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Kaiser Media Watch Blog - July 31, 2023 to July 31, 2023
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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 July 28, 2023: Countdown for PMET resource estimate
Jim (0:00:00): Will Patriot Battery Metals deliver its maiden resource estimate in July as promised?
Patriot Battery Metals Corp did promise a maiden resource estimate in July and Monday July 31 is the last opportunity to deliver, with the ASX getting it on our Sunday night. Given that Night Market Research challenged PMET's credibility about its MRE timing, which I discussed in KW Episode July 14, 2023, I would be shocked if CEO Blair Way and Chairman Ken Brinsden fail to deliver. The real question is how will the market react to whatever is published? The tonnage reported will be meaningless because PMET will likely publish a set of inferrred resources at different cutoff grades so that they can isolate the higher grade Nova portion. They do have to pick a base case resource and that will probably be one that allows a resource just over 100 million tonnes to prove Night Market Research wrong.
The real one, however, which potential bidders for PMET will be looking at, will be the one which allows an optimal scale for that region. What do I mean by optimal? A key factor will be the combination of mine life and open pit mining scale. Pegmatites tend to be elongated bodies and CV5 is no exception, but when they outcrop or are close to surface they deserve to be open pit mined. But because of their elongated nature the waste to ore stripping ratio will be very high, so giant 100,000 tpd open pit operations such as you see with copper porphyry systems or what FPX Nickel contemplates for the Decar nickel project just isn't feasible for LCT type pegmatites. And since the dip is sub-vertical, chasing the dip to a vertical 300 m pit limit does constrain the tonnage available.
There is also the additional consideration of the ideal mine life. Normally one likes to aim for a 20 year mine life, but, given that we would be lucky to see a James Bay lithium mine producing by 2030, would it be wise to plan such a long mine life? Lithium is not like copper or nickel whose fundamental uses as an electricity conductor and stainless steel input are unlikely to change in the long run. But lithium use is linked to a specific technology which may be on its way out by 2040, possibly eclipsed by hydrogen fuel cells. The mission critical problem for energy transition goals is meeting the demand surge between now and 2035, which suggests choosing a mine life of 10-15 years.
For these reasons selecting a higher cutoff grade and a smaller operating scale may be more optimal than shooting for maxium size and economy of scale. In the case of Corvette, the 50 km trend may have multiple similar deposits. It might be prudent to develop multiple open pits at lower mining rates but higher grades feeding a larger capacity central processing facility that could also include a refinery so that you do not need to ship concentrates long distances. Anybody looking at PMET as a buyout target will be thinking in these big picture terms.
My prediction is that the maiden resource will be presented in a manner that allows bulls and bears alike to all claim victory, but what counts is what the Albemarles and Rio Tintos of the world see as their preferred development scenario. I wouldn't be surprised to see a range of resource estimates at different cutoff grades which includes NMR's 76 million tonne estimate all the way to 150 million tonnes. The key will be the open-pittable cutoff grade. What becomes the true "base case" will depend on the desired mine life in the eyes of a future developer. Generally when a discovery shifts from resource estimate delivery to feasibility demonstration, in essence "cost discovery", the eventual proven and probable resource ends up smaller and higher grade than the base case maiden resource estimate.
We should also keep in mind that the cut-off grade is half determined by OpEx considerations, but the other half is the revenue side. What lithium carbonate price is it reasonable to assume for the mine life? With established metals like copper and nickel the cost curves of existing mines and potential mines provide a guide to the future, linked to macroeconomic predictions about overall demand growth. Electric vehicles represent a policy driven disruptive technology that entrains lithium demand. The world has never seen anything on this scale, except perhaps in the post WW2 period when uranium as the fuel for nuclear energy caught the market's imagination. Seven decades later uranium supply limps along with an annual value below $5 billion while lithium supply, worth $200 million in 2005, is heading towards a $100-$200 billion annual market if EV deployment goals for 2030 are to be met.
Every lithium bear out there, just as during the rare earth boom of 2009-2012, will moan that lithium is everywhere, and that the world will never be caught screaming, "my kingdom for a pallet of lithium". Along with the astonishing demand trajectory there is also the reality that extraordinary lithium resources are sitting under everybody's noses, Bolivia's salars among the most staggering. But what does it take to mobilize these resources? What the Lithium Mania 2.0 detractors do not understand is that time is of the essence. How long will it take out for Chile, Mexico and Bolivia to sort out a fair split for the lithium windfall? In the case of direct lithium extraction (DLE), or claystone flow-sheets, how much CapEx and time needs to be invested in order to "know" this supply is truly part of the cost curve? Never before has so much uncertainty existed about the future price of a metal.
