resource and Non-Non-Resource Listings
KRO 2023 Favorites Performance Table
|Jim (0:05:16): What sort of wind blew Dynasty Gold up 300% from $0.10 to a high of $0.49 on Tuesday, January 10?
Dynasty Gold was a sleepy bottom-fish type junior trading between $0.05-$0.10 during the second half of 2022 which the market hijacked on Tuesday morning when it read a news release reporting results for 4 holes on the Thundercloud gold project in western Ontario just south of Dryden. It opened at $0.14 and traded as high as $0.49 on 4,250,160 share volume before closing at $0.34, up 300% from the day before. This sort of results driven upside explosion is what bottom-fishers dream of, but there is no justification for such a move. In fact, the company's largest visible shareholder, Karim Mohamedani, sold 706,500 shares that day at an average $0.34 to reduce his position to about 4 million shares, about 9% of issued stock. He has no formal insider relationship to the company so he is now free to sell the rest of his position without making further disclosures. On Wednesday the volume dropped to 2,340,431 shares, on Thursday to 866,000 shares and on Friday it traded only 488,000 shares to close at $0.285. This is not how a junior with a legitimate new discovery trades.
The stock play is evaporating because the results have been presented in a manner that creates the illusion a significant bulk mineable zone has been intersected. We call this grade smearing and juniors with professional management are very careful to avoid being accused of grade smearing. The trouble with Dynasty Gold is the board and advisory board is loaded with competent geologists so one simply assumes what look like great results are great results. But something seems to have gone wrong.
Why did the press release not include a drill plan showing the location of these new 4 holes relative to the existing 66 holes (12,093 m) into the Pelham Zone that support an inferred resource of 4,140,000 tonnes of 1.37 g/t gold updated in September 2021? The corporate presentation includes a map of the drone mag survey with all the existing holes plotted. These 4 holes were drilled in the southeastern part. If you have results you are pleased with, why not update the drill plan? And why not provide sections that show how gold grade varies throughout the hole? Serious resource juniors will provide these graphics. They don't show up in Stockwatch or other news feeds, but they will be part of the news released posted on the company's web site and Sedar. And why did the company not include drill hole angle and azimuth (direction) in its results table?
The Pelham Zone was discovered in 1937 and since then numerous companies have taken a crack at figuring it out. The last group was Laurentian Goldfields which drilled it in 2011 and dropped the option from Teck. Laurentian Goldfields subsequently did a 10:1 rollback and became Pure Gold Mining whose attempt to put the Madsen deposit into production near Red Lake failed last year. Dynasty optioned 100% from Teck in 2018 and has been trying to rethink the project's potential. They did a drone magnetic survey to better understand the controls of this system. The Pelham Zone has been invaded by a set of gabbroic sills which appear to have served as the controls for orogenic fluid flow. The most famous example of this type of system is the Golden Mile near Kalgoorlie in Western Australia. One of my bottom-fish picks called Harfang Exploration has a similar setting at its Radisson-Serpent project in the James Bay area where the company has been trying to find the source of a broad gold in till dispersal apron. They have hit short high grade gold intervals but nothing yet to explain the till anomaly.
Dynasty decided to focus on some targets in the southeastern part of the Pelham Zone. Three of the holes hit short high grade intervals, higher than has been seen on the property. Hole 2 had 3 m of 43.47 g/t and hole 3 had 1.5 m of 246 g/t gold. The rock value of these intervals at $1,918 gold are $2,700 and $15,200 per tonne respectively and these are mineable widths. If Dynasty left it at that the market would have become curious if they have finally found a new high grade aspect to the Pelham Zone. The analogy would be the initial Great Bear discovery of the hinge zone on the Dixie project south of the existing West Madsen resource which at the time spurred speculation that another Red Lake style high grade system had been discovered. Great Bear disappeared at $28 in a $1.7 billion transaction at the end of 2021 when Kinross bought it out, but that was done on the basis of the entirely unrelated LP structure.
For reasons regulators may end up wanting to know Dynasty decided to bracket these short intervals within a surrounding set of ever longer mineralized intervals. For example, the 1.5 m of 246 g/t in hole 3 was stretched into 51 m of 7.35 g/t which has a rock value of $453. That is really impressive. But when I applied my grade smearing tool the surrounding 49.5 m averaged only 0.12 g/t gold which has a rock value of $7/t and is not open pittable.
