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Kaiser Watch February 23, 2023: No need to fear lower lithium prices

Posted: Feb 23, 2023JK: Kaiser Watch February 23, 2023 with Jim Goddard and John Kaiser
Published: Feb 23, 2023KRO: Kaiser Watch February 23, 2023: No need to fear lower lithium prices
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 February 23, 2022: No need to fear lower lithium prices
Jim (0:00:00): NioBay Metals put out a negative sounding news release about its Crevier niobium project and yet the stock went up. What is going on?

On February 13, 2023 NioBay Metals put out a peculiar news release which had me fearing the worst based on my past experience with how juniors try to spin bad news in a positive light. Management was unhappy with the Crevier assays and had instructed the assay lab to redo them. In addition NioBay announced that it had staked lithium potential claims northwest of Crevier. We sometimes see this when a junior which has been gushing about visible gold gets back unimpressive assays, which, when redone, rarely get better. The staking of claims prospective for lithium, the growing tactic among ambulance chaser juniors, also suggested a pivot from niobium to a new flavor of the month metal (though I am of the view that lithium has years of staying power if the world is to meet its Net Zero Emissions policy goals with regard to EV deployment by 2030).

I elevated NioBay from Bottom-Fish to a 2023 Fair Spec Value Favorite on the basis of news in December that drilling at the Crevier project had encountered substantial widths of carbonatite hosted pyrochlore (niobium) mineralization under Lac Touladi to the west of the existing Main resource which has been the focus of exploration since its discovery in 1975. The setting is a large alkaline intrusive complex which has been invaded by a late stage nepheline syenite dyke that runs through the complex along its long axis. NioBay estimated a global resource of 40.8 million tonnes of 1,900 ppm Nb2O5 and 241 ppm Ta2O5. Unlike the St. Honore alkaline complex 150 km to the southeast which has nearly 1 billion tonnes of carbonatite mineralzation averaging about 4,000 ppm Nb2O5, carbonatite at the Crevier complex has only been observed in the form of inconsequential showings.

NioBay's primary focus is the James Bay carbonatite deposit in Ontario which has a global resource of 63.5 million tonnes of 5,247 ppm Nb2O5. A PEA completed October 2020 for a 6,600 tpd open-pit mining scenario generates an after-tax NPV range of USD $638 million to $1.25 billion within a discount rate range of 10%-5% and has an after-tax IRR of 31.6% at the base case price of $45/kg ferro-niobium (current price is $50/kg). Assuming no further dilution these economic figures indicate a future price target range of CAD $11-$21. However, NioBay's efforts to conduct a PFS during the past two years has been stymied by a combination of Covid complications, an anti-mining faction within the Moose Cree First Nation, and poor leadership that resulted in a community split between members who wish to see a local economy developed and those who prefer a traditional lifestyle of hunting, fishing and trapping. NioBay's biggest shareholder, the Osisko Group, has suspended further work until the people of Moosonee secure a consensus supporting a niobium mine in their backyard. The stock price subsequently collapsed and the new CEO, Jean-Sebastian David, turned his attention to Cervier in 2022 to see if there was any overlooked potential.

NioBay had spent $9 million between 2009-2011 on Crevier which resulted in a PEA with a marginal outcome. Efforts to conduct a PFS were suspended when scaled up tests of the flow-sheet did not replicate the assumptions used in the PEA. On January 25, 2023 NioBay announced that changes to the flow-sheet for the Main Zone ore had resulted in significant improvement of the concentrate grade and recovery, but none of that changes the low grade of the nepheline syenite zone. NioBay undertook a 10 hole drill program in the fall which initially focused on the Main Zone. But recent clear-cut logging made the area to the west toward Lac Touladi more accessible and the field geologists discovered carbonatite showings in a creek bed. Hole #5 was drilled across the creek with visuals that surprised management, prompting it to drill hole #6 across Lac Touladi. This yielded an even bigger surprise in the form of continuous carbonatite host rock with a wide range of pyrochlore grain sizes and abundance distribution; how the niobium grade behaves is impossible to eyeball, but what was clear is that the grade potential was superior to what is visually evident in the Main Zone core. Holes 8-10 were all angled across Lac Touladi and delivered similar intervals bottoming at a vertical depth of about 350 metres.

