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Kaiser Media Watch Blog - February 1, 2023 to February 28, 2023
KRO Blog Overview
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.
Kaiser Watch is a weekly 15-30 minute audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.
Kaiser Watch February 23, 2022: No need to fear lower lithium prices
Jim (0:00:00): NioBay Metals put out a negative sounding news release about its Crevier niobium project and yet the stock went up. What is going on?
On February 13, 2023 NioBay Metals put out a peculiar news release which had me fearing the worst based on my past experience with how juniors try to spin bad news in a positive light. Management was unhappy with the Crevier assays and had instructed the assay lab to redo them. In addition NioBay announced that it had staked lithium potential claims northwest of Crevier. We sometimes see this when a junior which has been gushing about visible gold gets back unimpressive assays, which, when redone, rarely get better. The staking of claims prospective for lithium, the growing tactic among ambulance chaser juniors, also suggested a pivot from niobium to a new flavor of the month metal (though I am of the view that lithium has years of staying power if the world is to meet its Net Zero Emissions policy goals with regard to EV deployment by 2030).
I elevated NioBay from Bottom-Fish to a 2023 Fair Spec Value Favorite on the basis of news in December that drilling at the Crevier project had encountered substantial widths of carbonatite hosted pyrochlore (niobium) mineralization under Lac Touladi to the west of the existing Main resource which has been the focus of exploration since its discovery in 1975. The setting is a large alkaline intrusive complex which has been invaded by a late stage nepheline syenite dyke that runs through the complex along its long axis. NioBay estimated a global resource of 40.8 million tonnes of 1,900 ppm Nb2O5 and 241 ppm Ta2O5. Unlike the St. Honore alkaline complex 150 km to the southeast which has nearly 1 billion tonnes of carbonatite mineralzation averaging about 4,000 ppm Nb2O5, carbonatite at the Crevier complex has only been observed in the form of inconsequential showings.
NioBay's primary focus is the James Bay carbonatite deposit in Ontario which has a global resource of 63.5 million tonnes of 5,247 ppm Nb2O5. A PEA completed October 2020 for a 6,600 tpd open-pit mining scenario generates an after-tax NPV range of USD $638 million to $1.25 billion within a discount rate range of 10%-5% and has an after-tax IRR of 31.6% at the base case price of $45/kg ferro-niobium (current price is $50/kg). Assuming no further dilution these economic figures indicate a future price target range of CAD $11-$21. However, NioBay's efforts to conduct a PFS during the past two years has been stymied by a combination of Covid complications, an anti-mining faction within the Moose Cree First Nation, and poor leadership that resulted in a community split between members who wish to see a local economy developed and those who prefer a traditional lifestyle of hunting, fishing and trapping. NioBay's biggest shareholder, the Osisko Group, has suspended further work until the people of Moosonee secure a consensus supporting a niobium mine in their backyard. The stock price subsequently collapsed and the new CEO, Jean-Sebastian David, turned his attention to Cervier in 2022 to see if there was any overlooked potential.
NioBay had spent $9 million between 2009-2011 on Crevier which resulted in a PEA with a marginal outcome. Efforts to conduct a PFS were suspended when scaled up tests of the flow-sheet did not replicate the assumptions used in the PEA. On January 25, 2023 NioBay announced that changes to the flow-sheet for the Main Zone ore had resulted in significant improvement of the concentrate grade and recovery, but none of that changes the low grade of the nepheline syenite zone. NioBay undertook a 10 hole drill program in the fall which initially focused on the Main Zone. But recent clear-cut logging made the area to the west toward Lac Touladi more accessible and the field geologists discovered carbonatite showings in a creek bed. Hole #5 was drilled across the creek with visuals that surprised management, prompting it to drill hole #6 across Lac Touladi. This yielded an even bigger surprise in the form of continuous carbonatite host rock with a wide range of pyrochlore grain sizes and abundance distribution; how the niobium grade behaves is impossible to eyeball, but what was clear is that the grade potential was superior to what is visually evident in the Main Zone core. Holes 8-10 were all angled across Lac Touladi and delivered similar intervals bottoming at a vertical depth of about 350 metres.
The implications are stunning. All these decades exploration has focused on the nepheline syenite dyke which as a harder rock, similar to pegmatites, is resistive to weathering and consequently easy for geologists to explore. Whatever attempts were made to penetrate the surrounding bush did not turn up any promising outcrops, and of course what was under Lac Touladi was invisible. Carbonatite is a soft rock that weathers easily and is susceptible to being gouged out by glaciers, similar to kimberlites which also usually weather recessively. The spacing of the 4 holes across Lac Touladi indicate a carbonatite body with a billion tonne footprint just a few kilometres west of the Main Zone that has received all of the historical exploration. While it has been confirmed by Quemscan thin section work that niobium bearing minerals like pyrochlore are present in the core, assays are need to establish the grade and its zonation. The footprint indicates a scale comparable to the Niobec deposit which has been underground mined for ore grading 5,000-7,000 ppm Nb2O5. If assays deliver long intervals of similar grade, Crevier will constitute a major new niobium discovery with a far superior location in terms of infrastructure and Indigenous communities engaged in local commercial activities such as logging.
The reason NioBay instructed the assay lab to redo the assays and sent core to another lab which has reliably done all the James Bay assays as a comparison control is that the assays for the 1-2 m intervals were all over the map and bore no relationship to the pyrochlore crystal sizes and abundance visible in the core photos. The reason the stock started to rise instead of falling was because investors started asking what this was all about and started to realize that management is expecting good results for the Lac Touladi holes at Crevier.