The reason the James Bay lithium deposits are on the radar of downstream lithium users is that their cost structure is reasonably well understood, with caveats regarding the risks that Canada's tolerance for the anti-mining lobby or First Nations extortion is absolute. But this structural opposition can vanish overnight, especially once politicians start to connect a destiny of "burn baby burn" with opposition to resource development. When PMET publishes its cutoff-grade defined range of CV5 resources, what actually matters will be in the eye of the beholders, and those beholders may include parties like Toyota who think they have secured the holy grail of a solid state lithium ion battery, and are plotting to seize the EV mass market in 2030 and beyond. The lithium input cost, even though the future commodity price may range widely, will still be a fraction of the future overall cost of an EV.
The main line of attack by NMR was that under the Lassonde Curve logic the market will lose interest as PMET shifts into the cost discovery portion of the project. This becomes a game theory problem for the potential bidders. If they all stay quiet the price will sink. But I don't think the producers have the discipline to stare down PMET as it moves into tedious feasibility demonstration. The competition in the wings are giants like Toyota who are grappling with an existential crisis. In addition there are the big oil companies. The stupid idealist view is that tomorrow we all stop combusting fossil fuels and the evil oil and coal companies can promptly descend into hell where they can burn. But the idea of an "energy transition" is not that of a cold turkey break with addiction; it is a gradual weaning of dependency.
Big oil is waking up to the fact that the period of denial and suppression is over, and is developing strategies to adapt to a future reality at odds with its historical business model. And this shift need not be because they finally cave to the climate change lobby. It could very much be because they are watching developments in fusion energy and smelling a tipping point that could deliver commercialization by 2040. Fusion energy, because it does not include the hopelessly high radiation mitigation costs that doomed the post WW2 nuclear energy dream, will blow away not just fossil fuels like coal and natural gas, but also the solar and wind renewable energy sector. What will persist is an electricity grid and the capacity to use electricity to create alternative fuels like green hydrogen whose distribution can repurpose natural gas pipelines. It isn't just companies like Toyota sensing an existential threat and potentially making moves that shatter prevailing norms; big oil faces its own existential crisis but does have an intrinsic platform it can adapt to ensure its survival. Night Market Research is assuming that the only players to buy and develop major new lithium projects like PMET's Corvette are traditional mineral or metal producers. Once PMET has its Corvette resource on the map, assuming it meets expectations, a much broader range of interested buyers stands ready to pounce.
But that is me extrapolating about big picture forces that may not be ready to deploy themselves. The Night Market Research critique I most respect is one I made earlier this year, namely the structural instability that comes from PMET's origin as a horribly flaky Canadian junior. PMET has the problem that 24 million in the money warrants sit in the hands of parties who are likely not institutional shareholders. For whatever reason they have chosen not to exercise and collect their profits over the past couple years. If the potential future owners of PMET are truly disciplined, PMET will suffer from the market question "what now?" after the maiden resource is issued. NMR correctly puts its finger on opportunity cost. The market will not care if PMET trumpets that it will go on a drilling rampage along its 50 km land package to show that there are as many as a half dozen CV5 deposits present. With a $2 billion implied value already in place, what is left, another double after you spend another 2 years duplicating CV5? That is not how retail investors think. James Bay is not like the Ekati project within the Slave Craton during the 1990s where Chuck Fipke didn't quite get it all, but did get most of it. Replication of PMET's success within the James Bay region has a much greater probability than during the diamond hunt of the 1990s.
If the James Bay fire access restrictions ease and other juniors start finding LCT pegmatites, we will see PMET warrant holders exercise and exit PMET in order to redeploy the gains into new upside potential. This will create a tax hit in 2024 for them, which will create psychological incentive to engage in gambling on other much cheaper juniors, with potential horrific consequences in December when they dump the duds in order to collect the losses to offset the crystallized PMET gains. While that worry should deter, on the contrary, precisely because this negative outcome can be contemplated, profit soaked ex-PMET shareholders will be unable to resist rolling the dice again, this time without wondering about the legitimacy of Lithium Mania 2.0 or the strange ambitions of management such as merging with some private rare earth company. This time the story has solid legs.