The implications are stunning. All these decades exploration has focused on the nepheline syenite dyke which as a harder rock, similar to pegmatites, is resistive to weathering and consequently easy for geologists to explore. Whatever attempts were made to penetrate the surrounding bush did not turn up any promising outcrops, and of course what was under Lac Touladi was invisible. Carbonatite is a soft rock that weathers easily and is susceptible to being gouged out by glaciers, similar to kimberlites which also usually weather recessively. The spacing of the 4 holes across Lac Touladi indicate a carbonatite body with a billion tonne footprint just a few kilometres west of the Main Zone that has received all of the historical exploration. While it has been confirmed by Quemscan thin section work that niobium bearing minerals like pyrochlore are present in the core, assays are need to establish the grade and its zonation. The footprint indicates a scale comparable to the Niobec deposit which has been underground mined for ore grading 5,000-7,000 ppm Nb2O5. If assays deliver long intervals of similar grade, Crevier will constitute a major new niobium discovery with a far superior location in terms of infrastructure and Indigenous communities engaged in local commercial activities such as logging.

The reason NioBay instructed the assay lab to redo the assays and sent core to another lab which has reliably done all the James Bay assays as a comparison control is that the assays for the 1-2 m intervals were all over the map and bore no relationship to the pyrochlore crystal sizes and abundance visible in the core photos. The reason the stock started to rise instead of falling was because investors started asking what this was all about and started to realize that management is expecting good results for the Lac Touladi holes at Crevier.

In addition, when I asked JS David why NioBay was staking lithium claims in Crevier's backyard, his answer was that the Quebec government recently released a lake bottom sediment study for the region north of Crevier beyond the Grenville Province within which the Niobec and Crevier alkaline intrsuve complexes sit. The lake bottom sediment survey data set the smarter juniors are using in the James Bay region to generate lithium prospects is an older data set. When JS David reviewed the new data set he combed his knowledge of prior work in the area to stake some obvious targets (Kenorland, another 2023 Favorite, has also been using the new data set to stake claims in this region). Since NioBay expects to be delineating a new discovery at Crevier this summer and has good relationships with local stakeholders it made sense to add lithium pegmatite prospects to its portfolio. It will be relatively cheap and easy to make or break these targets this summer. So this was not an example of a junior abandoning a dud project and heading off to a region where ambulance sirens are wailing.

NioBay Metals does have a booth at PDAC so if it gets reliable assays back before PDAC which confirm a significant discovery, it will generate a lot of buzz. However, PDAC will be important for NioBay because it isn't just mining and exploration companies which descend on Toronto, but also government agencies and stakeholder lobby groups. The Ontario government is waking up to the reality that all this "critical minerals" chest-thumping is meaningless unless everybody gets on side about how to develop critical mineral deposits in Canada so that the NZE policy goals have a physical shot at becoming reality. JS David will apparently be very busy at PDAC and there is a chance that a breakthrough gets achieved with regard to Indigenous support for advancing the James Bay niobium deposit. In the past there has been a lot of talk at PDAC about how the mining industry can do a much better SG job; this time there will be a lot of talk about how permitting agencies can streamline their processes so that new mines can be developed on a much timelier basis than has become the norm, something the International Energy Association pointed out as an obstacle to NZE goals in its January report.

NioBay Metals Inc (NBY-V)

Fair Spec Value
Crevier Canada - Quebec 7-Permitting & Feasibility Ta Nb

Relative locations of Niobec and Crevier carbonatites

Drill Plan for 2022 drilling at Crevier

Crevier Main Zone Resource Estimate and Alkaline Intrusive Complex

Plan and Cross Section of Niobec Deposit

Sensitivity NPV Chart for NioBay's James Bay deposit

Sensitivity NPV/Share Chart for NioBay's James Bay Deposit

Niobium Supply Evolution Chart

Niobium Price and Supply Distribution Charts
Jim (0:08:33): Lithium producers and developers retreated during the past week. What does this mean for Lithium Mania 2.0?

