Kaiser Bottom Fish OnlineFree trialNew StuffHow It WorksContact UsTerms of UseHome
Specializing in Canadian Stocks
SearchAdvanced Search
Welcome Guest User   (more...)
Home / Works Archive / Kaiser Blog
Kaiser Blog

Kaiser Watch February 17, 2023: Elements of a Great Canadian Area Play

Posted: Feb 17, 2023JK: Kaiser Watch February 17, 2023 with Jim Goddard and John Kaiser
Published: Feb 17, 2023KRO: Kaiser Watch February 17, 2023: Elements of a Great Canadian Area Play
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 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

You can return to the Top of this page

Copyright © 2023 Kaiser Research Online, All Rights Reserved