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Kaiser Media Watch Blog - November 1, 2023 to November 30, 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 November 22, 2023: Is a new age of discovery dawning?
Jim (0:00:00): What is the significance of the Hercules copper discovery?
Although the market is in a very bad mood about the Canadian junior resource sector, and seems to be dumping everything as year end approaches because everything is doomed to failure, Hercules Silver Corp stands out about how not every bottom-fish testing a geophysical anomaly needs to have a negative outcome. Hercules Silver Corp used to be called Bald Eagle Gold Corp which had a low sulphidation epithermal gold play in Nevada called Hot Springs which it sold in 2021 and then acquired the Hercules Silver property in western Idaho. This was a CRD zinc-lead-silver system with 28,000 m of historical drilling and the name was changed to Hercules Silver so that the stock can be promoted to silver bugs. To fund the silver pivot Hercules had to do a couple dilutionary financings including 30.7 million units at $0.08 in June 2022 and 28.8 million units at $0.20 in April 2023. The result was about 242 million fully diluted. This year the stock has traded mainly in the $0.20-$0.30 range but started to trade more actively in September when the junior rewarded shareholders with some high grade silver assays.
What was interesting about the September 8 news release was that it included a discussion about a blind copper porphyry target that had emerged from the 2022 field season. The southeastern part of the property has some copper smoke at surface which was untested, so this year in addition to swiss-cheesing the CRD target they drilled hole 23-05 to test an IP target beneath the copper soil anomaly. The IP anomaly also extends underneath the shallow CRD mineralization. On October 10 Hercules reported the copper discovery hole assays, 185.29 m of 0.84% copper between 246-431 metres, which included 45.33 m of 1.94% copper. There is also a modest molybdenum credit and the silver is 2.6 g/t. This blind copper porphyry system sits beneath the rhyolite hosted silver system into which over 300 historical holes have been drilled.
The copper grade so far looks high enough to support underground mining. This is the sort of outcome we have been hoping for from Tim Marsh's Bell Copper Corp but the extraordinary 1,200 m depth of the Big Sandy porphyry target in Arizona has turned that into a drilling slog. The Hercules project is now shaping up to be a blind copper porphyry district play. This development is significant because it involved a junior with enough stock out to qualify for a rollback and which did science based exploration work on the entire property, not just the high grade silver portion where the goal was to please silver bugs with flashy assays while waiting for the long awaited silver boom. This geology driven approach that looks at the big picture potential of a prospect is what discovery exploration is all about, and even though the CRD silver-zinc-lead zone has become irrelevant, I doubt the silver bugs will complain that lurking beneath the silver zone is potentially something far more valuable.
But what is even more significant is that a month later on November 6 the stock was halted for an announcement that Barrick was buying $23.4 million worth of stock at $1.10, a 37.5% premium from the prior day's close at $0.80. On the new fully diluted basis of 264.8 million that priced the Hercules project at $290 million. Barrick did this while assays for additional holes into the IP anomaly that represents the copper zone are still pending. Barrick now owns 33.6 million shares plus 6.8 million warrants. At Wednesday's $1.50 closing price Hercules had an implied value of nearly $400 million.
Finally, the discovery is significant because it reminds the market that when a major metal endowment is present in an area, it is worthwhile to rethink the bigger scale potential, as happened in 2015 after Richard Warke's Arizona Mining Inc had wasted $40 million demonstrating that the Hermosa-Taylor open-pittable silver oxide resource was worthless, and exploration VP Don Taylor started to investigate the zinc-lead silver sulphides at the base of the proposed pit limit. Out of this emerged a 92 million tonne deposit grading 4.2% zinc, 4.3% lead and 72.3 g/t silver (now bigger) which South32 bought in 2018 at $6.19 for $2.1 billion cash. This discovery also emerged from an extremely bearish market when everybody, including me, was blaming the malaise on the elimination of the uptick rule for short selling which turned the financial sector into a machine for stripping risk capital out of the resource junior market. Although daily value traded is higher today, the structural problems remain, and have been compounded by an anti-mining attitude against which Canada's government has failed to push back against, and has even worsened the situation by empowering First Nations to assert veto rights over Canada's mining future. To catch up on the structural problems, check out the first half of my Feb 15, 2013 Streetwise Interview: Can the TSX Venture be Saved?. You can also check out the Black Friday Short Selling Emergency Session. If you are a cynic you will recognize this as a sign of the dawning of a new age of discovery.
Hercules Drill Plan for Holes into the Blind Copper Target
Graphics showing how the IP Anomaly relates to the historical CRD Ag-Zn-Pb zone
Plan and Section for 23-05 discovery hole
Hermosa-Taylor OV showing how Rational Speculation Model works
IPV Chart for Hercules Silver
Jim (0:09:35): Should the market be holding its breath for assays from Adamera's Buckhorn 2.0 drill program?
I talked about Adamera Minerals Corp in my October 20, 2023 Kaiser Watch Episode as part of a discussion about Solitario's permitting delays at its Golden Crest project in South Dakota. At the time Adamera was scrambling to get a couple holes drilled into the VTEM-30 target located about 1.5 km from the former Buckhorn Mine in northeastern Washington. Adamera had just raised $250,000 through a nickel unit financing and the permit was set to expire at the end of October. The geophysical target was part of the dataset Adamera acquired from Kinross in 2021 which included VLF and VTEM surveys. These anomalies are supposed to indicate conductivity which can be explained by graphite or sulphides, but when Adamera drilled several such targets last year it didn't find any explanation for the conductivity. The VTEM-30 target was subtle and was located at a depth of 200-300 metres. Kinross wanted to drill it as part of its giant plan of operations permit application which the USFS rejected, causing Kinross to drop the land surrounding the Buckhorn Mine when it was depleted. Mark Kolebaba wanted additional support for this target and completed an audio magnetotelluric (AMT) survey over it this year which confirmed the anomaly.
The drill program had two purposes. One was to discover a disseminated sulphide body with economic gold grades that kicks off delineation drilling in 2024 when Adamera gets a new permit from USFS. The other was to find a disseminated sulphide body which, although it had little gold or none, confirmed that AMT surveys were useful for upgrading the other VLF/VTEM anomalies of which there are a lot. The first outcome would make bottom-fishers a lot of money. The second outcome would probably result in a rollback, but it would justify keeping the Buckhorn 2.0 story alive by applying AMT surveys to the remaining targets.
On Thursday November 16 Adamera reported that it had completed two holes, one a near vertical hole at 85 degrees angle, and the other at 50 degrees. The 2 holes drilled from the same pad intersected 60 m of disseminated sulphides for the first hole and 90 m in the second angled hole at the expected depth of the flat 1,000 m x 400 m AMT anomaly. Although the news release says true width is unknown, the anomaly's shape and drill intersections suggest a laterally extensive body about 60 m thick. The tonnage footprint of such a body is in the 60-80 million tonne range, so if this contains zones enriched with gold at underground mineable ore grades, VTEM-30 would be a major discovery.
What the press release did not say, which may explain why the stock dropped a penny on the day of the news, was that the intensity of the sulphides varies within the intervals depending on the host rock, and that chalcopyrite (copper) is present along with the iron sulphide pyrrhotite which is responsible for the magnetic and conductive features of this anomaly. Peter Cooper, the now retired former chief geologist for the Kettle River operations of Kinross and who would be very intimate with the Buckhorn 1.0 mine's mineralogy, apparently told Mark that mineralization of this nature has never been seen on the Buckhorn property. Kinross mined 3.5 million tonnes at an average 12.6 g/t gold grade from the Crown Jewel from 2008-2017, recovering about 1.3 million ounces gold. In May 2022 I created an Outcome Visualization for Buckhorn 2.0 that shows what a new Crown Jewel might end up being worth today. At CAD $1.4 billion it is not a world class outcome, but depending on dilution along the way it would deliver 50-100 times price gains for Adamera for current levels. The Crown Jewel gold was hosted by flattish skarn zones with magnetite and garnet, but these features are not present in the VTEM-30 intersections. The new mineralization looks like a structurally controlled zone that cuts through both limestone-marble and clastic shales, but it may very well have been the subject of the same hydrothermal system that created the nearby Crown Jewel. At this early stage we don't have to assume VTEM-30 might be only as big as Crown Jewel; for now the geophysical context allows speculators to dream much bigger.