Lithium carbonate prices started retreating from their $36/lb peak already in December but accelerated their decline in late February amidst talk about slower EV sales in China and elsewhere. The high level in 2022 was caused by an imbalance in supply and demand which is a natural feature of the metal market where there is always a lag between the decision to mobilize new supply and delivery of the new supply. The first imbalance was created during Lithium Mania 1.0 between 2015 and 2018 when the Australian pegmatite developers moved quickly to bring lithium supply on stream. But they proved quicker than the EV adoption curve, with the result that an over-supplied lithium carbonate market crashed the spot price below $3/lb during 2018-2020. At that level most pegmatite deposits were not worth developing, so supply mobilization stalled. But in 2021 it became clear that the car makers had gone all-in with shifting their future sales strategies from ICE to EV cars regardless of efforts by climate change skeptics and fossil fuel pumpers like Donald Trump to discourage the energy transition. It no longer mattered who was right or wrong about anthropogenic causes behind global warming.

The supply-demand imbalance reversed in 2021 which allowed lithium carbonate prices to increase ten-fold and spend all of 2022 in a $30-$35/lb range. But this also resulted in capital injections into advanced lithium pegmatite projects such as the Grota do Cirilo project of Sigma Lithium in Brazil. The US Geological Survey recently published its preliminary annual metal production estimates which showed that the 100,000 tonne lithium metal supply in 2021 was revised upwards to 107,000 tonnes while the 2022 supply is estimated at 130,000 tonnes. Lithium supply deals are based on long term contract prices, similar to uranium, which means that producers do not get the spot price if it has soared unless that level stabilizes. The $30-$35/lb range is not necessary to mobilize the 600% supply expansion to 700,000 tonnes lithium metal the IEA projects is needed to make 2030 EV sales goals a reality. Assuming inflation gets back to the central bank target of 2%, a $10-$15/lb range is a reasonable long term target to use when figuring out where the future supply will come from. Albemarle in fact suggests a minimum $9/lb is needed to fulfill supply growth requirements.

For battery makers like Contemporary Amperex Technology Co Ltd (CATL) the persistence of high prices is a problem because it becomes a benchmark for pricing long term contracts. So it was inevitable that an effort would emerge to bring the price of lithium carbonate level down and I would not be surprised to see it retreat back into the $10-$15/lb range. Helping out is a combination of new supply coming on stream in response to expectations that lithium will become a $100-$200 billion annual market by 2030 and a slowdown in EV demand growth during Q1 of 2023 brought about by recession concerns and the end of Chinese subsidies for EV purchases. This is bad news for existing producers like Albemarle and SQM who cannot grow revenues through rapid expansion of supply without engaging in acquisitions of emerging producers and which will suffer a decline in profit margins. So they became easy targets for Wall Street.

While the optics of an exponential metal price chart are never pleasing to the market when it goes in reverse, Lithium Mania 2.0 is not about future metal price speculation as it is with gold which has had a century of exploration for deposits that work at prevailing gold prices. It doesn't matter if lithium carbonate prices retreat 50% from their peak today because that will anyways happen in the long run. Lithium Mania 2.0 is about finding and delivering the second half of the 600,000 tonne supply expansion needed to make NZE 2030 goals reality. LCT style pegmatite deposits occur in most Archean settings, often in proximity to precious and base metals deposits, but have historically been ignored because lithium demand was stable and tracked macroeconomic growth trends - it was worth only $200 million in 2005. Now that the world is taking seriously the car maker shift to EV fleet sales and some governments are mandating zero ICE sales by 2035, there is a global scramble afoot to revisit all these known pegmatite systems or settings where they may not be sticking out of the ground and visible from Google Earth.

Lithium Mania 2.0 is about the next 3 years as an exploration scramble to find and delineate the best deposits for development in the second half of the decade. This is an exploration paradise for resource juniors because it is hard to predict who will not be successful in delivering a lithium development candidate. The James Bay region is shaping up to be the mother of all Great Canadian Area Plays. But other parts of Canada will also attract exploration for LCT-type pegmatites and may also yield world class deposits for the simple reason that there has never before been an economic rationale to explore for lithium. Wall Street will have its fun with established producers as the market realizes it cannot plug $30-$35/lb LCE prices into future revenue projections. And Wall Street will do its best to assist with mergers and acquisitions of emerging development candidates. The Albemarle scale producers face competition from car makers which themselves are now looking to own and operate the upstream mines that supply their critical minerals. This has been taboo for many decades. It creates an entirely new dynamic for the resource juniors focused on lithium.