The 3 m interval of hole 2 at 43.47 g/t was stretched to 121 m of 1.31 g/t which has a rock value of $81/t, very respectable for an open pit mining scenario. But when you remove the gold budget associated with the 3 m interval, the remaining 118 m grades only 0.24 g/t with a $15 rock value, also not open-pittable. In the industry this is called grade smearing and it is done to encourage the market into believing results are more significant than they are. The grey zone emerges when narrow high grade structures repeat themselves within a halo of lower grade mineralization and the question becomes, do they repeat themselves enough that the average grade produced by mining everything as an open pit is profitable. The presence of only a single high grade interval in each of the Thundercloud holes does not allow the grey zone. When Snowline Gold Corp reported excellent long intersections for its Rogue project the first thing I did was apply my grade smearing tool which showed to my satisfaction that it was legitimate to present long intersections averaging the assay intervals. Snowline also provided sections showing the grade bars of the assay intervals which Dynasty did not do.
The reason I complain about grade smearing is that narrow high grade zones are difficult to delineate, so followup drilling in the vicinity of these holes might come up with nothing. But 51 m of 7.35 promises a sizable zone that should result in a parade of more good intersections as the rig steps out and down from the discovery interval.
Why a qualified professional would stretch short high grade intervals into broader fictitious zones escapes me. But even worse, the press release made the following statement: "We are thrilled with these outstanding results in our first drill program on the property. They are the highest gold grades, the longest and the widest intercepts ever drilled at the property. These drill results indicate a much bigger resource potential with higher grades at Thundercloud." These are not wide intercepts at all. Dynasty Gold did two full warrant private placements totaling 5.9 million units at $0.07 and $0.105 in December that come free trading in April. Only one insider participated for 357,000 units so the rest will be third parties eager to take profits. Given how long it takes for assay turnaround these days, Dynasty Gold shareholders should brace themselves not just for April showers but possibly an atmospheric river like is pounding us in California.
I use my own spreadsheet based grade smearing tool to test intersections for grade smearing, but an online version is offered by the Junior Mining Network through its Advanced Drill Hole Calculator. When using this tool be careful to include only individual interval segments. For example, with hole 22-03 with a highlighted interval if 51.0 m at 7.35 g/t, use only the 1.5 m at 246 g/t between 118.5-120.0 m. This interval is included in the other 3 "including" intervals. Do not duplicate them! The JMN tool is also very useful to determine rock values including for polymetallic intersections. Bookmark that page!
|Dynasty Gold Corp (DYG-V)
Unrated Spec Value
|Canada - Ontario
|4-Infill & Metallurgy
Thundercloud Exploration History and Property Map
Pelham Zone Existing Drill Hole Plan and Drone Mag Survey
Thundercloud Drill Results Table and Grade Smearing Analysis
|Jim (0:15:03): Endurance Gold reported an impressive gold intersection for its Reliance gold project but the stock barely moved. Does the market think this is an example of grade smearing?
Endurance Gold is run by an extremely professional team, but that did not stop a KRO member in our Slack forum from wondering out loud what happens when you apply a grade smearing tool. The Endurance Gold news release is an exemplary contrast to the Dynasty Gold news release. It included a drill plan for all the reported holes and a section for hole 58 which highlighted the sub-intervals within the broader interval. The results table includes the drill dip and you can figure out the azimuth of each hole from the horizontal trace plotted on the drill plan. Each of the sub-intervals is an independent segment within the overall reported intersection. The overall 45 degree hole of 139.9 m of 3.05 g/t which bottoms at 170.2 m hole length has a vertical depth of 120 m, so is entirely within open-pittable range. This hole was designed to intersect the shallow southwest dipping Eagle Zone and the sub-vertical Eagle South Feeder Zone which emerged in this year's drilling.
The ESFZ was an important development in 2022 because the Royal-Treasure Shear corridor that is about 300 m wide is bounded by afault to the southwest, the result of which the SW dipping Eagle Zone will disappear in this direction when it reaches the fault, and it also disappears in the NE direction because it daylights within the corridor. The market wanted to learn this year that there vertical mineralized structures that can persist for thousands of metres at depth as is possible within an orogenic gold system. The epizonal nature of the Reliance mineralization means that it is much higher within the vertical column than the prolific Bralorne vein system. The hypothesis is that when you get deep enough at Reliance you may find a similar multi-million ounce high grade gold bounty as Bralorne, but not if there is no evidence of vertical feeder structures. This milestone was accomplished in 2022 and Endurance is now preparing ground work for building roads that will allow it to spot holes in the argillic sediment hanging wall southwest of the Royal-Treasure Shear corridor and start chasing the ESFZ down plunge. The company hopes to be able to resume drilling in April with a rig dedicated to delineating the ESFZ at depth.