But what will be the driver that explodes the James Bay lithium junior space? This week Brunswick Exploration Inc announced that it has boots on the ground on the Mirage project where the goal is to find the bedrock source of a 1,700 m by 200 m field of spodumene bearing boulders. Should Brunswick report success in the next week or so, this junior with a tenth of the implied value of PMET will start to attract recycled PMET dollars. Within a few weeks Dios Exploration Inc which has a hundredth of the implied value of PMET will have boots on the ground checking out its second order precision targets. I have been following this junior's methodology closely, and I dare to say, its profound discovery potential value is not obvious from their news releases, their web site content, or their invisible corporate presentation. But Dios has significant individual shareholders whose holdings in PMET have a value bigger than the entire market capitalization of Dios. What happens if circumstances create a liquidity event that enables or forces them to exit the mother ship?
At the moment the James Bay lithium junior prices are tracking sideways. While the Canadian media is oblivious to Lithium Mania 2.0, along with both retail and institutional investors, the Australian equivalents, having experienced Lithium Mania 1.0, are completely plugged in. If PMET delivers a multi-grade cutoff set of resource estimates which allows everybody to claim to be a winner, be they bulls or bears, Australian capital could step up to absorb the paper from warrant exercise and sales by the earlier stage motley crew. This could jump start Lithium Mania 2.0 in the James Bay region in August after the juniors spent two months in the penalty box thanks to forest access bans created by Canada's pitiful firefighting capacity. I can't promise execution, but I can confidently point out the setup.
Last week Verde Agritech announced that it had received a study from Newcastle's Professor David Manning which confirmed that a tonne of K Forte was capturing 120 kg of CO2. This opened the potential for the sale of carbon credits linked to each tonne applied to a farmer's field. The company said it was still working on a life cycle analysis of the CO2 generated in mining, grinding, shipping and applying the K Forte so that we know how much net CO2 per tonne could be packaged as a carbon credit. I liked this strategy because if it is a meaningful amount, the company could offer a meaningful discount relative to potassium chloride which should motivate farmers to adopt K Forte as an alternative to KCl.
On July 27 Verde Agritech surprised us with a brief news release that it is in advanced negotiations to sell carbon credits to major international corporations that are established purchasers of permanent carbon offsets. That was a surprise to me because when I talked to Cris Veloso last week he suggested that the independent life cycle analysis by a Canadian consultancy was still 3-4 weeks down the road. How can you be in serious negotiations to sell a carbon credit when you don't know the net number? I guess the answer is that they already have a reliable internal net number and the independent verification is just a formality. The company did state that at its current production capacity, it could generate 300,000 tonnes of carbon credit annually. Since production capacity is 3,000,000 tpa which would pack away 360,000 tonnes of CO2 at Manning's rate of 120 kg/tonne K Forte, that means the carbon footprint is 20 kg per tonne of K Forte. So each tonne of K Forte generates 100 kg of saleable carbon credit. What is that worth? That depends on the quality of the carbon credit.
The press release included a link to a 58 page document produced by Microsoft called Criteria for High-Quality Carbon Dioxide Removal. This pdf document is worth reading because it describes the pros and cons of 8 key ways to remove CO2 from the atmosphere that do not involve capturing CO2 emissions at source. Microsoft has committed to becoming carbon negative by 2030, as opposed to carbon neutral, because it also has the goal of by 2050 to have captured and permanently stored all of its net CO2 emissions since Bill Gates and Paul Allen founded Microsoft on April 4, 1975. Microsoft works with Carbon Direct to establish carbon capture investments whose credits would offset Microsoft's emissions.
The sections relevant to Verde Agritech are pages 36-40 on Enhanced Rock Weathering in Croplands, and pages 41-45 on Carbon Mineralization. What is interesting is that ERW seems to involve dissolving CO2 in water with the help of silicates strewn onto fields which form a bicarbonate ion which supposedly ends up in the ocean which is the ultimate carbon sink. This represents a huge measurement problem and requires care not to add harmful elements to the field. Although NPK uses the term ERW, in this week's news it stated that the K Forte weathering permanently locks CO2 into a new mineral structure. That makes it the carbon mineralization type of capture similar to FPX Nickel's brucite strategy, except superior because it is also a fertilizer that provides non-salt related potassium.