To understand the enormity of Lithium Mania 2.0, consider the uranium bubble of 2004-2007 when the spot price was manipulated to $140/lb U3O8 and enormous capital poured into uranium juniors as everybody talked about soaring uranium demand as all these planned Chinese reactor come on stream. At its peak the uranium supply market was worth about $10 billion in 2006; 15 years later it is worth only $5 billion thanks to Kazahkstan developing its low grade deposits with the help of in situ leaching and flooding the market with low cost U3O8. During the Uranium Bubble few people anticipated how successful Kazakhstan would be at mobilizing new supply. It is possible that cheap new lithium supply may come from direct lithium extraction of lithium from oilfield brines, which is a technology approach similar to fracking and horizontal drilling of shale oil deposits. But the success of oilfield brine DLE is several years down the road and the car makers cannot afford to gamble on a technology breakthrough. LCT pegmatites are simple and the flow-sheets already understood. As far as resource junior speculators are concerned they should accept a lithium carbonate price retreat into the $10-$15/lb and not worry during the next 3 years about a DLE breakthrough flooding the market with cheap lithium.

Albemarle Corp (ALB-N)

Unrated Spec Value
Greenbushes Australia - Western Australia 9-Production Li

Lithium Supply Evolution Chart

Lithium Price and Supply Distribution Charts

Supply Evolution Chart for Uranium
Jim (0:14:45): Why is Brunswick Exploration trending higher even though they are in the midst if a financing?

Brunswick Exploration is in the process of closing two financings, $7.5 million in the form of a bought deal by Red Cloud that includes the over-allotment option, and another $2 million in the form of a non-brokered private placement being done with a handful of Canadian institutions and investors who do not have access to the Red Cloud allocation system. Some of these units will have the LIFE exemption, meaning they will not have a four month hold, but only a small fraction. The $9.5 million financing will boost Brunswick's treasury to about $16 million, more than enough to fund its 2023 summer field exploration plans and droll programs. Brunswick is bucking the downtrend created for the lithium producers by declining lithium carbonate prices because it is all about Lithium Mania 2.0, finding new lithium pegmatite deposits that will come on stream towards the end of this decade. Through its multi-pronged approach adopted in 2022 the junior has assembled a large portfolio of grassroots prospects selected on the basis of archival research and geology. Its Plex project in the James Bay region optioned from Osisko is part of the same geological trend that Virginia Mines assembled for gold exploration; the Corvette property owned by Patriot Battery Metals was part of this trend, except that the pegmatites outcropped more visibly. Trading in PMET is now dominated by the Australian audience which sets the tone for the Canadian trading through its earlier ASX session. The North American audience has now adopted Brunswick as its lithium pegmatite champion and the best bet for new success in the James Bay Great Canadian Area Play. It is to PMET what Aber was to Dia Met during the initial years of the Canadian diamond boom.

In terms of valuation one might complain that Brunswick is over-priced, given that it does not yet have a confirmed discovery that justifies S-Curve market action. However, Brunswick has positioned itself as a future developer of multiple deposits in different parts of Canada, thanks to its staking and optioning scramble during 2022 when James Bay juniors like Azimut and Midland were asleep at the switch. Now those prospect generators are waking up and looking at the James Bay lake bottom sediment data set and trying to convince the market that they accidentally are sitting on great lithium pegmatite potential. Some of these claim blocks may indeed host a major LCT pegmatite, but these juniors will have to spend the summer on field work to develop drill targets for the fall. Brunswick in contrast went after LCT-style pegmatite prospects with laser precision and a process of elimination strategy. Jean-Marc Lulin and Gino Roger may turn out to be lucky, but Bob Wares and Killian Charles have manufactured their luck. That is why the market is pushing Brunswick higher, a junior which plans to change its name to Osisko Lithium.

Brunswick Exploration Inc (BRW-V)

Fair Spec Value
Anatacau Canada - Quebec 2-Target Drilling Li

Implied Project Value Chart for Brunswick Exploration
Disclosure: JK owns shares of Brunswick Expl and NioBay Metals; Brunswick and NioBay are Fair Spec Vaue rated 2023 Favorites

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