When Mark Kolebaba first looked at the core in the box he was disappointed but once the core was washed clean and looked at through a hand lens he was surprised to see the extent of sulphides. The vertical hole also intersected a deeper sulphide body that the AMT survey had indicated, but those sulphides looked less interesting. Last weekend Mark drove back to Buckhorn 2.0 armed with an XRF unit to do a qualitative assessment of what goodies and pathfinders are present within the sulphide intervals. You cannot use an XRF unit to conduct a preliminary assay of core but it can give a qualitative sense of what elements are present with what sort of abundance range but this does not work for gold. He was surprised at the high level of pathfinder elements such as mercury and tellurium along with copper, which was already evident visually as chalcopyrite. In fact even silver kicked, which is interesting because although the Crown Jewel is treated as a gold deposit, it had a silver credit at a 1:1 ratio to the gold grade. 10-15 g/t silver has a tiny rock value relative to 10-15 g/t gold, but if this VTEM-30 sulphide mineralization was precipitated by the same hydrothermal system that drove the Crown Jewel, the presence of a silver kick gives reason to be optimistic. But it is the presence of the other pathfinders which are a reason to hold one's breath for the assays. Kolebaba had been quite despondent about the market reaction but on Wednesday somebody decided to clean out the offers and the stock closed at $0.055 on 980,700 shares. He says his phone started to ring that morning as people familiar with the story called to ask why the stock was up. We are in an interesting market.
He says the hole also confirmed the deeper anomaly as sulphides but that interval is not as "interesting" as the shallower zone. Because of the large footprint of the zone all we need from initial assays is confirmation that gold is present to justify additional drilling to determine what might control richer zones. While the XRF readings cannot predict gold content, the variations of key elements could become a benchmark for assessing the potential of future drill holes.
Adamera will have to apply for another USFS permit which, if similar to this one, could take only 3 months to get and would allow only 4 holes or so. A permit to allow discovery delineation drilling would probably take a year to secure for the USFS ground. However, if Adamera has good enough gold grades to justify such a permit application, the combination of confirming there are meaningful gold zones beyond Buckhorn 1.0 and having AMT as an extra tool to refine targets elsewhere on the property would attract market attention. Adamera's approach to Buckhorn 2.0 is an example of persistence and applying a geologically based rethink to an area with a strong metal endowment. The company is running on cash fumes and the structure is screaming for a rollback. Should assays confirm that gold is present at meaningful grades and distribution within this sulphide system, it would signal a major turnaround for this junior. But in the current hostile environment which is threatening to close out 2023 with a massive wave of capitulation selling, you have to be a true bottom-fisher to buy stock ahead of results. Perhaps this is the dawning of a new age of discovery for the Canadian resource juniors?
Kaiser Watch is a weekly 15-30 minute audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.
Kaiser Watch November 17, 2023: Is it a Peanut or a PMET?
Jim (0:00:00): What do you make of the Osisko group's plan to spin out its James Bay interests into a new company called Electric Element Mining Corp?
On November 15, 2023 Osisko Development Corp and O3 Mining Inc put out a joint news release about having spun out all their James Bay interests into a new company called Electric Elements Mining Corp. Both companies are ultimately controlled by Osisko Gold Royalties which controls about 40% of Osisko Development (ODV), and about 9% of Osisko Mining Inc which in turn owns about 25% of O3 Mining. Osisko Mining is now in a 50:50 joint venture with Goldfields to develop the Windfall gold deposit near Lebel-sur-Quevillon in southern Quebec. O3 Mining was created to own a collection of orogenic gold deposits near Val D'Or straddling the Larder Lake-Cadillac Break of which Marban is the flagship. O3 had only one James Bay project called Eleonore-Opinaca located to the west of the Eleonore project now owned by Newmont. O3 indicated this summer that it would put boots on the ground to assess the lithium potential, though it is not clear if it was able to do so in light of the forest fire closures. O3 will receive 2.4 million shares of EEMC for this property which seems to be a little rich compared to ODV's James Bay assets.
Osisko Development's flagship is the Barkerville gold project in British Columbia but at some point Osisko Gold Royalties transferred into it all the James Bay properties it acquired when it took over Andre Gaumond's Virginia Mines in 2015. ODV will receive 9,599,999 shares of EEMC for all these assets which includes the Plex and Anatacau projects optioned out 90% to Brunswick Exploration Inc into which have been bundled the 8 claims within the Mirage project though Brunswick would net only 75% of those claims. ODV has also done 100% farmout deals to ASX-listed companies like Loyal Lithium Ltd (Trieste) and Cygnus Metals Ltd (Auclair) which still have potential milestone payments. EEMC has also raised $4,108,702 through seed financing of 8,217,405 shares at $0.50 of which ODV insiders bought 1,400,000 shares. This leaves 20,217,404 EEMC shares issued which at the $0.50 financing price implies a valuation of about $10 million for the James Bay portfolio. The financing paper will be restricted for 4 months from whenever EEMC becomes a reporting issuer.
What the press release did not make clear is how and when EEMC will go public. One path would be a dividend in specie whereby ODV issues its block to its shareholders, who would receive 1 EEMC for every 9 ODV shares or similar ratio. That would leave Osisko Gold as the largest shareholder. If O3 did a similar distribution the ratio would be 30:1 or worse, hardly worth the bother. An alternative approach which allows O3 and ODV to maintain their stakes in EEMC would be to do an RTO with a shell, though that would involve more dilution. Yet another approach would be to do a merger with an existing James Bay junior with interesting or strategic properties.
An example that comes to mind is Harfang Exploration Inc in which Osisko Gold owned 6,928,572 shares as of November 9, 2021 when it ceased to be an insider, possibly because its stake dropped below 10%. Two months later the Harfang-LaSalle merger was announced and completed on Apr 19, 2022 with a 2.1554 rollback for Harfang which would have reduced the Osisko position to 3,214,517 shares. At some point Osisko Gold transferred the Harfang position to ODV. Andre Gaumond himself did not cease to be an insider of Harfang until July 2023 though he stepped away from Osisko much earlier. His last insider report showed him owning just over 1 million shares.
Gaumond was the founder of Virginia Gold which Goldcorp bought out for the Eleonore gold discovery that is now a mine, and he remained the head of the spinout Virginia Mines which held all the other James Bay projects that were mainly focused on gold targets in greenstone belts. These included parts of the Corvette property of Patriot Battery Metals Corp which now hosts a world class lithium deposit much more valuable than Eleonore which has been an overall disappointment and contributed to the perception that James Bay is a lame gold frontier. While with Osisko Gold he became a backer of Harfang for which he recruited Francois Goulet as CEO until he resigned in late 2021. Goulet, who worked for Gaumond during the Virginia years, has resurfaced as an exploration geologist working for Brunswick on the Mirage project. He once told me that back in the Virginia years when lithium was a pathetic $200 million annual market his boss sternly forbade him and fellow workers from collecting any samples from those bush and mosquito free ridges because "those were worthless pegmatites". Bob Wares partly snagged him because of his physical familiarity with the James Bay region and those outcrops which back then were the place to have lunch. Now those that turn out to be lithium enriched are the lunch.