In addition, when I asked JS David why NioBay was staking lithium claims in Crevier's backyard, his answer was that the Quebec government recently released a lake bottom sediment study for the region north of Crevier beyond the Grenville Province within which the Niobec and Crevier alkaline intrsuve complexes sit. The lake bottom sediment survey data set the smarter juniors are using in the James Bay region to generate lithium prospects is an older data set. When JS David reviewed the new data set he combed his knowledge of prior work in the area to stake some obvious targets (Kenorland, another 2023 Favorite, has also been using the new data set to stake claims in this region). Since NioBay expects to be delineating a new discovery at Crevier this summer and has good relationships with local stakeholders it made sense to add lithium pegmatite prospects to its portfolio. It will be relatively cheap and easy to make or break these targets this summer. So this was not an example of a junior abandoning a dud project and heading off to a region where ambulance sirens are wailing.
NioBay Metals does have a booth at PDAC so if it gets reliable assays back before PDAC which confirm a significant discovery, it will generate a lot of buzz. However, PDAC will be important for NioBay because it isn't just mining and exploration companies which descend on Toronto, but also government agencies and stakeholder lobby groups. The Ontario government is waking up to the reality that all this "critical minerals" chest-thumping is meaningless unless everybody gets on side about how to develop critical mineral deposits in Canada so that the NZE policy goals have a physical shot at becoming reality. JS David will apparently be very busy at PDAC and there is a chance that a breakthrough gets achieved with regard to Indigenous support for advancing the James Bay niobium deposit. In the past there has been a lot of talk at PDAC about how the mining industry can do a much better SG job; this time there will be a lot of talk about how permitting agencies can streamline their processes so that new mines can be developed on a much timelier basis than has become the norm, something the International Energy Association pointed out as an obstacle to NZE goals in its January report.
Relative locations of Niobec and Crevier carbonatites
Drill Plan for 2022 drilling at Crevier
Crevier Main Zone Resource Estimate and Alkaline Intrusive Complex
Plan and Cross Section of Niobec Deposit
Sensitivity NPV Chart for NioBay's James Bay deposit
Sensitivity NPV/Share Chart for NioBay's James Bay Deposit
Niobium Supply Evolution Chart
Niobium Price and Supply Distribution Charts
Jim (0:08:33): Lithium producers and developers retreated during the past week. What does this mean for Lithium Mania 2.0?
Lithium carbonate prices started retreating from their $36/lb peak already in December but accelerated their decline in late February amidst talk about slower EV sales in China and elsewhere. The high level in 2022 was caused by an imbalance in supply and demand which is a natural feature of the metal market where there is always a lag between the decision to mobilize new supply and delivery of the new supply. The first imbalance was created during Lithium Mania 1.0 between 2015 and 2018 when the Australian pegmatite developers moved quickly to bring lithium supply on stream. But they proved quicker than the EV adoption curve, with the result that an over-supplied lithium carbonate market crashed the spot price below $3/lb during 2018-2020. At that level most pegmatite deposits were not worth developing, so supply mobilization stalled. But in 2021 it became clear that the car makers had gone all-in with shifting their future sales strategies from ICE to EV cars regardless of efforts by climate change skeptics and fossil fuel pumpers like Donald Trump to discourage the energy transition. It no longer mattered who was right or wrong about anthropogenic causes behind global warming.
The supply-demand imbalance reversed in 2021 which allowed lithium carbonate prices to increase ten-fold and spend all of 2022 in a $30-$35/lb range. But this also resulted in capital injections into advanced lithium pegmatite projects such as the Grota do Cirilo project of Sigma Lithium in Brazil. The US Geological Survey recently published its preliminary annual metal production estimates which showed that the 100,000 tonne lithium metal supply in 2021 was revised upwards to 107,000 tonnes while the 2022 supply is estimated at 130,000 tonnes. Lithium supply deals are based on long term contract prices, similar to uranium, which means that producers do not get the spot price if it has soared unless that level stabilizes. The $30-$35/lb range is not necessary to mobilize the 600% supply expansion to 700,000 tonnes lithium metal the IEA projects is needed to make 2030 EV sales goals a reality. Assuming inflation gets back to the central bank target of 2%, a $10-$15/lb range is a reasonable long term target to use when figuring out where the future supply will come from. Albemarle in fact suggests a minimum $9/lb is needed to fulfill supply growth requirements.
For battery makers like Contemporary Amperex Technology Co Ltd (CATL) the persistence of high prices is a problem because it becomes a benchmark for pricing long term contracts. So it was inevitable that an effort would emerge to bring the price of lithium carbonate level down and I would not be surprised to see it retreat back into the $10-$15/lb range. Helping out is a combination of new supply coming on stream in response to expectations that lithium will become a $100-$200 billion annual market by 2030 and a slowdown in EV demand growth during Q1 of 2023 brought about by recession concerns and the end of Chinese subsidies for EV purchases. This is bad news for existing producers like Albemarle and SQM who cannot grow revenues through rapid expansion of supply without engaging in acquisitions of emerging producers and which will suffer a decline in profit margins. So they became easy targets for Wall Street.
