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Kaiser Watch September 23, 2022: The Painmaker is just getting started!

Posted: Sep 23, 2022JK: Kaiser Watch September 23, 2022 with Jim Goddard and John Kaiser
Published: Sep 23, 2022KRO: Kaiser Watch September 23, 2022: The Painmaker is just getting started!
Kaiser Watch is a weekly 15-30 minute audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.

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Kaiser Watch September 23, 2022: The Painmaker is just getting started!
Jim (0:00:00): What effect is the latest interest rate hike having on the juniors?
Central banks across the world are now raising interest rates to subdue inflation and keep up with the United States whose dollar is soaring against most currencies. The central banks are fighting a credibility problem which they can only resolve by inflicting extreme pain onto consumers. There is now fear that the central banks will not know when to stop because it will take time for a recession to kill consumption and reduce inflation, but the credibility perception is immediate. The sharp sell-off on Friday reflects the realization that in the perception department asset price trends will be immediately visible and, given the central banks are fighting against a backdrop of geopolitically driven deglobalization, inflation may perists even as unemployment soars. Metal prices have generally retreated except for lithium carbonate which is being propped up by a supply-demand imbalance that will worsen because the shift from ICE to EV is driven both by policy and a strategic decision by carmakers that have put them on a path beyond the point of return which projects well beyond the duration of a global economic downturn unless political blunders lead to a 1930s style depression. Although resource juniors were being hit on the bid, the value traded is not declining. Worst off are juniors with advanced projects. What we are now seeing is tax gain selling of recent winners as investors contemplate a year end house cleaning of losers whose resulting tax losses would be best to utilize against anything still showing a profit.

On Friday the DJIA dropped below the pre-summer rally dip

Painmaker Powel is just getting started

US Dollar is soaring against most currencies which won't bring down inflation

Most metal prices have pulled back sharply from recent peaks

10 year T-Bill Yields are now lower than 2 year Yields

TSXV Resource Traded Value holding up but Index is plunging

TSXV Resource Company Financing Activity has held up well but Q4 may be very weak.
Jim (0:06:56): Why has Galway Metals scaled back its drill rigs at Clarence Stream from six to two rigs?
Galway Metals is still delineating new gold zones at Clarence Stream where the goal is to boost the district scale resource beyond the recent 2.2 million ounces reported for the 3 main zones into the 5-10 million ounce range. The current resource is similar to Marathon Gold's Valentine lake project in Newfoundland which it is developing. When the updated Clarence Stream resource came out earlier this year I created an outcome visualization using the scope and costs defined by Marathon through its feasibility study. The bad news in early September was that the CAD $305 miillion CapEx had soared into the $470-$490 million range. Worse, fear that the inflation battle will create a severe recession has pushed gold down, so Valentine is being socked at both the cost and revenue side of the equation. This has not been good for Galway's stock price and when I reran the OV using the new Valentine CapEx at spot gold the result was not pleasing. However, Galway is not yet building a mine, and the goal will be to deliver a much bigger resource than Valentine. The decision to scale back from 6 rigs operating double shifts to 2 rigs with a single shift was made in light of the deterioraiting funding environment and the brutality with which Bay Street is exploiting juniors with urgent funding needs. The disappointment abotu Galway is that drilling is only focused on the Adrian-Stewart area northwest of the northern end of the SW Deposit, what Galway calls the Golden Triangle. Other areas of the property with much more intense gold in soil anomalies will not be touched this year. The most interesting is what I call the Gabbro Dyke Complex whose geological context is not the same as the intrusion related gold system model Galway is using to generate ounces (ie the flanks of younger intrusions into the older meta-sediments near the Sawyer Brook Fault and its splays. The Gabbro Dyke Complex target needs more surface work to better define what might be controls for gold mineralization and Galway is working on that this year. The drilling done so far in the Golden Triangle area leads Mike Sutton to believe the Stewart and Adrian targets can be connected to the SW deposit to create a super-pit mining scenario. By scaling back the drilling activity Galway is only spending $1.5 million per quarter, which will leave them with $8 million at the start of 2023 and the means to carry on exploration while waiting for the funding enviornment to turn around. Galway Metals will be a great bottom-fishing target in Q4 in light of the resource junior capitulation we are witnessing.
Galway Metals Inc (GWM-V)

Fair Spec Value
Clarence Stream Canada - New Brunswick 4-Infill & Metallurgy Au Sb
Marathon Gold Corp (MOZ-T)

Unrated Spec Value
Valentine Lake Canada - Newfoundland 7-Permitting & Feasibility Au
Lion One Metals Ltd (LIO-V)

Bottom-Fish Spec Value
Tuvatu Fiji - Other 5-PEA Au

The GLD has now lost 914,000 ounces since the start of 2022

Gold is now only 14% higher than $400 gold in 1980 adjusted for CPI inflation

Galway has only drilled the Golden Traingle target northwest of the SW deposit

The goal is connect the Stewart-Adrian mineralization with the SW Deposit to support a Super Pit

Marathon's CapEx increase for Valentine Lake forces a revision for the Clarence Stream OV

The new OV outcome at $1,644 gold drops this scenario below the NPV must meet or exceed CapEx hurdle

Fortunately Galway will have $8 million left at year end not be at the mercy of Bay Street
Jim (0:14:16): What did we learn from the recent update by Tower Resources on its Rabbit North drill program?
Tower Resources Ltd planned to drill 6-8 holes but only got 5 done due to drill crew competency issues and First Nations representatives being too busy to visit a seasonal creekbed (currently dry) and confirm that there is no archealogical remnants that should be preserved. However, the holes Tower did get done confirm the north-south orienation of the shear structure that hosts the orogenic gold mineralization of the Lightning Zone discovered in late 2021. Followup drilling earlier this year was based on an east-west strike for the zone which yielded confusing intersections until Stu Averill figured out what was going on. Assays won't be available until late October or early November but the project can be drilled year round. One of the holes stepping south of the discovery hole #26 demonstrated that the Lightning Zone has been partly obliterated by an older diorite plug related to the Durand stock to the north. Although this plug has copper and gold mineralization in the 0.1-0.2% and 0.2-0.3 g/t range, its alteration style makes it impervious to the later orogenic fluid flow. On the plus side, this blind diorite plug appears to have a 400 m diameter which makes it interesting as a possible copper-gold open pit target. Averill figures the gold mineralization will reappear where the shear structure exits the plug, but for now Tower is focused on chasing the zone deeper and marching north once the drill locations have received archaelogical clearance.
Tower Resources Ltd (TWR-V)

Bottom-Fish Spec Value
Rabbit North Canada - British Columbia 3-Discovery Delineation Cu Au

Drilling confirms reinterpretation of Lightning Zone's strike
Disclosure: JK owns none of the companies mentioned. Galway metals is a Good Spec Value rated KRO Favorite; Tower is Bottom-Fish Spec Value rated.

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