The news release included dud results for 5 holes that attempted to extend the Eagle Zone to the southeast, which at Reliance means up the hill. Hole 49, the most southeasterly hole, nipped 2.1 m of 3.2 g/t and is labeled as part of the Eagle Zone but Robert Boyd thinks it is a continuation of the ESFZ because the team now believes the Eagle Zone has been eroded away in this direction. The Eagle Zone now has a strike of 530 m and is cut off in this direction, while the ESFZ has a strike of 550 m and is still open along strike but not a priority to chase. It makes more sense to chase the ESFZ at depth in 2023. The company plans a second rig in 2023 which will seek to connect the area between the original Imperial Zone and the Eagle Zone. It will also conduct infill drilling within the Eagle Zone because hole 58 is the first clear evidence that the Eagle Zone may be amenable to open pit mining.
Endurance warns that the true width of the Eagle Zone is 15-30 m, which means that the 139.9 m interval of 3.05 is partly down-dip. But the sub-intervals show that there is grade zonation even in this direction. The question from a bulk mining perspective is whether or not the material between the higher grade parts is waste material. When I applied my grade smearing tool to the overall intersection and the sub-intervals, I ended up with an aggregated 35.7 m interval of 8.84 g/t with a $545/t rock value while the remaining 104.2 m averaged 1.07 g/t with a $66/t rock value, well above an open pit OpEx. This tells me that the volume represented by hole 58 is open-pittable. The market did not crank the stock up on January 12 because the company has provided sufficient geological context to allow the market to see that while this is good news for an open pit mining scenario, the constrained geometry also inhibits speculation that the Eagle Zone is going to deliver millions of gold ounces with the hellp of additional drill holes. If this were a deeper interval cutting across the ESFZ which has running room at depth and along strike, and could be characterized as close to true width, the stock would have rocketed past a buck. Note that in the Endurance results tables the set of "including" intervals are all distinct intervals within the overall reported interval. So when you apply the JMN tool to hole 58 include all these intervals (JMN, which is a web site sponsored by companies, uses the more polite term "advanced drill hill hole calculator").
Endurance Gold has about $3.5 million working capital not including the market value of its Inventus stock position, so it does not need to finance to resume drilling in April. The 2023 drilling strategy will have a twofold goal of linking the Eagle Zone to the Imperial Zone to support an open pit mining scenario and to test the Eagle South Feeder Zone at depth drilling from a less awkward angle than from within the corridor itself. The latter goal presents the blue-sky opportunity for Reliance. Once the roads are in place for the deeper ESFZ drilling it will be easy to add rigs if results show the ESFZ blossoming at depth and the market starts treating Reliance as a confirmed major discovery rather than just an emerging discovery.
On January 3, 2023 the company published results of a soil and biogenic sampling program it did on the Olympic property to the northeast optioned from Avino in 2022. The diagram shows a distinct arsenic anomaly with a trend parallel to the Royal-Treasure Shear corridor. Arsenic is a key pathfinder for gold within the Royal-Treasure Shear corridor. Endurance collected soil samples near the Carpenter Lake reservoir because the medium was suitable for sampling, and collected fir needles up the hill where the ash from a recent volcanic eruption blankets the ground. Both showed elevated arsenic levels. Sampling in the eastern part of the grid near the high grade gold-antimony Enigma showing was hampered by glacial-fluvial cover so that will require a different sampling approach in 2023 while a higher density sampling grid will be applied to the Olympic anomaly.
|Endurance Gold Corp (EDG-V)
Fair Spec Value
|Canada - British Columbia
Long Section of Royal-Treasure Shear Corridor at Reliance
Drill Plan for Eagle Zone Area
Eagle and Eagle South Feeder Zone Section for Hole #58
Eagle Zone Results and Demonstratiomn why hole 58 is not an example of grade smearing
Arsenic Anomalies for Reliance and Olympic Claims
Arsenic Anomaly for Olympic Claim
|Disclosure: JK owns Endurance Gold; Endurance is a Fair Spec Value rated Favorite; Dynasty Gold is unrated