While the optics of an exponential metal price chart are never pleasing to the market when it goes in reverse, Lithium Mania 2.0 is not about future metal price speculation as it is with gold which has had a century of exploration for deposits that work at prevailing gold prices. It doesn't matter if lithium carbonate prices retreat 50% from their peak today because that will anyways happen in the long run. Lithium Mania 2.0 is about finding and delivering the second half of the 600,000 tonne supply expansion needed to make NZE 2030 goals reality. LCT style pegmatite deposits occur in most Archean settings, often in proximity to precious and base metals deposits, but have historically been ignored because lithium demand was stable and tracked macroeconomic growth trends - it was worth only $200 million in 2005. Now that the world is taking seriously the car maker shift to EV fleet sales and some governments are mandating zero ICE sales by 2035, there is a global scramble afoot to revisit all these known pegmatite systems or settings where they may not be sticking out of the ground and visible from Google Earth.
Lithium Mania 2.0 is about the next 3 years as an exploration scramble to find and delineate the best deposits for development in the second half of the decade. This is an exploration paradise for resource juniors because it is hard to predict who will not be successful in delivering a lithium development candidate. The James Bay region is shaping up to be the mother of all Great Canadian Area Plays. But other parts of Canada will also attract exploration for LCT-type pegmatites and may also yield world class deposits for the simple reason that there has never before been an economic rationale to explore for lithium. Wall Street will have its fun with established producers as the market realizes it cannot plug $30-$35/lb LCE prices into future revenue projections. And Wall Street will do its best to assist with mergers and acquisitions of emerging development candidates. The Albemarle scale producers face competition from car makers which themselves are now looking to own and operate the upstream mines that supply their critical minerals. This has been taboo for many decades. It creates an entirely new dynamic for the resource juniors focused on lithium.
To understand the enormity of Lithium Mania 2.0, consider the uranium bubble of 2004-2007 when the spot price was manipulated to $140/lb U3O8 and enormous capital poured into uranium juniors as everybody talked about soaring uranium demand as all these planned Chinese reactor come on stream. At its peak the uranium supply market was worth about $10 billion in 2006; 15 years later it is worth only $5 billion thanks to Kazahkstan developing its low grade deposits with the help of in situ leaching and flooding the market with low cost U3O8. During the Uranium Bubble few people anticipated how successful Kazakhstan would be at mobilizing new supply. It is possible that cheap new lithium supply may come from direct lithium extraction of lithium from oilfield brines, which is a technology approach similar to fracking and horizontal drilling of shale oil deposits. But the success of oilfield brine DLE is several years down the road and the car makers cannot afford to gamble on a technology breakthrough. LCT pegmatites are simple and the flow-sheets already understood. As far as resource junior speculators are concerned they should accept a lithium carbonate price retreat into the $10-$15/lb and not worry during the next 3 years about a DLE breakthrough flooding the market with cheap lithium.
Jim (0:14:45): Why is Brunswick Exploration trending higher even though they are in the midst if a financing?
Brunswick Exploration is in the process of closing two financings, $7.5 million in the form of a bought deal by Red Cloud that includes the over-allotment option, and another $2 million in the form of a non-brokered private placement being done with a handful of Canadian institutions and investors who do not have access to the Red Cloud allocation system. Some of these units will have the LIFE exemption, meaning they will not have a four month hold, but only a small fraction. The $9.5 million financing will boost Brunswick's treasury to about $16 million, more than enough to fund its 2023 summer field exploration plans and droll programs. Brunswick is bucking the downtrend created for the lithium producers by declining lithium carbonate prices because it is all about Lithium Mania 2.0, finding new lithium pegmatite deposits that will come on stream towards the end of this decade. Through its multi-pronged approach adopted in 2022 the junior has assembled a large portfolio of grassroots prospects selected on the basis of archival research and geology. Its Plex project in the James Bay region optioned from Osisko is part of the same geological trend that Virginia Mines assembled for gold exploration; the Corvette property owned by Patriot Battery Metals was part of this trend, except that the pegmatites outcropped more visibly. Trading in PMET is now dominated by the Australian audience which sets the tone for the Canadian trading through its earlier ASX session. The North American audience has now adopted Brunswick as its lithium pegmatite champion and the best bet for new success in the James Bay Great Canadian Area Play. It is to PMET what Aber was to Dia Met during the initial years of the Canadian diamond boom.
In terms of valuation one might complain that Brunswick is over-priced, given that it does not yet have a confirmed discovery that justifies S-Curve market action. However, Brunswick has positioned itself as a future developer of multiple deposits in different parts of Canada, thanks to its staking and optioning scramble during 2022 when James Bay juniors like Azimut and Midland were asleep at the switch. Now those prospect generators are waking up and looking at the James Bay lake bottom sediment data set and trying to convince the market that they accidentally are sitting on great lithium pegmatite potential. Some of these claim blocks may indeed host a major LCT pegmatite, but these juniors will have to spend the summer on field work to develop drill targets for the fall. Brunswick in contrast went after LCT-style pegmatite prospects with laser precision and a process of elimination strategy. Jean-Marc Lulin and Gino Roger may turn out to be lucky, but Bob Wares and Killian Charles have manufactured their luck. That is why the market is pushing Brunswick higher, a junior which plans to change its name to Osisko 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.
Kaiser Watch February 17, 2023: Elements of a Great Canadian Area Play
Jim (0:00:00): Nearly 3 decades ago you defined a Great Canadian Area Play on the basis of 7 key conditions. How did you come up with these criteria and is a Great Canadian Area Play still possible today?