Carbon credits are getting more and more media attention. Rio Tinto this week admitted that it would miss its 2025 carbon reduction goals and would as a "last resort" have to buy carbon credits. The Financial Times on July 27 had an article predicting that Brazil's Lula administration plans to launch an energy transition plan by September which will include trading carbon credits. Because Brazil generates 90% of its electricity from hydropower it wants to focus on renewable hydrogen technologies. Carbon credits related to shifting Brazilian potash consumption from 95% potassium chloride imports to a domestic source that does not harm the long term fertility of Brazil's farmland would seem to be low hanging fruit. Verde Agritech stated that it hopes to have its first carbon credit sale in Q3 of 2023. That may be too late to allow a discounted pricing strategy for 2023, but whatever sales news the company delivers for what will have been a difficult year in 2023 for the Brazilian farm sector, the market will have a basis for absorbing the 2023 results and then shifting its focus to a 2024 assisted by carbon credit sales.
Eskay Mining had a difficult first half of 2023 amid uncertainty about its balance sheet and how it was going to fund a summer drill program. The stock traded as low as $0.50 on May 17 when CEO Mac Balkam put out a depressing news release about the need to conserve cash and plans to further develop targets at the 100% owned Eskay project in British Columbia's Golden Triangle. These plans included "potential drilling" which sent a signal to the market that this summer not much might change. This contrasted sharply with the big plans outlined in the January 2023 corporate presentation which, in addition to following up 2022 work in the Scarlet Ridge-Tarn Lake area with further drilling, would include "extensive drilling at SIB-Lulu" and "exploratory drilling at poorly-explored VMS targets property-wide". Oddly this presentation has not been updated on the company's web site.
The stock, however, began to perk up in June when Eskay Mining announced on June 7 that Seabridge had agreed to terminate the Coulter Creek Access Road agreement under which Eskay Mining was to contribute $6.25 million of the estimated $12.5 million cost. This deal in July 2021 seemed a bad idea at the time because Seabridge needed this road for its KSM copper-gold project which has been taken through feasibility while Eskay Mining was still a long way from a maiden resource estimate. It was as if the adjacent Hubris Peak had cast its shadow on Eskay management. Drilling during the past couple years on the TV and Jeff zones delivered lots of short high grade intervals but suffered from "structural complexities" which the company planned to think about in 2023 while trying to make a real Eskay Creek 2 discovery. By the start of 2023 Seabridge had loaned $2.7 million to Eskay Mining which was classified as a current liability. Since Seabridge was not going to focus in 2023 on the segment relevant to Eskay if and when a discovery with mining potential is ever made, Seabridge agreed to cancel the agreement which removed this amount from the current liabilities section of the balance sheet.
That was not good enough to help Eskay Mining raise any money to fund a serious drill program, but on July 10, 2023 Eskay Mining achieved a non-dilutive financing when it announced that Skeena Resources Ltd agreed to purchase 5 claims for $4 million of which $2 million was due immediately, $1 million on Oct 31, 2023 and the final $1 million on Dec 31, 2023. Skeena did not even put out a news release and Eskay Mining did not include a map with its press release, but disclosed that the claims were to the northwest of the main claim block. By comparing the map in the January 2023 presentation with the one included in the July 27 news release we can see that at least 4 claims were a floater block west of Skeena's property which was unlikely to yield a standalone discovery for Eskay Mining.
With the extra cash Eskay Mining announced on July 27 plans for 6,500 m of drilling 5 target areas missing from the January map. The immediate focus will be the Scarlet Knob-Tarn Lake area in the middle of which sits the Bruce Glacier target, and the new Storie Creek target to the west where the Eskay Creek Contact Mudstone has been found outcropping. The only older target to be drilled is TV South where one hole will be drilled in August south of where a gabbro dyke cuts off the TV zone. Two entirely new targets are Hexagon-Mercury northwest of the Jeff Zone and the Maroon Cliffs target in the northeastern corner of the property. These appear to be mainly geophysical targets. A surprise is the Cumberland target 6 km south of TV which was drilled a couple decades ago and which will receive two holes. My bet will be on the Storie Creek-Tarn-Lake-Bruce-Glacier-Scarlet-Knobb target group for which Eskay Mining provided a geological long section. I like Quinton Hennigh's declaration that "sharp-shooting multiple high-quality targets is the best approach to make one or more new discoveries in 2023". It gives me much greater hope for an Eskay Creek 2 score than a couple years spent swiss-cheesing the TV and Jeff Zones that emerged in 2020 when the company drilled areas that had previously delivered "smoke but no cigar" and ultimately only delivered ashes.
