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Kaiser Watch March 1, 2023: Will PDAC Curse be violated in 2023?

Posted: Mar 1, 2023JK: Kaiser Watch March 1, 2023 with Jim Goddard and John Kaiser
Published: Mar 1, 2023KRO: Kaiser Watch March 1, 2023: Will PDAC Curse be violated in 2023?
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 March 1, 2023: Will PDAC Curse be violated in 2023?
Jim (0:00:00): How have the 2023 Favorites done after two months?

As a group the 16 companies in the 2023 KRO Favorites Collection are up 24.9% as of Feb 28, compared to 0.7% for gold and 10.6% for the TSXV Index. At present only 4 Favorites are down, ranging from 3.3% to 27.4% for Aurion Resources Ltd, Cornish Metals Inc, Endurance Gold Corp and Kenorland Minerals Ltd. Aurion and Endurance are gold explorers and gold had a poor month in February after peaking at $1,931 in late January. Cornish Metals is waiting for the dewatering of its tin project to finish, while Kenorland is flat-lining as prospect generator farmout juniors do while waiting for a major discovery.

The biggest gainer is Brunswick Exploration Inc, up 132% after raising $9.5 million in February for its grassroots lithium exploration portfolio. Century Lithium Corp, which is working on a FS for its Clayton Valley claystone project in Nevada is up 44%, which is understandable in light of the $700 million loan promise Ioneer has received from the Department of Energy for its Rhyolite Ridge project, and the $650 million GM has promised for the Thacker Pass project of Lithium Americas. Critical Elements Lithium Corp is up 38% based on permitting progress for its Rose lithium project in Quebec's James Bay region. All of this is against a background of lithium carbonate prices dropping sharply this year from the $30-$35/lb range last year to $26/lb.

Canalaska Uranium Ltdis still up 33% after retreating from an earlier high based on drilling speculation with regard to the deep discovery at West McArthur. Eagle Plains Resources Ltd is up 53% after formalizing its plan to spin out its royalty portfolio on a 1 royalty for 3 EPL shares basis. The special meeting will be held April 20, 2023 and the ex spinout date will be in mid March, something investors must keep an eye out for if they want to buy the stock to get the spinout.

Faraday Copper Corp is up 63% after raising $40 million at $0.80 in mid February for its Copper Creek project in Arizona. It has now used US $10 million to buy the Mercer Ranch to secure surface rights. The 50 million shares became free trading when the financing closed on February 14, so there is no risk of a time bomb four months from now. Amarc Resources Ltd has inched up 3.3% as investors warm to the idea that in 2023 Amarc will deliver discovery news on two farmed out fronts and one 100% owned project in British Columbia. FPX NIckel Corp is up 5.8% as the market continues to sulk over the fact that the identify of last year's 9.9% strategic investor remains a secret.

NioBay Metals Inc is up 19% after the company sent Crevier assays back to the lab to be redone. They have also branched into lithium claims to the northwest of Crevier based on recently released government lake bottom sediment survey results. There is also hope that a breakthrough can be achieved soon allowing work to resume on the James Bay niobium project, though at this stage the market will want to see a solid longer term arrangement with the Moose Cree First Nation than a nod for some more drilling.

Verde Agritech Ltd is up 32% as we approach the Brazilian potash selling season in Q2 and investors begin to speculate how much of the new 3 million tpa K Forte plant capacity it can sell and deliver in 2023.

Solitario Zinc Corp is up 21% as more investors begin to appreciate the scale potential of the Golden Crest project west of South Dakota's Black Hills 100 million ounce gold district. The company keeps reporting positive trenching results as further evidence of a major hydrothermal system similar to that which created the Wharf sediment hosted gold system and which may have harvested Homestake age gold in the basement rocks. Solitario is still optimistic that its plan of operations will be approved in Q2 so that drilling can start in the second half.

Colonial Coal International Corp is up 16% and rising as the market begins to appreciate that Glencore's Sukunka permit denial issued in December is not representative of the metallurgical coal permitting reality in northeastern British Columbia. Teck's plan to spin out its metallurgical coal division may also be pulling in investors. David Austin just did an hour long presentation with the help of its new IR firm in which he covers the permitting reality. Last year's market anomaly where thermal coal was twice the price of metallurgical coal has also reversed itself, with thermal coal dropping from $400 to below $200 while met coal has risen to about $300 per tonne.

So far there are no negative fundamental developments hurting the outlook for any of the 2023 Favorites and I remain confident this will be a tremendous year for the entire group, not just a couple as was the case with the 2020 Favorites Collection. Although January was a good month for resource juniors, February saw a general retreat in metal prices that cooled off the market. The blame goes to lingering evidence that inflation is not coming down as fast as had been hoped, which promises continuing interest rate hikes throughout the year. This is supposed to chill macro-economic demand and harm revenue growth and profit margins for general equities, resulting in a repeat of last year's stock price declines which by mid 2022 had snuffed out the resource uptrend. But I am of the view that the additional supply requirements for certain metals like copper, nickel, lithium and rare earths needed to achieve energy transition goals, combined with an autocracy-democracy showdown that potentially splits global trade will underpin a resource junior exploration and development bull market even though we may end up stuck in a general recession. We remain in the eye of the hurricane were we can see the misery of the decade long bear market and the potential for a roaring bull market over the next 5 years. It's a question of when we move out of the eye into a bull market hurricane.