I started following the Canadian junior resource sector in 1978 while in university and witnessed my first area play in 1982 when Murray Pezim's Corona discovered the Hemlo gold deposit in a part of Ontario whose deformation history was supposed to have killed the potential for large gold deposits. Over 20 million ounces were identified, a large portion of which graded 12-15 g/t gold, spread among 3 mines developed by 3 groups. The next big area play I experienced was the Eskay Creek discovery in the Golden Triangle of British Columbia, again by a Pezim led junior. This was followed by the Ekati diamond discovery in late 1991 by Dia Met and BHP which was unusual in that it introduced the Canadian geological community to a "target" about which it knew next to nothing. It coincided with a knowledge explosion caused by the collapse of the Soviet Union in 1991 and cracks in the tight lid De Beers kept on its employees. What should have been an area play limited to Canada's Slave Craton spread into other parts of Canada and worldwide. What made these area plays special was that they delivered unexpectedly high value prizes, had replication potential over a large scale region, ended up with many junior participants as a result of staking rushes, and emerged from resource junior bear markets. I coined the term "Great Canadian Area Play" to distinguish its dynamics from ordinary area plays.
In 1994 I left my job as a brokerage firm research analyst and moved to California where by late 1994 I had launched the Kaiser Bottom-Fishing Report, a hard-copy newsletter mailed every two months. For the January-February 1995 edition I took a look at the nickel-copper discovery Diamondfields had made in October 1994 at Voisey's Bay and what looked like an emerging discovery at Lebel-sur-Quevillon in Quebec. The question I posed was, which one could evolve into a Great Canadian Area Play? The result was my Great Canadian Area Play analysis, on the basis of which I concluded Voisey's Bay would not become a GCAP but Lebel-sur-Quevillon could. As it turned out, when Diamondfields deilvered the Ovoid discovery hole, the implications were so big a GCAP erupted even though Robert Friedland's company had already staked all the relevant geology. Lebel-sur-Quevillon, in turn, fizzled when drilling revealed the wideness of the surface trenched gold zone to be an illusion due to the shallow dip of the mineralized zone.
An area play develops when a junior makes a significant new discovery that prompts a staking rush by other juniors hoping to make a similar discovery. This works only in countries where mineral rights can be obtained overnight through staking. Until the mid 1990s all staking in Canada was physical and continues to be so in the United States when mineral rights are not part of surface rights. Physical staking involved securing wooden posts to mark the corner of each claim unit and pounding them into the ground. This was not an overnight exercise and there would emerge title disputes when different groups staked overlapping claims. Today in Canada (Yukon excluded) physical staking has been replaced by online staking which means anybody can become a mineral rights holder if they have a credit card with a large enough credit limit. The digital nature of online staking eliminates title disputes because once an individual has successfully staked a claim it is no longer available online for staking. Arguably online staking should diminish the potential for an area play to emerge because a junior with assays that indicate a major discovery can very quickly stake all geologically relevant land near the discovery.
During the 2000's the focus of Canadian resource juniors shifted away from discovery exploration into feasibility demonstration as the China super cycle pushed up real metal prices and dragged marginal and forgotten deposits into the money. Virginia's discovery of the Eleonore gold deposit in Quebec's James Bay region sparked a staking rush, but the area play never achieved GCAP status. The greatest hope arose in October 2007 when Noront appeared to have discovered a magmatic segregation style nickel-copper deposit similar to Voisey's Bay in the Ring of Fire region of northern Ontario. The McFauld's Lake area play had emerged when diamond exploration yielded targets that turned out to be VMS systems, though none that qualified as discoveries. In an Oct 19, 2007 blog comment I asked: Is McFauld's Lake Shapiong up as a Great Canadian Area Play? Almost a year later on Aug 18, 2008 I asked rhetorically Could McFauld's Lake become the Greatest Canadian Area Play ever? Noront's Eagle nickel discovery had turned out to be a small pencil shaped deposit that was isolated, not a tentacle attached to an octopus as DFR's initial dyke intersection turned out to be linked to the Ovoid. A month later Wall Street's 2008 financial crisis plunged the world into recession, exploration risk capital vanished, and the Ring of Fire area play fizzled.
Since then I have been pessimistic that a Great Canadian Area Play can ever happen again, especially with most of Canada now available for online map staking. But in 2022 when I began to understand how much additional lithium supply was needed to meet the 2030 net zero emission goals in the form of electric vehicle sales I realized that a global hunt for lithium enriched pegmatites was needed, what I call Lithium Mania 2.0 to distinguish it from Lithium Mania 1.0 which focused on mobilizing new supply from Australian pegmatites and brines from South America's Lithium Triangle. These regions could deliver half the required 600% lithium supply expansion by 2030, but the other half would need to come from cratons elsewhere in the world such as Canada, Scandinavia, Africa and Brazil. This implied a 2-3 year window of discovery exploration with lots of potential S-curve market action. This would result in many lithium focused area plays all over the place. But when I watched how quickly Patriot Battery Metals delineated the CV5 pegmatite cluster within its Corvette property in Quebec's James Bay region with a combination of grade and tonnage that has world class scale, and realized that similar potential exists all over this region with all manner of juniors either already sitting on prospective ground due to earlier precious and base metal exploration efforts, or staking new ground on the basis of rethinking existing data sets in terms of lithium potential, it struck me that James Bay is shaping up as a Great Canadian Area Play. And it is still in the awakening, land grabbing stage, and facing two years of intensive exploration activity.