Eskay Mining Plans August 2023 after claim sale to Skeena
Disclosure: JK owns Brunswick Expl, Dios Expl and Verde Agritech; Brunswick is a Fair Spec Value rated Favorite, Verde Agritech is a Good Spec Value rated Favorite; Dios Expl and Eskay Mining 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 July 21, 2023: Capture Brazil potash market with carbon capture?
Jim (0:00:00): Why is Verde Agritech's carbon capture news potentially a big deal?
Verde Agritech Ltd announced on July 19, 2023 that an independent study by Newcastle University's David Manning, a soil scientist, has established that key products such as K Forte applied to fields in their current form naturally capture carbon dioxide at a rate of 120 kg CO2 per tonne of K Forte. That would mean K Forte at the current installed production capacity of 3,000,000 tpa would sequester 360,000 tonnes of CO2 annually while still delivering potassium and other nutrients to farm crops. If Verde Agritech achieved its production goal of 50 million tpa, which would replace about 50% of Brazil's potash consumption, 90% of which is imported as potassium chloride (KCl), a side effect would be sequestering 6 million tonnes of CO2 annually into an inert form similar to what FPX Nickel Corp hopes to achieve through ultramafic rocks rich with the magnesium mineral brucite. The next step is to establish the carbon footprint of K Forte through a "life cycle analysis" of CO2 generated by quarrying, grinding, shipping and applying K Forte, which is being done by an unnamed but "leading" Canadian consultancy firm. CEO Cristiano Veloso thinks the analysis could be ready within 3-4 weeks. The difference between the 120 kg of CO2 that K Forte sequesters and what it generates could be packaged into a marketable carbon credit sold internationally.
Verde Agritech has in the past mentioned "enhanced rock weathering" as an area of interest for its "greensand" product, a silicate called glauconite whose 6 billion tonne plus resource grades 8%-12% K2O. Similar glauconite deposits exist elsewhere in the world but their grade tends to range 3%-6% K2O, so to achieve the same potassium fertilizer effect a farmer would have to apply 2-3 times as much material as K Forte, which itself requires 5-6 times the volume as conventional potassium chloride. The fact that K Forte is currently ground into a powder form that has to be applied separately from other fertilizers such as nitrogen and phosphorous is an additional marketing obstacle. The farmers prefer to apply blended fertilizers which are supplied by blenders who insist on a granular form. Verde Agritech has indicated it is doing research on creating a granular form of K Forte which would open up the blenders as a distribution and marketing network. Veloso has told me that the granulated form would not change the CO2 sequestration rate because the granules would disintegrate once applied to the soil (granulation means binding the powder, not grinding to a coarser size).
The ERW news is timely because 2023 has been a rough year for the Brazilian farm community due to flat crop prices and higher interest rates, and that means it will be a disappointing year for NPK. We already know that revenues will be substantially lower than 2022 because the FOB Vancouver potash price had dropped to $328/t KCl at the end of June and NPK follows a KCl parity pricing strategy. The big question for NPK will be its ability to grow sales volume toward the 3 million tpa installed capacity. The TSX deadline for H1 financials with a December 31 yearend is August 14. Potash is the one key fertilizer farmers can leave out for a couple years, and in this regard Verde Agritech could have a difficult time growing sales in 2023, especially in a high interest rate environment where the K Forte producer cannot afford the credit terms demanded by farmers. The company does use modest discounts for volume and repeat business, but that is not enough to motivate farmers to try something new, especially when they are suffering financial distress.
The CO2 sequestration news is a big deal because it takes time to measure the sequestration process and until Professor Manning completed his study the ERW concept was just an idea. Additional verification studies will need to be done, but the next milestone is the K Forte carbon footprint data which is easier to collect. I suspect internally NPK already knows the numbers, which will be helped out by the fact that its electricity comes from hydropower. Once we know how much net CO2 a tonne of K Forte sequesters the company can start work on structuring a carbon credit linked to each tonne of K Forte sold. If Verde Agritech succeeds in creating a marketable carbon credit, it will have a killer market penetration strategy for Brazil that could eventually go far beyond supplying 5o% of Brazil's potash consumption.