Harfang has a decent James Bay portfolio of which the Serpent project has copper and lithium targets in the Mista area where a spodumene bearing outcrop was sampled this fall, with assays still pending. Harfang has initiated permitting for a winter drill program because the Mista copper target has a geophysical anomaly that needs to be tested whether or not the assays from the pegmatite outcrop justify drilling. The stock has come under inexplicable selling pressure since it published the outcrop news, trading 10.9 million shares since October 1, with Anonymous dumping 7.8 million while buying 3.1 million. The selling became ruthless during XPLOR week and CEO Ian Campbell has not been able to identify the seller and all the Quebec funds that he knows are long all seem mystified by the selling.
My own suspicion was that ODV was dumping its Harfang position though Ian thinks that is not the case. The likelier culprit is Monarch Mining Corp which bought $1.5 million at $0.55 (2,727,272 shares) when the Harfang-LaSalle merger closed in April 2022. Monarch's efforts to mine the Beaufor deposit have turned into a financial disaster and on November 3 one of its creditors moved to secure its $10 million loan. Monarch management will likely have known this was coming and would have accelerated selling Harfang during XPLOR week in order to make payroll. On November 14 Monarch filed for bankruptcy protection. What seemed like senseless and malicious selling, if done by Monarch, was a function of desperation and Monarch is now gone as a shareholder. The reason Anonymous has sold far more than Monarch had to sell would be because it was likely traders on the Anonymous buy side who are grinding out their positions for penny profits. Harfang has about $6 million working capital and about 61 million issued shares which translates into a cash breakup value of $0.10 with less than $3 million value implied for its James Bay portfolio. A merger with EEMC would thus be a good fit, though it would probably involve a rollback for Harfang shareholders which nobody would be overly keen about.
The reason, at least for now, why Harfang shareholders would sneer at a merger with EEMC is that the Osisko James Bay spinout news release offers no specific information about the resulting James Bay portfolio. ODV's web site section featuring its James Bay assets has not been updated for more than a year and still reflects what it looked like before Brunswick optioned Plex and Anatacau in November a year ago. The ODV James Bay map isn't even large enough to show the claims it has near Brunswick's Mirage and Winsome's Adina projects. This makes it hard to assess the lithium value potential of EEMC's James Bay portfolio, but we may soon see a very small component of it become quite valuable, namely those 8 small inlier claims that straddle part of the pegmatite corridor at Mirage.
When this KW episode was recorded I was merely hopeful that Brunswick's prediction that its $5 million financing announced October 30 would close on November 17 would be confirmed Monday November 20. But on Friday at 5 minutes before midnight Toronto time a short news release popped up on Stockwatch confirming that it had indeed closed and been boosted to $5.7 million. It stated that the proceeds will be used for phase 2 drilling at Mirage (currently 2 drills turning) and to test advanced targets in Q1 of 2024 starting with the Arwen spodumene bearning outcrop on the Elrond project whose critical mineral potential has been optioned 85% from Midland Exploration Inc. The exemption used requires a four month hold. Next week CEO Killian Charles will be presenting at a conference in London and it might be convenient to use a newer presentation than the lame one on its web site from early October when Brunswick last provided a meaningful update about Mirage. Shareholders expected an update ahead of XPLOR and were disappointed to be given a 3 week blackout while the private placement closed and the company did one on one presentations at various conferences. Given the eleventh hour publishing of the financing news release on Friday, it is reasonable to expect a major update on Monday that shows us whether Mirage is a Peanut or a PMET.
Where did I get that expression from? Last week one of my Quebec contacts who seems to know one of the Mirage geologists called me up to tell me a geologist had told him Mirage is a Peanut. He was confused by my unhappy response so he repeated himself: Mirage is a PMET. He owns a lot more Brunswick than he should, so I hope he wasn't hearing what he wanted to hear, just as I was hearing what I had begun to fear.
Is pre-bankrupt Monarch the source of recent Harfang selling?
Harfang closeup map of Ameliane Li outcrop and Mista Cu targets
Harfang Map showing K/Rb ratio progression away from batholith and location of Brunsiwck's Arwen outcrop at Elrond
Photo of Harfang's Spodumene Outcrop at Serpent
Maps for Brunswick's Mirage project and surrounding area
Implied Project Value Chart for Brunswick's Mirage project
Jim (0:13:35): Why did the market react so harshly to the Mia drilling update from Q2 Metals?
On November 16, 2023 Q2 Metals Corp provided a drilling update for its Mia project in the James Bay region to which the market had a very negative reaction as if it was expecting a PMET but instead got a Peanut. This was a complete over-reaction but it built on an earlier development that spawned a breakdown in Q2's price. On November 2 Q2 announced it had reached a deal with Canadian Mining House (Tony Perron) to purchase the 2% NSR on which it only had a right of first refusal (ROFR.) When Q2 optioned Mia the vendor retained a 3% NSR of which Q2 only had the right to buy back 1% for $1 million which it has no reason to do any time soon unless the fine print includes deadline clauses. In addition some claims have an underlying 2% NSR owing to Franco-Nevada and some have a 2% NSR owing to Eastmain (Fury Gold). Q2 has no rights relative to these. The extra 2% held by CMH apparently covering the entire property was thus going to be a problem if Mia becomes a major lithium discovery and third parties hold a 4% NSR. One of the royalty companies may have approached CMH which triggered Q2's ROFR so it negotiated its purchase for $1,650,000 of which $883,333 is cash and $766,667 in cash or stock at Q2's option. The company did a poor job of explaining the rationale behind the deal, and the market, noting that although Q2 still has a healthy treasury of about $8 million, worried Q2 might prefer to issue stock. It also noted that CMH has received 13 million shares for the Mia sale and might think it a good idea to pound out some of this stock. Whether or not CMH was selling, others, fearing the worst form a drill program that started October 23, started to sell.
When the drilling update came out the market learned that Q2 had drilled 12 holes, 8 in the Mia area and 4 in the Carte area at the other end of a 9 km trend. Q2 reported spodumene bearing pegmatite intervals for the first 5 Mia holes which were drilled at different angles to help exploration VP Neil McCallum figure out the orientation of the pegmatite zones (dip, strike and thickness). Q2 confirmed that in the Mia area they are dealing with a series of stacked en echelon dykes similar to those at Allkem's world-class Galaxy-Cyr system. These dykes are oriented somewhat perpendicular to the strike of the shear structure, exploiting what in gold systems are called dilation zones or Ridel structures. At the other end of the trend where the Carte pegmatite outcrops the orientation seems to be parallel with the greenstone belt trend as is the case with CV5 at PMET's Corvette trend. Q2 drilled 2 vertical holes into Carte and 2 holes angled to the south. The company provided a table for all 12 drill holes listing lengths, angles and azimuth (compass direction). It provided plan maps so we can see their locations. In the case of the first 5 Mia holes it provided hole length intervals that were spodumene mineralized but did not provide sections for the holes. What the market saw was a list of short intervals of which only a few were longer than 10 metres. The longest interval was in hole 5 reported as 27.51 m starting at 187.74 m depth. The last interval was 14.78 m ending at 248.75 m.