Jim (0:07:13): Your first condition asks: Does the discovery have an unexpectedly high value potential? Why does that matter?
"Initial results must indicate a discovery with a potential size and value well in excess of expectations. There must, of course, be a discovery. The inferred economic value must be high enough to turn heads and constitute a homreun for the discovery junior's shareholders."
Jim (0:11:04): Your second condition asks: Is there an element of surprise that leaves open the possibility for more and even better discoveries? How does James Bay fit that?
"The discovery should come as a surprise because of one of the following: a) the general area is a frontier that has never before been explored, b) past exploration was superficial or inadequate, c) the area has never been systematically explored for the key mineral or metal in the discovery, d) the discovery implies a new geological model that the focus of past exploration would have missed. Any of these circumstances leaves open the potential for additional discoveries given a proper exploration effort."
Jim (0:17:38): Your third condition asks: Is it probable the discovery junior didn't get it all? How can one tell?
"The discovery junior cannot tie up so much land that surrounding land is hopelessly out of the running for a similar discovery. How much is too much depends on the nature of the discovery's geology. The Lac de Gras area play had a tough time initially getting off the ground because suggestions that Chuck Fipke "got it all" had an air of plausibility about them. Although Dia Met Minerals staked a block with an unprecedented size of 853,000 acres in an effort to tie up an entire cluster of diamond pipes, the nature of diamond pipes was such that a few did manage to get away."
Jim (0:22:44): Your fourth condition asks: Are there lots of different players with strategic land positions? Why does that matter?
"Key satellites with strategic land positions must be run by a variety of management groups. The more groups involved, the broader the audience that news of the play will reach. Furthermore, the more groups mounting their own intensive exploration programs, the better the flow of results and potential for making additional discoveries. Nothing gives a flagging area play a boost like evidence of another discovery. The attention of area play speculators can be better maintained if they know lots of focused work being done by many companies could generate surprises that inject fresh life in the play."
Jim (0:25:20): Your fifth condition asks: Is it a rags to riches story? Why does that matter?
"The discovery junior must start out as a penny stock, and many of the satellites must be relatively cheap stocks that offer plenty of liquidity during the early stages of the discovery play. Again, the affinity between bear market and area play is a factor. A bear market exists when investors have come to believe that not making money is what speculative stocks are all about. A real discovery has the effect of drawing money into circulation. The more participants during the ascent, the greater the likelihood of profit recycling in satellites. In a bear market investors tend to shy away from higher priced speculative stocks, preferring to get their feet wet again with low priced penny stocks. In this regard the Lac de Gras play was a classic. An obscure penny stock called Dia Met rocketed from $0.30 to $65 over an 18 month period. Most of the satellites were semi-defunct companies of which investors could have bought all they wanted during the early stages of the area play in 1992. The shares of Dia Met and the satellites traded considerable volume as they emerged from the pennies. During the early stages of Dia Met's rise there was no lack of paper for small investors to buy. Along the way buyers became sellers. Flush with cash and high on the fast buck made, early winners recycled profits in satellites. As the discovery play acquires an egalitarian rags to riches mystique, wannabe newcomers are attracted."
Jim (0:30:25): Your sixth condition asks: Is there sharing of information among the insiders of both the discovery junior and the satellites? Why is this important?
"Some insiders of the discovery junior should be affiliated with some of the satellites. That is the best way to ensure a flow of information. A major discovery turns the individuals responsible into geniuses in the eyes of the market. If the discovery insiders remain secluded within the confines of their company, as was the case with Dia Met, the satellites can draw neither intellectual nor emotional nourishment from them. Because geology involves a think, search, test, think cycle, exploration benefits from the sharing of information and ideas. Discovery plays all start with ignorance and confusion about the geological nature of the discovery. Blind speculation, which is the main driver early in the area play, may be a powerful force, but it is also volatile and can quickly evaporate. For a speculator to get hooked and forget about playing the inherently unstable greater fool game, he must arrive at an increasingly detailed understanding of the discovery play. Only the sense of understanding can turn a speculator into a true believer. Every speculator is happier if she thinks she knows what she is doing. For an area play to grow, channels must be open for knowledge to flow from the discovery to the satellites to the investors. Dia Met shared nothing with anybody else, a stance adopted by most of the Lac de Gras satellites. The Lac de Gras area play died not so much because of the Tli Kwi Cho bust, but more so because investors realized that they had never really understood what was going on, nor would they ever be permitted to understand until it was of no speculative value anymore. The satellites would like to convince investors that they too will make a major discovery. Their credibility is greatly enhanced if they have on board people associated with the discovery junior. Somebody who just found the motherlode will know how to find the next one, so goes the thinking."
Jim (0:36:05): Your final condition asks: Is the market's valuation of the discovery junior such that confirmation of the best case scenario still leaves substantial upside?
"For a Great Canadian Area Play to evolve, Canadians must have opportunity to doubt the discovery and call the early risk-takers foolhardy. The evidence supporting the discovery's potential must be presented in stages so that the earliest believers face a constant struggle to convert the unbelieving masses. As the evidence builds, so does the strength of the believers, whose zeal captivates the skeptical bystanders."
Disclosure: JK does not own any of the companies mentioned
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.