Chart of 2023 KRO Favorites Index
Jim (0:11:20): You are heading to Toronto for the Metals Investor Forum on Friday and Saturday. What will be your topic and which companies are in your session?

The Toronto Metals Forum will take place at the Delta Hotel on March 3-4 across from the South Convention Center where the PDAC conference will be held on March 5-8. Admission is free but one is required to Register Online ahead of time. My session is the last one on Saturday afternoon between 4:30-6:00 pm. I'm not speaking at PDAC so if anybody wants to track me down the best chance will be on Saturday afternoon at MIF; I'll be in the vicinity of the 5 companies in my session: VRR Resources Inc, Endurance Gold Corp, Brunswick Exploration Inc, Harfang Exploration Inc and Sirios Resources Inc. The topic will be a scaled down repeat of the January MIF talk about the energy transition and autocracy-democracy showdown as key drivers of a major bull market for resource juniors, but with an emphasis on why James Bay Lithium is shaping up to become the Mother of all Great Canadian Area Plays.

VR Resources Ltd (VRR-V)

Bottom-Fish Spec Value
Hecla-Kilmer Canada - Ontario 3-Discovery Delineation REM Nb
Endurance Gold Corp (EDG-V)

Fair Spec Value
Reliance Canada - British Columbia 3-Discovery Delineation Au
Brunswick Exploration Inc (BRW-V)

Fair Spec Value
Anatacau Canada - Quebec 2-Target Drilling Li
Harfang Exploration Inc (HAR-V)

Bottom-Fish Spec Value
Lac Menarik Canada - Quebec 2-Target Drilling Au
Sirios Resources Inc (SOI-V)

Bottom-Fish Spec Value
Cheechoo Canada - Quebec 4-Infill & Metallurgy Au Li
Jim (0:20:23): You will be walking the floor of PDAC Sunday to Wednesday. What do you think will be the talk of the show and can we expect the PDAC curse to kick in afterwards?

I'm not sure what will be the talk of the show but I think it will become the metal requirements of the energy transition and government realization that their job is not to dump mining costs into shithole jurisdictions by making permitting slow, difficult and expensive in rule of law jurisdictions like Canada, but rather to streamline the permitting process and accept local tradeoffs for greater good such as their net zero emission goals. For Canadians the elephant in the room is lithium whose supply needs to expand six-fold by 2030, which to become reality will turn lithium into a $100-$200 billion annual supply market, on a par with copper and gold. And it will not be achieved by established mining companies like BHP, Anglo-America, Vale or Rio Tinto because half the required new lithium supply will need to come from historically ignored pegmatites in places like Canada, Brazil, Africa and Scandinavia. The majors don't know where these potential LCT-enriched pegmatites are located, but juniors like Patriot Battery Metals has already figured it out at its Corvette project in the James Bay region, and Brunswick has spent a year assembling multiple land packages based on archival research and boots on the ground while most of the other juniors were asleep at the switch last year. Now there is a huge scramble afoot to track down these settings, with James Bay emerging as a world class lithium district.

Ironically, neither Patriot nor Brunswick have a booth at PDAC, partly because there is a waiting list. To help myself and KRO members understand the PDAC Exhibitor spectrum, I have tagged all the Canadian and Australian listed companies at PDAC which is available as a special parameter in the KRO Search Engine. By combining the PDAC parameter with other parameters I have counted 27 or 7% of the 400 exhibitors in the Investors Exchange as having lithium as a target metal in their flagship project. That is a good sign that Lithium Mania 2.0 is nowhere near peaking. It turns out half my 2023 Favorites have a booth at PDAC, and 18 of my 2023 bottom-fish collection.

Why is there a waiting list for companies like PMET and BRW? The reason is that PDAC gives signup preference to prior exhibitors, which is understandable because the money they paid in 2021 for the Virtual PDAC was a total waste of money and time for company executives who had to sit by their computers during the 4 day session waiting for nobody to visit their virtual booths. However, my KRO Search Engine counts 80 PDAC exhibitors or 20% as having negative working capital. Hope blooms eternally in the resource junior sector, so most companies even though in dire straits scrape together the money needed to keep their PDAC dibs alive. KRO members can use my search engine to filter out the exhibitors based on various parameters, which includes avoiding these zombie companies. If you are going to spend CAD $25 per day to access this head spinning collection you don't want to walk around in a daze staring at 400 indistinguishable booths, one in five of which is a turd.