What the company managed to accomplish might be called reverse grade smearing. The entire interval is 61.01 metres within which are 5 segments without visual spodumene that add up to 6.57 metres, representing just over 10% of unmineralized rock. In gold grade smearing unscrupulous companies take very short high grade intervals separated by wide spaces of barren or low grade rock and average out the gold content over a very long interval with a lower grade to create the illusion of a bulk tonnage system potentially containing millions of open-pittable ounces. KW Episode January 13, 2023 explains how this works. Visual reports of spodumene, of course, are not Li2O grades for which we will need assays. So it is still possible that Mia is a Peanut rather than a PMET. But the results as so far reported do not make it necessary that Mia is so far just a Peanut. But a market made nervous by the NSR buyout deal and the fact that PMET itself is languishing below $10 even though it just reported the longest ever spodumene interval got spooked by the preliminary results presentation method and knocked the stock below $0.30, enabling me to make Q2 Metals Corp a member of my 2024 Bottom-Fish Collection.
Ophir Gold Corp, which has $5 million working capital and is planning to drill its Radis property to the northeast of Mia in Q1 of 2024 where it has outcrops that look more parallel to the trend like Carte rather than sub-perpendicular like at Mia, suffered collateral damage in the market. Ophir Gold Corp was already a member of the 2024 Bottom-Fish Collection which helps remind me that unlike in 2022 when the bottom was bounced off in early December, this year we are suffering a large scale collective capitulation in the Canadian junior resource sector which will create bottom-fishing opportunities until the bitter end of the year. Canada's Globe & Mail, which has largely shunned the junior resource sector during the past decade, is running a series looking at the collapse of the resource junior eco-system. The latest installment, How Canada - and Bay Street - squandered the chance to finance the critical minerals revolution, does a pretty good analysis of some of the problems.
Q2 Mia Map and spodumene interval tables for holes 1-5
Q2 Mia drill plan for Carte target
Maps showing relationship of Q2's Mia and Ophir's Radis projects
Implied Project Value chart for Q2's Mia project
Disclosure: JK owns shares of Brunswick, Brunswick is a Fair Spec Value rated Favorite; Harfang, Q2 Metals and Ophir Gold are Bottom-Fish Spec Value rated
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 November 10, 2023: A new emerging James Bay hotspot?
Jim (0:00:00): Is Vanstar Mining Resources ever going to escape your Bottom-Fish Collection and become a KRO Favorite again?
Vanstar Mining Resources Inc acquired the Nelligan property south of Chibougamau in 2010 and made a grassroots gold discovery which attracted IAMGold as a partner in 2014. IAMGold delivered a maiden resource estimate in 2019 consisting of 96,990,000 tonnes of 1.02 gold (3.2 million oz) which won the AMEQ discovery of the year award in 2019. The IMG deal leaves Vanstar with a 20% carried interest and the hope has been that IMG would shift into economic study mode and make a buyout offer for Vanstar. But IMG was busy developing its Cote gold project in Ontario which was suffering cost over-runs, and Nelligan became a low priority. Newsletter writer Peter Grandich discovered Nelligan in 2020 and, not comprehending the bad dynamic of a junior with a valuable asset but no decision making power about advancing it or the operator's unrelated problems, pumped Vanstar to a $1.75 peak during H2 of 2020 before abandoning Vanstar and sending it into a tailspin in 2021. The new low price prompted me to adopt Vanstar as a KRO Favorite in mid 2021 but by the end of the year, realizing that IMG's problems with Cote were only getting worse, moved Vanstar into the KRO Bottom-Fish collection where it is currently stuck waiting for IMG to commission Cote and turn its attention to Nelligan. IMG did complete a 10,000 m drill program at Nelligan which apparently was aimed at finding the limits of the deposit though we probably won't know the results until early 2024.
IMG updated the Nelligan resource in January 2023 which now stands at 5.2 million ounces within an open-pittable indicated and inferred resource of 186,300,000 tonnes at 0.87 g/t. Using cost numbers borrowed from the feaisbility study for First Mining's Springpole deposit in Ontario, which has a similar scale and nature, I created a speculative outcome visualization based on a 30,000 tpd open-pit mining scenario which would produce 4.7 million ounces over 18 years. This OV updates every night with the latest gold price and currency exchange rates. As of November 10, 2023 at $1,942 gold the future value on a 100% basis is a CAD $1.7 billion after tax net present value using an 8% discount rate. After adjusting for Vanstar's 20% net interest and 68 million shares fully diluted that translates into a future price of $4.93, more than ten times the current $0.30-$0.40 range. Under the rational speculation model the fair speculative value range is $0.25-$0.49 for a project that has not yet done a PEA. The speculative bet with Vanstar is that a PEA will be completed with a similar mining scenario that confirms the cost assumptions and prompts IMG to move Nelligan to the prefeasibility stage where the fair value range becomes $1.23-$2.47. That is the price range in which Vanstar shareholders could expect a buyout offer, but the stock is stuck in its bottom-fish rut because of uncertainty about when IMG will move Nelligan into feasibility demonstration. Vanstar is thus a triple bet that IMG's latest drill program will expand the resource, the timing of the shift to feasibility demonstration will be sooner than later, and also the higher valuation impact a higher real gold price would bring.
But back in 2020, recognizing the timing uncertainty, Vanstar's founder Guy Morissette staked several prospects in Quebec that supposedly qualified as analogs for Nelligan which was a new type of disseminated gold deposit for Quebec. The hope was to make a quick new Nelligan style discovery on a 100% basis that would offset investor fatigue caused by the IMG waiting game. Vanstar did drill the Felix property as a gold target with dud results, but only conducted a sampling program on Amanda also geared toward gold. Around the time Vanstar was peaking in August 2020 Morissette abruptly "retired" as CEO along with several other directors who were replaced by a group headed by Victor Cantore whose Amex Exploration Inc was flying high at the time. JC St-Amour was subsequently recruited as CEO which he has remained as the Cantore group gradually dropped off the board and were replaced by others such as Robert Boyd of Endurance Gold and JD Moore, a major bottom-fisher of Quebec juniors who is also the largest visible shareholder of Vanstar. Morissette resurfaced in 2021 as a CEO of Mosaic Minerals Corp which was listed on the CSE in late 2020. He has since disappeared into the shadows but is the behind the scenes brains of Mosaic.
Vanstar wanted to maintain its brand as a yellow gold junior and with $2 million working capital left at the end of 2023 it was reluctant to do any work on Amanda whose documented pegmatite potential was generating interest. In late 2022 Mosaic went on a lithium staking binge in Quebec, assembling 5 prospects in James Bay, one in Nunavik and four in southern Quebec. In August 2023 Vanstar agreed to option Amanda to Mosaic which must issue 4 million shares and spend $1 million within 3 years, at which point Vanstar can elect to form a 50:50 joint venture or let Mosaic go to 80% by funding whatever it takes to deliver resource estimate by 2030.
The 7,677 ha Amanda property is interesting because it sits north of an area which Virginia Gold had explored for gold in 1997-2010. Unlike projects such as Plex where Virginia merely noted the presence of pegmatite in core from holes testing gold targets, at Auclair the crew logged spodumene as part of many pegmatite intervals. At one point the Auclair property included parts of Amanda which also has holes with unassayed documented spodumene intervals. The Auclair property was part of the Virginia Mines spinout when Goldcorp acquired Virginia Gold for the Eleonore discovery, which in turn was acquired by Osisko Gold Royalties in 2015. Osisko Gold transferred Virginia's exploration assets into Osisko Development Corp (ODV) which became a warehouse for projects like Cariboo that need a higher real gold price to be viable. During 2022 and early 2023 ODV's CEO Sean Roosen, despite PMET's success with Corvette, also a former Virginia gold project, did not yet appreciate the growing importance of white gold and happily farmed out the white gold potential of certain James Bay projects such as Plex and Anatacau scooped by Brunswick Exploration Inc whose Bob Wares, part of the Osisko group, had grasped the importance of white gold in late 2021.