This was the week trading shifted from Canada to Australia. PMET released results on Sunday ahead of trading opening on the ASX for Monday, announcing that 4 holes drilled east of hole 93 had intersected broad intervals of spodumene bearing pegmatite, adding 400 m to the CV5 pegmatite. It is another 1,600 m to the CV4 outcrop on the north shore. Angular boulders found 1 km south of the lake suggest the lake covers a continuation of the pegmatite. We may get a weekly report of stepouts.
Trading on the TSXV on Monday morning reflected PMET's move on the ASX and triggered a broad rally in James Bay juniors that helped Brunswick Exploration clear $1 on the upside. Even Dios Exploration broke through $0.10 on the upside. By Wednesday morning, however, the James Bay area had cooled and PMET traded as low as $15.25 before a late day rally took it back through $16 before closing at $15.93. The rally also swept up Brunswick which closed at its previous $1.05 high.
It is now clear that Australian investors are driving James Bay sentiment, in particular with regard to PMET. ASX trading begins at 10 AM Sydney time, which is 3 pm Vancouver time, two hours after Canadian trading has closed. It now seems to me that when Australians wake up early in the morning they are checking the Canadian markets and buying PMET in the last hour if is cheap and sentiment remains strong in Australia. This last hour rebound in PMET may be inspiring Canadian and American investors to buy the other area play juniors.
This action reminds me of the diamond play in 1992-93 when Canadians were still trying to get their heads around the concept of diamonds in Canada. Investors in Europe and South Africa understood what Dia Met's Ekati discovery was all about. In a similar vein Australian investors who have lived through Lithium Mania 1.0 understand what is now unfolding in Canada's James Bay area whereas North American investors are still skeptical that this just another battery metals flash in the pan. In London which is 8 hours ahead the Canadian market would be open between 2:30 pm to 9 pm, so if there was good news released in Canada, there would be a flurry of buying early in the trading session after which the Europeans would sign off when they went home for dinner. For the center of gravity to swing back to Canada we need to see evidence that a major company is taking interest in PMET or completion of a big $100 million plus equity financing from institutions such as Blackrock, not just the Canadian ones, which validates the current implied project value of $2 billion.
That CAD $2 billion implied value (on a 100% basis, as calculated from Dia Met's fully diluted, 29% net interest and stock price) was what Dia Met achieved in April 1993, a mere 15 months after news of the Ekati discovery broke in late November 1991. A $3 billion value was achieved in 1997 but when BHP bought out Dia Met for its 29% stake in Ekati in 2001 the valuation was about $2.4 billion. The dream in 1993 was that Ekati would yield a truly world class pipe comparable top Jwaneng in Botswana, but that never came to be. In terms of the rational speculation model the Corvette project's valuation is in S-Curve territory, which is only possible because investors see multiple occurrences of CV5 scale lithium pegmatites within the Corvette trend that could be developed simultaneously to feed a giant processing facility with a capacity much bigger than the scale limit for open-pit mining these linear bodies.
Pilbara Minerals which today has a market cap of AUD $14.2 billion is an example of what PMET could become. PMET's price chart looks more impressive than that of Pilbara, but PMET has only 130 million fully diluted compared to 3 billion for Pilbara. One has to do the value math. The biggest obstacle to an aggressive move by the likes of Rio Tinto or institutional funding is concern that Canada, Quebec and its local First Nations groups lack what it takes to help make happen the 2030 EV goals seen as necessary for net zero emission by 2050. In the past the theme at PDAC has been what can the mining companies do to make the world a better place. I suspect this year the theme will be what can the government and First Nations do to help the mining companies make the world a better place.
The 7:1 rollback for X-Terra doesn't make a lot of sense. Post rollback there are 16.4 million shares issued and liquidity is gone. They raised $600,000 FT in December. Their Liberty property is on trend with the Jamar pegmatite of Winsome Resources which is helping Winsome raise AUD $60 million in a combination of flow-thru, rights offering and institutional private placement. Now the X-Terra stock is sinking. Cheap financing at a post rollback slumped price for the usual Quebec suspects at the expense of minority shareholders, or farmout deal with Winsome that pauses dilution? Winsome has moved on the basis of the Jamar showing whose apparent trend cuts through the corner of the Gallinee project of Azimut and Soquem which really has no implications for Azimut unless there are parallel repetitions, put the trend projects onto the X-Terra Liberty claim. Winsome's news releases and presentations very carefully avoid indicating what other companies are nearby, and since Jamar has emerged as the higher grade focus, graphics are all very small scale. X-Terra is an incompetent junior which has let somebody create the sort of useless web site popular with "battery metal" life-style juniors - lots of fancy dancing widgets but useless or outdated information and of course a "Frankfurt listing". They haven't updated their presentation since June 2022 and even then did not know that Winsome is the new owner of the Adina project. But I have taken the liberty to clip the map from the outdated presentation and marked it up to show how the trend of the Jamar pegmatite points at the Liberty property. I have also provided a snapshot of the web site as of February 9, 2023 to show how out of date it is. How lazy and irresponsible can a junior's management be?
Showing how Jamar Pegmatite in Winsome's Adina property relates to X-Terra's Liberty claim
Drill Plan for Jamar Pegmatite at Winsome's Adina property
Snapshot of X-Terra's fancy but hopelessly outdated web site
IPV Chart showing relative valuations of Winsome's Adina and X-Terra's Liberty projects
Jim (0:13:00): Why is Harfang Exploration catching market attention?