The ERW news also explains the peculiar resolution NPK included in its AGM banning the sale of company products in 218 municipalities in 9 states covering 2,232,000 sq km. This area covers the northwestern part of Brazil where the Amazon is undergoing illegal deforestation to create land for farming and ranching. NPK's K Forte deposit is based in Minas Gerais and serves the southeastern part of Brazil where farming is concentrated. Because K Forte becomes less competitive with KCl the greater the distance it has to be transported, banning these distant states came across like pointless virtue signaling. But in light of the ERW news it is a preemptive move to guarantee that the carbon credits do not have a hidden carbon cost. The reason ERW could be a killer market penetration strategy is that carbon credits will be sold in a parallel market to international companies seeking to offset their carbon footprints, which would include technology giants such as Google, Microsoft and Meta. The farmers are unlikely to care about climate change and carbon footprints, but they are well versed in the language of money. Verde Agritech could use the carbon credit to sell K Forte at a substantial discount to KCl in K2O equivalence terms. Potassium chloride is a salt and has no CO2 sequestration potential so can never compete with a carbon credit linked pricing strategy.
Carbon capture, utilization and storage (CCUS) is being talked about ever more as a necessary part of the Net Zero Emissions goal for 2050. (Utilization is only a fraction of this concept - permanent sequestering is the main goal.) The Economist had an article on May 21, 2023 (Can carbon removal become a trillion-dollar business?) which discusses "direct air capture" as technology which sucks CO2 out of the air and injects into some sort of rock reservoir where it is permanently sequestered. The IEA's Energy Technology Perspectives 2023 report published in January has a section about CCUS which mainly deals with capturing carbon at source and transporting it by pipeline and/or ship to destinations suitable for storing the CO2 underground. The IEA says that worldwide CO2 capture is currently only 44 million tonnes but needs to expand 2,627% to 1.2 billion tonnes by 2030, and 14,000% to 6.2 billion tonnes by 2050.
Big oil, which has plenty of experience transporting CO2 for injection into oil fields for enhanced oil recovery, is getting interested in repurposing their pipelines, not just for hydrogen, but also CO2 captured at source such as natural gas powered electricity plants. Depleted oil fields could be turned into CO2 storage reservoirs. Direct air capture would require building a plant on top of the underground reservoir and suck the CO2 out of the air, which has CapEx costs and energy costs. The problem with this approach is that according to the Economist article it cost $600/tonne CO2 in 2011 compared to the EU emission-trading system where 1 tonne costs $100. Engineering has reduced the cost further, and CCS could become a reality if government policy lowers emission limits, forcing more CO2 emitters to buy carbon credits. What makes Verde Agritech's carbon credit proposal so interesting is that it is a form of direct air capture with no extra cost involved. And replacing potassium chloride with K Forte would preserve the fertility of Brazil's soil for generations.
Map showing Brazil states affected by NPK Sales Ban
Jim (0:12:21): Why do you think Toyota may be FPX Nickel's mystery investor?
FPX Nickel Corp surprised the market last November when it raised $12 million at $0.50 with a strategic investor which requested anonymity. This was at a premium to the market and did not include any warrants or flow-thru benefits. The investor ended up with 9.95% and the right to maintain 9.9% by participating in any future financings but no offtake rights of any nature. In May FPX raised $16 million from Outokumpu at $0.60, again at a premium to market with no warrants, but Outokumpu did secure the right to purchase up to 60,000 tonnes of nickel (7,500 tpa) at market prices. This offtake right was important to Outokumpu because it specializes in making low carbon footprint stainless steel; with Indonesia now producing more than 50% of global nickel supply with the help of coal-powered electricity clean nickel may become quite scarce in the future. Outokumpu also stayed at 9.9% with a two year standstill. The mystery investor elected to invest another $1.95 million at $0.60 to maintain its 9.95% interest. FPX shareholders are perplexed about the secrecy and from various comments CEO Martin Turenne has made we can pretty much rule out that the investor is a mining company, a high net worth individual, or a financial institution. This has led to speculation that it is a downstream nickel user such as a chemical company that makes battery precursor materials, a battery maker or even a car maker. However, such entities have made investments in resource projects and never had reason to keep such an investment secret, and investors generally shrugged at names like Tesla. When Martin insisted the market would be impressed by the identity and that I would then understand why the investor wanted to remain secret, that pretty much ruled out downstream fabricators.