ASX-listed Cygnus Metals Ltd, previously a gold exploration junior, had pivoted to lithium and the James Bay region in mid 2022 when it optioned 70% of Stria Lithium's Pontax project for which it delivered a maiden JORC estimate of 10.1 million tonnes at 1.04% Li2O in August 2023. But Cygnus, perhaps recognizing the limitations of the Pontax dyke system discovered by Sirios and Dios during the 2000s when lithium did not yet matter, optioned 100% of Auclair from ODV in late February 2023 on easy upfront terms and future milestone payments. Cygnus subsequently expanded Auclair through staking and optioning privately held ground so that it now consists of 33,700 ha straddling a 50 km northeast oriented trend. The Amanda project is now surrounded by Cygnus Metals on all sides except the west and an inlier claim controlled by Patriot Battery Metals.
In late October 2023 Cygnus reported discovering several parallel outcropping pegmatite dykes which extend the mineralized corridor to 6 km on its property. Auclair has all-weather road access and Cygnus is contemplating a winter drill program. The pegmatite trend passes through the Amanda property based on documented occurrences and continues to the northeast back onto the Cygnus property. Mosaic was able to mobilize boots on the ground in mid October and completed 10 days of sampling the known outcrops. The crew did not have an XRF unit nor did it include a QP with the qualifications to identify spodumene in the field. However, given existing evidence that this area is fertile with LCT-type pegmatites, it is very likely that by late December 2023 some of the 100 plus samples will have confirmed LCT-type outcrops. If these results turn out to belong to some of the better mapped and larger outcrops, Mosaic may be able to mount a drill program in Q1 of 2024. The Amanda property is probably too small to support a standalone lithium pegmatite mine, so it is a potential consolidation target for Cygnus Metals if drilling in 2024 confirms a major pegmatite field discovery. Such a development would represent a non-dilutive financing for both Vanstar and Mosaic which could then fund their respective gold and lithium exploration goals without undue dilution.
Table showing fair speculative value ranges for the Nelligan stages
Regional Auclair Map from Cygnus Metals
Aurclair area map with names of claim holders
Graphic showing how Amnada claim slots into middle of Cygnus Aurclair property
Mosaic's Amanda Map with pegmatite details
Jim (0:18:19): Why did the market ignore news from Scandium Ineternational Mining that construction has started at Nyngan?
In last week's KW Episode I talked about how Robert Friedland's gloom about the future for nickel and cobalt spelled a death knell for his Sunrise nickel-cobalt project in Australia's New South Wales. This would require a pivot back to Plan A, the Syerston scandium enriched deposit on the margins of the nickel-cobalt deposit which is the richest and biggest scandium deposit in the world, to pull Sunrise Energy Metals out of a death spiral. That, of course, will not be easy to pull off, Friedland having dumped all over the scandium space by pointing out that his warehouse will be piling up concentrates containing 75 tonnes of scandium oxide annually which Sunrise could sell at whatever price somebody is willing to pay. Well, that "growing" stockpile is no longer going to happen because cobalt is irrelevant to a new generation of solid state lithium ion batteries among which Friedland backed Pure Lithium is a contender, and nickel has become a non-issue because China has successfully gained control of Indonesia's coal powered nickel supply which Indonesia is petitioning the Biden administration to certify as an acceptable input for EV subsidies under the IRA act. Friedland's hopes about "smarter markets" facilitating ESG credentialed metal supply for consumers who care is about to go up in smoke, and most certainly will do so if Trump or a clone assumes the presidency in 2025. Friedland has not yet moved to embrace the scandium deposit at Sunrise, but on November 9, 2023 Scandium International Mining Corp decided it was time to announce than its Nyngan scandium project was moving to the first stage of construction.
The market ignored the news because it amounted to little more than an announcement that a bunch of trailer units would be parked on the property and somebody would start to mark out where more buildings would be constructed. Given that the Nyngan DFS was done in 2016 and has not had its cost structure updated, which by now must be at least 20%-40% higher in both CapEx and OpEx terms, while the world continues to think that the future price of metals has no direction other than lower thanks to the blind eye even Greta Thunberg types turn to the source of the materials that feed into the technology that powers their worlds, it is hard to imagine what the Evensen family that now controls SCY is thinking with this move. I can probably be forgiven for suspecting that the western half of Nyngan where SCY owns the surface rights is in fact being prepared as a studio set for future filming of an Australian version of the Trailer Park Boys. The hard question is whether Julian, Ricky and Bubbles need to move to Australia or if Australia has its own counterparts.
The less interesting explanation for the announcement is that New South Wales, having granted a mining lease under messed up circumstances, and gone through hell to deal with the extortion efforts of the slighted objector when their bureaucratic incompetence came to light, is now presenting a "use it or lose it" ultimatum. So Peter and Chris Evensen, having raised $3 million at $0.09 with FIVE YEAR warrants which some think was simply mindless borrowing from the Katusa Rule Book for exercising opportunistic contempt for resource juniors, but others think it reflects acknowledgement of how long it will take Rio Tinto to crack the chicken-egg marketing problem that has left scandium, despite the wonderful things it does when alloyed with aluminum, a perpetual dream, were forced to at least pretend to do something about Nyngan. Whatever the reasoning, the timing may in fact be good.
The Financial Times has embraced the story that Toyota, a laggard as far as the EV future was concerned, is now making a mad dash to control the EV future which the market has assumed belongs to Elon Musk's Tesla with all the other car companies scrambling to catch up. The impetus for this Toyota change of heart was news in May that it had captured the solid state lithium ion battery holy grail which allows lithium metal to substitute for graphite as the anode. The punch line is: 1,200 km on a 10 minute charge. For now this promise applies only to high end models Toyota plans to roll out in 2026 or 2027. The holy grail breakthrough, however, is not about a new battery configuration with expensive raw material inputs, but rather in the form of manufacturing ingenuity which allows Toyota to build a solid state battery with known configurations more cheaply than was previously possible.
The hope is that Toyota will learn how to extract even greater efficiencies from the manufacturing process so that it can sell cheap EV versions of its Camry and Corolla models in 2030 and beyond. Currently there is a lot of nattering about how the EV boom has hit its limit, and it is time for ICE to reassert its long term dominance. But that sort of belief requires you to believe that the three Abrahamic monotheisms, Judiasm, Christianity and Islam, all of them burdened with the concept of absolute truth that translates into a universally binding prescriptive moral code, will avoid a mutually self-annihilating clash, for which the Gaza-Israel conflict will not become ignition. China, whose ideology is grounded in atheism and can join Mercutio in pronouncing a pox on all their Abrahamic houses, has made an irreversible shift away from ICE to EV based transportation, not because it is gung-go about slowing climate change (much of China's electricity comes from coal), but because it wants to escape the vulnerability that comes with oil import dependency. The EV transition is happening whether or not it makes any difference to climate change.
So far the energy transition story has not entrained scandium as a critical mineral input other than through the vague idea that aluminum-scandium alloys will create new strength that allows less volume and thus weight to be used in cars, which "light-weighting" effect will reduce energy consumption. This applies to ICE or EV cars. On November 9, 2023 the Financial Times had another intriguing article about Toyota, Toyota takes on Tesla's 'gigacasting' in fight for the future of EV carmaking. Tesla's manufacturing approach involves casting large chunks of a car as aluminum parts, such as the under carriage of a car. The Toyota manufacturing process which revolutionized car manufacturing many decades ago became a new standard which involved a team that worked on a single car gradually assembling numerous parts typically through welding and stamping. This deviated from the old assembly line method where a car moved along a conveyor belt allowing stationed workers to add and tweak their parts. The old "cog-in-the-machine" approach was not good for morale and productivity, but the Japanese concept of a "team" participating in all stages of an individual car's production did wonders for worker morale.