P>Harfang Exploration Inc, which since inception has been focused on gold and base metals exploration in the James Bay region, has gone on a lithium staking binge that draws on CEO Ian Campbell's experience as exploration VP for Avalon in the late 1990's when it discovered the Big Whopper pegmatite at Separation Rapids. Most geologists have never had reason to know much about pegmatites other than to recognize and avoid them because they had zero economic potential. Harfang has used lake bottom sediment geochemistry and geology to identify settings with potential LCT-type pegmatites. They aren't on trend or close to current hotspots, which is what makes them interesting when the company puts boots on the ground this summer. Its primary focus is Lake Marinek whose gold potential is being drilled now. The company has $8 million working capital and is part of the 2023 Bottom-Fish Collection. The IPV Chart shows that the market is assigning a value of only $16 million to Harfang's 100% owned projects.
Kaiser Watch is a weekly 15-30 minute audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.
Kaiser Watch February 3, 2023: The Eye of the Hurricane
Jim (0:00:00): What was the Metals Investor Forum in Vancouver like last week?
I was very surprised on Friday January 27 when I showed up at the Metals Investor Forum by the largest attendance I have ever seen since MIF started up in 2015. Joe Mazumdar spoke to a full house and I do recommend watching his presentation Year of the Tiger: Started with a Roar..." because it provides an excellent description of what happened in 2022. Oddly, he didn't mention the word "lithium" once, and "critical minerals" only twice, even though one of his companies, Azimut, had doubled that week after coming out of the closet and confessing that some of its properties in the James Bay region had lithium potential. In fact, Jean-Marc Lulin devoted only one slide and less than a minute to Azimut's lithium potential - he is much more excited about James Bay's nickel potential. His stock managed to go down on Monday while James Bay lithium stocks generally moved higher.
I thought maybe the best ever attendance was due to the Roundup that week, a technical conference where apparently 5,000 delegates participated, and the subsequent retail Vancouver Resource Investment Conference on Jan 29-30 where apparently about 4,500 investors showed up compared to the dismal 2,000 in May 2022. But the MIF turnout on Saturday was just as strong and I also spoke to a full house. I've collected the Youtube links to the presentations and backstage interviews for my group in KRO Blog Comment Feb 2, 2023 which also includes a link to the pdf for my presentation. At the start of my talk I asked the audience for a show of hands from those who thought we were still in a bear market. Only a couple hands went up. So I asked who thought we were in a bull market. Again only a couple hands went up. It was then that I realized we are in the eye of a hurricane transitioning from a horrible decade long bear market into a bull market that may rage the rest of the decade. The big test will come a month from now in Toronto at MIF March 3-4, 2023 ahead of the PDAC conference March 5-8.
People sense that something different is happening in the junior resource sector, and the theme of my talk, "Implications of Geopolitics and the Energy Transition for Resource Juniors", is that the drivers are very high level and will not change any time soon. One is the climate change policy goals for zero net emissions by 2050 which the car industry has already embraced on a scale from which there is no turning back. The other is the rising geopolitical tension between autocracies like China-Russia and democracies like the United States and Europe, which the rest of the world wondering whose side to take. The fracturing of a globalized economy will have an enduring impact on gold demand as the central banks of autocracies develop ways to avoid settling trade in US dollars and converting trade surpluses into US debt instruments. But it also risks disrupting security of supply assumptions for raw materials, some of which require new supply to make 2030 electric vehicle goals a reality. Efforts to dial back the China-America tension were dealt a blow by the Chinese "weather" balloon fiasco, and Russia's determination to conquer Ukraine and make its people part of Russia's slave culture will escalate the democracy-autocracy showdown.
One of my subscribers sat in on all the other MIF presentations and reported that not one of my peers mentioned lithium. But there was a lot of blather about silver which I don't understand. Demand for silver has no major new usage drivers such as electric vehicles are creating for lithium which will be a market worth $100-$200 billion by 2030. Compare that with silver whose production value in 2021 was worth about $19.4 billion compared to $18 billion for lithium, which will be double that in 2022 while silver's will be unchanged. Some talk about the "Great Reset" as a conspiracy by corporate elites to use ESG concepts to establish an autocracy which they spin as "socialist" rather than "totalitarian". This type of apocalytpic discourse and doting on silver is not going to attract the Millennial and Gen-Z generations to the resource junior sector. You can catch all the talks at the Metals Investor Forum YouTube Channel.
Lithium Supply History
Silver Supply History
Jim (0:06:53): How are your 2023 Favorites doing so far this year?
The 2023 Favorites are up 20.1% as of February 3, 2023 which is better than the 2022 Favorites did in January last year. Last year's Favorties peaked at 32.8% in April 2022 before ending up down 41.9% and finishing the year dopwn 36%. But even that group has recovered somewhat and is now down only 16.6% from the start of 2022. The best performer so far has been Brunswick Exploration Inc which is up 64.2%, followed by Century Lithium Corp which is up 51.7%. Not surprisingly, both are lithium juniors.