I've created a PDAC Lithium Exhibitor PDF as an example of what the display results look like. If you use an IPad and hook up to the PDAC WiFi you can pull the KRO Profile for each company to access lots of detailed information about the company which you can use as a lie detector test, or, more productively when you think it is a promising junior, ask highly contextualized questions that might elicit otherwise unavailable but very helpful information. The exhibit booth people loathe answering questions like "what do you do" but have a lot of time for investors who might be existing or potential shareholders who seem to know a lot about their company. Most of the company people are careful not to reveal inside information, but a sophisticated researcher is on a dot collection mission which enables dot connection on a scale that AI ChatGPT cannot yet accomplish and never will because the human interaction is key to dot generation.

Many company executives and investors go to PDAC to participate in off-site meetings, which makes sense when deal-making is the goal, but not if it is an independent researcher such as myself. For me a one hour zoom call during which I can take notes is infinitely more productive than interacting in person at a busy conference like PDAC. For me the objective is to connect with people, trade notes, and collect dots which slowly connect during and after the conference.

The PDAC Curse is the tendency for the New Year Effect to climax during PDAC, with resource juniors selling off afterwards in anticipation of the rule of thumb, "sell in May and go away". Exceptions when the uptrend continued uninterrupted into the summer occurred in 2003 when gold finally developed an uptrend and earlybirds like Robert Friedland started talking about the China super cycle. The next violation of the PDAC curse took place in 2006 when the majors accepted the China Super Cycle as reality and stopped forward selling their metal production. The next one came in 2009 when the market realized that China's $600 billion infrastructure spending response to the 2008 financial crisis would keep metal demand high and gold bugs became excited about the alternative QE strategy adopted by the United States. Unfortunately the Tea Party gained control of the House in November 2010 and launched a debt ceiling extortion campaign during the Obama administration which they forgot about in 2017 when Donald Trump became president. Putting a lid on fiscal stimuls aimed at rebuilding America's infrastructure helped create a 10-year bear market for the resource juniors and the majors.

The next exception occurred in 2016 when it looked like gold was developing an uptrend, and again briefly in 2017 as gold tried again to rally. Between 2020-2022 the waters became muddied by the covid pandemic. Although 2020 looked promising for a gold uptrend thanks to the destabilizing policies of Trump, everything tanked in 2020 right after PDAC when the world realized the pandemic emanating from China was serious. The resource juniors did rebound in the second half when the market saw the massive QE undertaken to prevent a global depression. But there was no physical PDAC in 2021, and in 2022 it was in June when stocks are slumping anyways thanks to the summer doldrums, and in 2022 were being helped downwards by rising interest rates responding to persistent inflation. So 2023 will be the first time the PDAC Curse has a chance to manifest itself properly.

Although lithium juniors are less than 10% of the exhibitors, I think Lithium Mania 2.0 will generate a lot of buzz, and I think what's happening in the James Bay region will ignite widespread recognition that we are in the early days of a Great Canadian Area Play, one that I believe will eclipse all other area plays, and see meaningful smaller scale replication in other parts of Canada. The growing angst about the autocracy-democracy showdown, exacerbated by a shift among many Latin American countries into leftist forms of autocracy, will also focus nations like Canada still in the democracy camp on the question of where will the world get raw materials from when their traditional sources like China and Russia are geopolitically no longer available, both to fuel macroeconomic growth and to fulfill the extra supply for some metals like copper, nickel, lithium and rare earths needed to achieve energy transition goals mandated by democracies. The big sea change I expect to emerge from PDAC 2023 is a shift from government agencies asking what the mining sector can do better, to asking themselves what government agencies can do to help exploration and mining companies deliver new supply more quickly without turning countries like Canada into shitholes whose excrement is dumped onto downstream victims courtesy of autocratic rule.

Note that the PDAC Curse chart I have historically maintained and goes back to 2000 was based on total traded value and volume by all TSXV listings. In 2009 KRO developed the ability to isolate trading value and volume for TSXV resource listings which allows a more accurate depiction of how the average daily share price changes. This became necessary because in the past decade TSXV traded value ended up being dominated by an explosion of non-resource listings that enjoyed bubbles in sectors like cannabis and crypto while the resource juniors remained stuck in a decade long bear market. I now have a new PDAC Curse Chart for 2009 onwards which will make it easier to track whether or not the PDAC Curse will be violated in 2023 and signal that we have moved from the eye of the hurricane into a raging resource junior bull market hurricane that likely will not climax until 2025 even while the overall economy flatlines or slides into recession as central banks work to subdue inflation through monetary policy.

Two Decade Chart of TSXV Traded Value and Price

Chart since 2009 of TSXV Resource Listing Traded Value and Price
Disclosure: JK owns shares of Brunswick and Endurance Gold;Brunswick and Endurance are Fair Spec Value rated 2023 Favorties; Harfang, Sirios and VR Resources are Bottom-Sih Spec Value rated,

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