The problem with the Japanese method was that it was linear, which wasn't a competitive problem until Elon Musk came up with the idea of breaking up a car's production line into multiple paths involving major parts that would eventually converge into final assembly of the car. Tesla's "gigacasting" involves casting large car components as an aluminum alloy, such as the under-carriage. Each of these "chunks" has its own production path with a team of dedicated workers. By allowing these cast chunks to be "upgraded" through parallel paths Tesla harvests manufacturing efficiency. In the FT article a Toyota executive acknowledges the boosted efficiency of Tesla's approach, admits Toyota's approach is different, and pretty much signals that embracing "gigacasting" is something being internally investigated.
How is this remotely relevant to scandium? During 2018-2020 when George Putnam was still CEO Scandium International adopted a "letter of intent" strategy to develop an offtake market by collaborating with potential end users to test products utilizing aluminum-scandium alloys. In 2017 the market and people like myself embraced the "build it and they will come" field of dreams idea. Everybody knew how scandium was the ideal marriage partner for aluminum, supply, so the chicken-egg cracking solution was to build the mine, demonstrate the supply, and sell out the product like hot cakes. Unfortunately, no sources of capital were willing to take the risk that nobody would buy at the price needed to pay back capital and deliver a profit. The reality was that until there were offtake orders in place at a price which guaranteed a mining profit, there was no point funding primary scalable scandium supply, and until scalable supply was a demonstrated reality, no end no end user would make plans to incorporate aluminum-scandium alloys into its products. Robert Friedland spent $300 million demonstrating the non-feasibility of the Sunrise nickel-cobalt scenario, far more than it would have cost to build the initial scandium only operation. But even Robert balked at the field of dreams idea and pivoted to the larger scale nickel-cobalt scenario.
George Putnam's idea was that by working with end-users to demonstrate how they could benefit adopting Al-Sc alloy he could coax offtake deals from them. By the end of 2020 it was clear that SCY's multiple LOI arrangements had failed to deliver any offtake deals, and the company embraced a new strategy of incremental demand development through incremental supply development involving deals to strip critical mineral goodies out of base metal leaching operations such as Barrick's Phoenix Mine in Nevada. This coincided with Rio Tinto's development of a way to recover scandium from the titanium slag at its Sorel-Tracy plant in Quebec as part of its need to upgrade the slag to the purity required by pigment makers. The Sorel-Tracy plant which smelts iron ore from the Lac Tio Mine has a theoretical annual supply limit of about 50 tonnes of scandium oxide toward whose recovery Rio Tinto can build gradually as it develops its own offtake markets. SCY planned to do something similar but before the concept could be vindicated the Evensen family pulled the plug on SCY management, fired George Putnam and Willem Duyvestyn, and turned SCY into a long term optionality bet on scandium one day becoming a hot commodity everybody wants.
SCY management may have started slapping trailer units onto the Nyngan property to appease regulators, but the timing may actually be good. Back in early 2020 I wrote some Trackers about David Weiss and Eck Industries with whom SCY had a productive LOI relationship. Eck was working on ways to combine aluminum, magnesium and cerium into an alloy very suitable for casting parts. Adding some scandium to the mix was explored, with less being needed if zirconium was added (in a typical aluminum melt the element with the highest melting point crystallizes first, which would be scandium, but because scandium is a dispersoid the atoms move away from each other so that when they crystallize the result is a matrix around which the metals with lower melt points eventually solidify - zirconium has the second highest melting point in the batch and it migrates toward the scandium seed grain, reinforcing the matrix, which reduces the amount of scandium needed to achieve strength gains in the aloy). I have no idea where Eck's Al-Mg-Ce-Sc-Zr alloy stands today. David Weiss retired from Eck in January 2023 and is now a free agent working with whoever appreciates his insights. But if Eck's casting alloy innovation creates significant value through its use of the rare earth cerium, this might prove to be a big deal for Toyota, Tesla and anybody else who embraces large aluminum module casting as an EV manufacturing strategy.
The price of cerium has collapsed to $0.99/lb FOB and $0.75/lb domestic. My rare earth supply evolution chart shows REO output ramping from 100,000 tonnes in 2009 to 300,000 tonnes in 2022 (USGS data). Most of this output comes from carbonatites like Bayan Obo, Mountain Pass and Mt Weld whose rare earth distribution is dominated by the light rare earths. The distribution chart for Bayan Obo is typical. Note that cerium is 50% of the content while the light magnet rare earths neodymium and praseodymium are about 25%. Actual composition of the global total will be somewhat lower because heavy rare earth enriched deposits like the ionic clays have a significant yttrium component - I do not have a breakdown of the individual rare earths from which the USGS totals are summed.
Rare earth demand growth is driven exclusively by magnet growth for which the EV sector is the biggest driver, with hybrids jump-starting demand during the 2009-2011 Rare Earth Mania 1.0 boom. The IEA in its January 2023 report projected neodymium demand growth to double by 2030. If we assume Nd and Pr are combined in that number and that they represent 25% or 75,000 tonnes of the 2022 REO supply, making cerium 150,000 tonnes, it means that by 2030 REO production will have doubled to 600,000 tonnes of which 300,000 tonnes will be cerium nobody needs beyond glass polishing needs. Because you cannot avoid dropping cerium out of solution along with the desired Nd and Pr, the price will go even lower or be very stable for new applications that come along. Cerium's supply is growing as a by-product of demand growth for the rare earth magnets. Barring a miracle usage innovation for cerium, the price of cerium long term will be stable or declining to the point that it might become a storage or disposal liability. If cerium is the magical ingredient that makes aluminum-magnesium alloy special for casting purposes, enhanced by scandium where extra functionality is needed, and Toyota or even Tesla adopts it, scandium could find itself with demand that allows the Evensens to accelerate the Nyngan Trailer Park into a scandium mine.
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 November 3, 2023: MinRes arrival heats up Azure takeover battle
Jim (0:00:00): Why is Azure Minerals now trading 10% above SQM's $3.50 cash takeover bid?
Last week's Kaiser Watch Episode featured the remarkable one year transformation of Azure Minerals Ltd with an unremarkable nickel-copper project in the West Pilbara into a lithium pegmatite play within the same property for which SQM has made an accepted takeover bid which priced the Andover project at AUD $2.4 billion on a 100% basis (Azure owns only 60%). The stock rose above $3.50 on Wednesday November 1, 2023 and peaked at $4.05 on Friday before closing at $3.85. Chris Ellison's Mineral Resources Ltd then filed a becoming a substantial shareholder notice reporting that MinRes and its subsidiaries had acquired 55.8 million shares representing 12.3% of Azure's issued stock. Of that the last 19.9 million shares were bought on Friday at an average $3.95 price. Last week we talked about Hancock's Gina Rinehart buying 18.3% of Azure, the last major chunk at the $3.50 non plan of arrangement price. At the $3.95 price Chris Ellison is willing to pay, the Andover project, which does not yet have a maiden resource estimate, has an implied value of AUD $2.8 billion on a 100% basis.
There is a major disconnect going on. Albemarle, which peaked at $334 a year ago, traded down to $116 this week, the lowest in 3 years as the media wrings its hands about slowing EV sales while the lithium carbonate price has sunk to $10.06/lb. SQM clearly does not share this negative sentiment, because trying to buy Azure today is about supplying lithium in 2030 and beyond. Toyota also doesn't seem concerned because it just announced it is building a battery plant in North Carolina (sorry Prime Reconciliation Minister, we'll take Canada seriously when you start taking your country's mineral supply potential seriously, and you can start by telling Chief NoCanDo that his claims about sacred territory are irrelevant to decisions that affect the interest of all Canadians, not just a 5% aristocracy).