Claystone projects in Nevada received a boost when the Department of Energy offered a $700 million loan to Ioneer conditional on securing a permit for its Rhyolite Ridge project which is being opposed because a rare buckwheat species grows on the property. This past week GM made a $650 million equity financing offer to Lithium America's for its Thacker Pass project, also conditional on securing a permit which is being blocked by Indigenous objections. That a car maker like GM would move to the very top of the stream to secure a domestic source of lithium for its EV fleet is an amazing development which makes me wonder if it is GM that is the secret 9.9% strategic investor in FPX Nickel Corp.
The most important lithium development this week is the James Bay region turning into a full-blown Great Canadian area play for its lithium potential. We have not seen a Great Canadian Area Play since the 1990's when Dia Met discovered the Ekati kimberlite cluster in Canada's Arctic, and in 1995 when Diamond Field's discovered the Voisey's Bay nickel-copper deposit in Labrador. It's kind of ironic that open pit mining of the Ovoid ends this year. In 1992 the entire Slave Craton ended up being staked, and that was before online staking. That was an area the size of Switzerland. The James Bay region has similar scale and will end up being staked wall to wall even though 90% of the ground is not prospective for LCT enriched pegmatites. Juniors like Azimut who have toiled for decades in the James Bay region are discovering their claims have lithium potential. This makes sense because the sort of geology prospective for base and precious metals tends to adjoin geology prospective for pegmatites.
My KRO members are having a lot of fun during this early erupting stage of the Great Canadian Area Play. One of them managed to track down a 2007 technical report Virginia Mines did for its Poste Lemoyne Extension project which Brunswick has optioned 90% from Osisko and calls the Plex project. The technical report indicates that the basalt hosted Orfee gold zone adjoins a large outcropping pegmatite at least 2 km long and up to 300 m wide. In fact, drilling of the Orfee zone had to pass through pegmatite which was never assayed because back them lithium deposits were worthless. This is the same host geology as the Corvette trend which Patriot Battery Metals acquired from Osisko and where about 100 holes have delineated a tonnage footprint of at least 50 million tonnes for the CV5 pegmatite cluster. The northeastern end of this pegmatite continues under a lake, possibly another 2 km to the CV4 pegmatite outcrop on the northern shore. Hole 93 reported on January 30 for the northeastern limit of this body yielded excellent intervals. If Brunswick can get access to the Orfee core and confirm that this pegmatite is LCT type, it could start permitting right now to begin drilling in June after spring thaw.
Despite a rocky week which saw gold plummet $50 and cool off the resource juniors, the animal spirits surged back into the lithium juniors and pushed PMET to a new high amid speculation that Australian lithium producers like Mineral Resources were contemplating a run at PMET. And we know that Rio Tinto, which already has lithium brine production and the stalled Jadar project in Serbia, is eyeing the James Bay region which is also known for its reservoirs that produce clean energy in the form of hydro-electricity. PMET currently has a $2 billion market cap. If lithium is going to be a $100-$200 billion market by 2030, how much is too much for a premptive cash bid by Rio Tinto in a jurisdiction where it already operates the Alcan aluminum smelters and iron mines? The Corvette property tracks 50 km of prospective pegmatite geology. Can anybody imagine what would happen to the all the other James Bay juniors if Patriot Battery becomes the target for a hostile takeover battle?
Geology will be important in a way that it was not for the diamond play on the Slave Craton because kimberlites originate in the mantle, pick up their diamond payload near the base of the lithosphere, and can erupt anywhere. You find diamond pipes by till sampling vast regions for indicator minerals that have been dragged from the exposed source by glaciers. So any junior could end up with a major discovery. The same does not apply to LCT pegmatites which evolve within granitoid intrusions and migrate to their margins during which fractionation causes lithium enrichment. Where a recent arrival in the James Bay region could still get lucky is when the geology has been poorly and on closer inspection the junior discovers its claims cover prospective geology. Most juniors will not be in a position to drill targets until Q4 of 2023, but during the early stages of a Great Canadian Area Play the smallest shred of evidence will be magnified by a market looking through a 90% full glass.
In terms of where the James Bay Lithium Area Play is today in comparison to the 1990's Diamond Boom, we are in February 1993 jus ahead of the April 1993 explosion when Dia Met and BHP delivered new evidence supporting the Ekati discovery, and Rio Tinto, which had farmed into the DHK land package south of Ekati, discovered the large Tli Kwi Cho pipe with micro diamond counts comparable to those reported by Dia Met. This refuted claims by Chuck Fipke that he "got it all", and although Tli Kwi Cho turned into a bust, a year later Rio Tinto and Aber had discovered the Diavik cluster which became a world class mine.
The Canadian diamond boom spread well beyond the Slave craton into other parts of Canada, and even the world because third world frontiers opened up in the wake of the collapse of the Soviet Union. The annual rough diamond market was worth $8 billion in 1993 and three decades later has only grown to $14 billion. The annual value of lithium supply was $200 million in 2005, was worth $30 billion in 2022, and, even if lithium carbonate prices decline into the $10-$15/lb range, will be a $100-$200 billion market in 2030-2040, with only half the required supply so far identified. This has to happen unless governments are prepared to give up policy goals of replacing fossil fuel burning ICE cars with lithium ion battery powered EVs. While Quebec's James Bay region will emerge as a major lithium mining district, other parts of Canada will also see lithium deposits delineated and possibly developed. Lithium Mania 2.0 is thus not just about the James Bay Lithium Area Play, but about the broader hunt for the missing half of future lithium enriched pegmatite supply, whose extraction, unlike "direct lithium extraction" technologies for brines which remain to be commercialized, is well understood.