Toyota's new found enthusiasm for the EV sector is based on its solid state lithium ion battery which will be commercialized through release of a high end model in 2026 or 2027 which promises to have a range of 1,200 km on a 10 minute charge. Since Toyota's breakthrough is in the form of a more efficient, cost effective manufacturing process, it is only a matter of time until even greater efficiencies have been engineered and Toyota can roll out a fleet of consumer friendly priced Camrys and Corollas. And Toyota is not the only one with a solid state breakthrough. Robert Friedland is promoting a solid state lithium ion battery being developed by Pure Lithium which will also use lithium metal in the anode instead of graphite. Not only is Pure Lithium involved in making a solid state battery, but it is also working on a process for extracting lithium directly from oilfield brines he thinks will make hardrock pegmatite supply irrelevant. In a Northern Miner interview done during its Canadian Mining Symposium in London on Oct 12-13 and posted online November 18 he even found it necessary to dismiss James Bay as nothing more than virtue signaling. The two holy grails of the EV sector have been the quest for a solid state lithium ion battery which is cheap and avoids the dendrite growth that causes shorts and thermal runaway, and the quest for an ultra cheap lithium supply from an ultra abundant source. The first holy grail seems to have been found, but the DLE holy grail on which a lot of hard work and money has been spent during the past decade still needs to deliver proof that it can deliver lithium at scale at a unit cost well below $5/lb lithium carbonate equivalent.
Friedland also made negative comments that nickel and cobalt will be unnecessary for the battery future though we do know that nickel is a key part of the cathode in Toyota's solid state battery, and there is no talk yet about lithium-iron-phosphate (LFP) batteries being able to substitute lithium metal for the graphite anode. Cobalt, however, does indeed look like it has no future in the solid state battery EV sector. All this is bad news for the Sunrise nickel-cobalt project in Australia's New South Wales. Friedland's Sunrise Energy Metals Ltd this week hit the lowest price since 2015 after adjusting for a 10:1 rollback in 2021. Sunrise has chewed through $300 million since inception and almost all of it has been written off. The Sunrise nickel-cobalt resource has no development future, which is bad news for Scandium International Mining Ltd because the original Syerston deposit which has no nickel or cobalt is the world's biggest and richest scandium deposit, and Sunrise owns the water rights in the region. So if Rio Tinto, which bought the Owendale scandium deposit next door for $14 million, hits a scandium demand tipping point that eclipses its Sorel-Tracy slag scandium by-product supply, Sunrise could return to its original Plan A and develop Syerston as a standalone and scalable primary scandium mine.
Either Friedland's thumbs down for the future of pegmatite sourced lithium would be news for SQM, Gina Rinehart and Chris Ellison, or they don't think too much about DLE's potential to produce unlimited amounts of lithium from oilfield brines at a cost well below the $5/lb lithium carbonate equivalent needed to make pegmatite deposits worth developing. The move by MinRes to build a stake in Azure Minerals above the $3.50 SQM bid is a pretty good sign that MinRes will make a higher offer for Azure Minerals that could involve its stock as currency. Now we just need to see if the other elephant, Pilbara Minerals Ltd, will also join the battle to control Australia's newest major LCT-type pegmatite field.
MinRes buying activity of Azure ahead of 12.3% ownership declaration
IPV Chart for Azure Minerals
Jim (0:07:05): Any feedback about how the Quebec XPLOR conference went in Montreal this week?
In last week's Kaiser Watch Episode I predicted that this year the annual XPLOR conference in Montreal would be a big deal, but it turns out it was not that big a deal. The flurry of news releases I expected from James Bay Lithium Index members did not happen, and Brunswick Exploration Inc put out a rather lame news release on Monday October 31 that sucked last week's momentum right out of the stock. Brunswick announced a $5 million flow-thru financing consisting of $1 million designated as Quebec flow-through at $1.15 and $4 million as national flow-through at $1.10 which is expected to close November 17. This will boost working capital back to the $10 million level by the end of the year ahead of what Brunswick promises to be delineation drilling at Mirage in Q1 of 2024.
What bothered the market was that Brunswick had nothing new to say about Mirage. All it said was: "Over the previous weeks, we have identified multiple spodumene-bearing outcrops at Mirage, and our inaugural drilling campaign has barely begun testing the potential of the project. With initial drill results forthcoming, this financing will enable the company to continue its aggressive drilling campaign at Mirage into Q1 2024 and beyond. Concurrent to our plans at Mirage, we will also complete follow-up drilling at our latest discovery at the Elrond project".
Brunswick started drilling on September 11 and provided an update on October 3 which stated: "The company began drilling on Sept. 11, at the Mirage project with a single helicopter-supported drill rig. To date, 15 holes have been drilled with current total metreage over 1,000 metres. Significant spodumene-bearing pegmatites have been intersected in 12 holes over widths ranging up to 52 metres (true thickness presently unknown). The first set of assays from the inaugural drill campaign at Mirage are expected in the second-half of October. Brunswick Exploration will continue drilling as long as fall weather permits. Further drill programs for winter 2024 are currently being planned".
Not only did this week's update not include any assays, but it literally included no useful new information about Mirage. It mentioned Brunswick had found more pegmatite outcrops, but did not specify whether these were within the 800 m by 2,700 m corridor of outcrops reported in early September or beyond it so that the scale of the pegmatite field's footprint has been expanded. I subsequently heard that assay lab turnaround time has become terrible and that assays had been received for only one hole which would be meaningless to report. But the press release could have included information about how many more holes have been drilled and how many intersected spodumene bearing pegmatite and the range of intervals. No graphics were included showing the location of known outcrops and drill holes including drill direction traces. The market wants to know what sort of pegmatite dyke geometry is emerging as the result of drilling. Are we dealing with a series of parallel continuous thick and long zones such as PMET's CV5 resource which now stands at 109 million tonnes of 1.42% Li2O? Or are we dealing with sets of en echelon short and narrow dykes which can still average out as a world class resource such as we see at Allkem's Galaxy-Cyr project? Or a collection of randomly ordered dykes too thin and spread out to ever average into a world class mineable resource? There is a rule of thumb in the resource junior sector that states, "if you have nothing positive to report, don't report anything". Brunswick sold off during XPLOR because Killian Charles had lots of reasons and time to put out a proper update about Mirage showing progress if there were any, but failed to do so. In doing so he neglected to feed a key aspect of Great Canadian Area Plays, which is that speculation in the race to deliver a "me-too" discovery is a form of entertainment that a junior must feed if it can, and it can only do so by operating exploration programs that at least incrementally build the potential for a major discovery.
The way Brunswick's financing was described also left one suspicious that Brunswick still had to find the buyers for this financing, and, of course, there can be no material press releases until it closes, giving the market another three weeks of no news to build confidence. Killian did tell me that the financing was "pre-sold" to a collection of high net worth, technical and a few institutional investors, none of which qualify as the tax avoidance type of investor that has become the bane of juniors with Canadian projects. Under Canada's flow-through system a flow-through stock purchaser can write off the entire investment against income, which means that the tax saving will be based on the taxpayer's marginal income tax rate (obviously most lucrative for the highest income earners). In the case of provinces like Quebec the amount written off against provincial income tax gets boosted by an extra 20%. The only hitch is that the cost base of the shares is reduced to zero, which means that whatever you get for selling the stock is treated as a capital gain, though in Canada which has no short or long term distinction as in the United States, only 50% of the capital gain has to be added to one's income and get taxed at the taxpayer's marginal rate. Flow-through is most useful to high income earners because it allows one to defer tax consequences into the future. As a result the type of investor a junior attracts with flow-through stock tends to be one that is not placing a longer term fundamental outcome bet, but is just deploying a tax deferral strategy. All this paper typically comes back into the market as soon as the four month hold restriction ends. Killian insists that the investors lined up for the $5 million flow-through private placement are investing in the fundamental success of Brunswick. Subscription agreements only went out at the end of the week, so if it does close on November 17 it will qualify as a well placed financing.
The financing is split 80% national and 20% Quebec for an interesting reason. Quebec refunds as cash a certain percentage of money spent in Quebec on exploration if the junior has a business presence in Quebec. The percentage varies depending on the location: 1) below the 49th latitude which would include all the Abitibi Greenstone Belt, 2) the near north between 49-55 degrees which includes the James Bay region, and, 3) the far north above 55 degrees where the size of the prize needs to be monumental to justify development because of the lack of infrastructure. Funds raised as flow-through with the Quebec designation for Quebec residents are not eligible for the refund calculation. But for some reason any funds raised with the national flow-through designation are eligible. Since hard dollars have become very difficult to raise companies such as Brunswick are favoring national flow-through to boost their hard dollar cash refund in 2025. The downside of this rationale is that people such as myself who think Mirage is potentially a major discovery that will be confirmed well before 2025 and allow raising lots of money at much higher prices as turned out to be the case with PMET are forced to wonder if management is not quite so optimistic.
It was no surprise that Patriot Battery Metals Corp won the AEMQ Discovery of the Year award for its CV5 lithium deposit in the James Bay region. Last year's winner was Azimut's Elmer gold project for whose pencil shaped Patwon deposit a maiden resource estimate is still missing in action despite having sucked up over $25 million in exploration dollars. I was not in attendance at XPLOR but I polled a number of people who were present and I got a wide range of perceptions. The mood was downbeat about the state of the resource junior in general but upbeat with regard to the emerging lithium potential in the James Bay region. Retail investors were completely absent, though this is a technical show for the exploration and mining sector, and it is consistent with the disappearance of retail investors at PDAC, the big annual show held in Toronto in early March which has the distinction of marking the peak of the new year rally in most years, known as the PDAC Curse. There was no lack of service providers flogging their wares at the handful of juniors with exhibit booths on November 1-2. One financial sector person who did attend said that he saw very few fund managers and zero brokers. A lot of Australian resource junior executives were present, perhaps feeling out XPLOR's vibe and considering a booth presence in 2024. The critical mineral and lithium technical talks on the final day November 2 were well attended; perhaps this is equivalent to March 1993 at PDAC when the Lac de Gras diamond play was just over a year old and Pat Sheahan organized a short course on diamonds that was very well attended at what proved to be still early days in a multi-year Canadian diamond exploration boom. Sayona had a multi-booth exhibit that was very busy, and Brunswick also had constant traffic. But others such as Harfang Exploration Inc received less traffic. One executive told me that if you do not already have a pegmatite system with a visible footprint of 50 million tonnes at 1% L2O or better, nobody is interested.
That statement captures the tragedy of the 2023 forest fire closure which shrank the 5 month prospecting window of June-October into less than two months, with a few companies lucky enough to get boots on the ground by mid August, and some of those having to stop work again for the moose hunting season during September 15-October 15. Predictions of an early winter have proven correct; snow has arrived in Quebec, and unlike Montreal in southern Quebec where it quickly melted away, it blankets the ground farther north in the James Bay region. The boots on the ground prospecting season is over.
News flow that should by now have delivered up a dozen or more interesting prospects with significant size potential and ignited market interest in the James Bay lithium area play has also been hampered by logistical problems. For example, some juniors had field crews that lacked designated qualified professionals who can visually identify spodumene in the field, and many seemed to lack an XRF unit to take potassium to rubidium ratio readings. The James Bay region is absolutely loaded with pegmatite outcrops, but only a small percentage will be LCT type. Many juniors simply collected samples from outcrops, in some cases hundreds of samples, which are now in backlogged assay labs. News updates frequently do not mention spodumene because in many cases the samples were shipped directly to the lab by the service contractor without the junior's in-house QP getting a chance to examine them.
One partial exception is Champion Electric Metals Inc which did a LIDAR survey last year on the greenstone portion of its large land position north of PMET's Corvette trend property. I say partial because the company did not report finding any spodumene bearing outcrops like some juniors have done, which I initially read as a bust declaration. But Champion did publish a map of K-Rb ratios for all the pegmatite outcrops its crew sampled. I have not seen such a map published before by any junior but if an XRF unit is used in the field this sort of map which posts various colored crosses representing different K-Rb ratio ranges should be demanded by investors from companies that have sent outcrop samples to the lab.
Evident Corp has a helpful Case Study: Lithium Exploration in LCT Pegmatites using Portable XRF which includes one graphic that shows you want K-Rb ratios below 10:1 if you hope to see meaningful Li2O grades. Champion's map shows that XRF K-Rb readings below 20 (red crosses) show up in only three areas while the rest of the sampled area is a sea of blue crosses indicating barren pegmatites. A LIDAR survey reveals topography which can be helpful because pegmatites tend to be harder than the country rock and will weather less unless oriented in the ice direction and located within a structural zone of weakness (a favorite place for these wanderers to end up) where they can end up covered by a lake as is the case with most of PMET's CV5 pegmatite. Champion has now done a LIDAR survey on the rest of the property which will be prospected during the summer of 2024; assuming sample values confirm the XRF readings Champion should be in a position to drill several targets in Q1 of 2024.
Those juniors which do not bother to equip their boots on the ground with an XRF unit and somebody trained to use it should be downgraded in one's preferred list of James Bay area players. At least as far as next year is concerned because this year the uncertainty about the forest fire closures made it difficult to coordinate programs. An XRF unit may be preferable to a LIBS unit which can only measure light elements like lithium because the XRF unit can check rocks for the presence of heavier elements including base metals; who knows what James Bay after decades of disappointment might cough up via lithium prospecting. An example would be Harfang Exploration Inc which failed to publish an update ahead of XPLOR because it is still waiting for assays from the spodumene bearing pegmatite outcrops at Serpent-Radisson it last reported about on September 13. This outcrop which did not exhibit significant scale is in the vicinity of the Mista copper showing found several years ago; it has an untested associated IP anomaly that stretches under garbage rock at surface. Although Harfang did not publish a K-Rb ratio map in its press release I did find such a map in the November corporate presentation. Harfang, which is well financed, plans to mount a dual purpose drill program in Q1 of 2024 at Serpent-Radisson.
As a sign of the collective capitulation now underway in the Canadian resource junior sector Harfang's CEO Ian Campbell had to suffer the indignity of having to explain why on November 1 as he manned his XPLOR booth Anonymous went on a selling rampage during the last half hour of trading. Since then Anonymous has dumped nearly 3 million shares at an average price of $0.145. Ian tells me that Harfang has avoided doing flow-through private placements with tax avoiders and presumably has a shareholder base of investors focused on fundamental outcomes. He is puzzled who at this stage with a possible drill program in Q1 of 2024 would blow out such a large position at a price just above the $0.10 cash breakup value of Harfang. KRO members had their mitts open to catch some of this paper dump, but in the KRO Slack Forum some were mumbling about the wisdom of bottom-fishing, reinforcing the notion that if bottom-fishing on the bid side doesn't make you feel sick when you get a fill it probably will not work out well in the long run. One thing that puzzled me about XPLOR was that the Canadian resource junior executives I talked to were ignorant about the amazing Azure Minerals story I talked about in last week's Kaiser Watch Episode. Only Brunswick's Killian Charles was aware of Azure and its implications for the James Bay Lithium Area Play, which was largely due to Brunswick exploring a dual ASX listing. When even James Bay resource junior executives are ignorant about the big picture, how can we expect Canadian investors to become interested in Canada's potential future role as a major supplier of pegmatite sources lithium?