I began to wonder if the investor might be a technology company like Apple or Google which is not yet in the carmaking business but is working on self-driving car technology. FPX Nickel has put a fair amount of effort into developing a flow-sheet to make nickel-sulphate for the battery market, even though it is not clear that this would add to profitability of mining Decar and would certainly add complexity. The mystery investor appeared interested in the nickel sulphate potential, especially from a secure jurisdiction and with a low or even zero net carbon footprint. Apple or Google, which might never commercialize self-driving cars, might be interested in supporting a project like Decar which would not come on stream until 2030 or later. When FPX Nickel formed an alliance in April with JOGMEC to explore for awaruite deposits elsewhere in the world I began to wonder if the mystery investor was a Japanese carmaker.
Toyota, the world's biggest carmaker, was not on my list of suspects because Toyota has resisted developing electric vehicles. Instead it has stuck with hybrids while it worked on a future generation of hydrogen fuel cell powered cars. That changed when in June Toyota announced that it hoped to be selling an electric vehicle as early as 2027 with a range of 1,200 km and a 10 minute charge time. Such a long range and short charging time would deal with the range anxiety North American drivers suffer and accelerate adoption of electric vehicles. A Financial Times July 6, 2023 article explained the basis for Toyota's boast, which was that Toyota has developed a lithium ion battery with a solid state electrolyte that allows lithium metal to substitute for graphite in the anode. Toyota apparently accomplished this not with a new configuration, but rather with a manufacturing breakthrough that reduces the cost of making a solid state electrolyte that avoids the dendrite growth problem which causes short circuits and thermal runaway. Chinese EV makers and Tesla are relying on lithium-iron-phosphate batteries for cars targeting the mass market. A LFP battery uses lithium, iron and phosphate in the cathode and graphite in the anode.
Toyota's solid state battery will initially be part of a higher end electric vehicle and, although the cathode material has not been disclosed, nickel is a prime candidate. If the cost breakthrough is of a manufacturing nature, it is conceivable that further cost reductions will emerge as the solid state batteries get commercialized, similar to what happened with solar panels which are a lot cheaper today and not because the price of raw materials has declined. By 2030 Toyota may be ready to turn its best-selling Corolla model into an affordable electric vehicle superior to the cheap LFP cars Ford, Tesla, Volkswagen and their Chinese competitors hope will coax North Americans into giving up their gasoline powered cars. Given that Toyota has lagged its competitors in designing and marketing electric vehicles, it is understandable that it would not want to tip its hand by disclosing it has bought 9.95% of a junior with a nickel project at the prefeasibility stage. Unlike the Chinese carmakers who hope to export their cars to American consumers, Toyota has a history of making its cars in the United States. If nickel is part of the cathode of its solid state lithium ion battery, it would make sense to support a project like Decar which promises to be a long lived nickel mine with a low carbon footprint and in a secure jurisdiction that qualifies for Inflation Reduction Act subsidies. If it turns out nickel is not part of the solid state battery cathode, then my guess that Toyota is the mystery investor is most likely wrong.
Jim (0:19:53): Any news on the James Bay forest access restrictions?
In last week's episode I was optimistic that forest access bans would be lifted for Quebec's James Bay region but the western half remained closed as did key transportation corridors such as the Trans Taiga Road. Projects such as PMET's Corvette and Brunswick's Mirage are outside the closed area, but getting boots onto the ground is a problem because helicopters are still under requisition to support the firefighters. CEO Marie-Josie Girard of Dios Exploration Inc tells me that while the East Clarkie and Nemiscau North projects are outside the access ban, they need helicopters because their second order sleuthing has developed precise targets. She has the contractor scheduled to start in mid August and believes there is plenty of time to make or break all the targets they have developed. I'm not sure they will be in a position to drill this fall but if they find any decent sized LCT-type pegmatites they could be drilling in Q1 of 2024.
Most of the projects of Brunswick Exploration Inc in the James Bay region are in closed areas, but the one that matters most, Mirage, is open. However, it is located 300 km from Nemiscau as the crow flies and the Trans Taiga remains closed. Mirage is only 100 km north of the Renard diamond mine so perhaps Brunswick can stage out of Renard to track down the bedrock source of its 1,700 m by 200 m spodumene bearing boulder field.
In the case of the Cheechoo project Sirios Resources Inc managed to extract its planned bulk sample for metallurgical testing, but the crew spent only 3 hours investigating the area up-ice from the gold deposit where a spodumene boulder was found when it was told to quit because of the fire bans. Sirios is stuck in a holding pattern with a persistent seller at $0.055 while it negotiates with Fury Gold Mines Ltd to acquire its 50.022% stake in the Eleonore South JV in which Newmont owns 49.978%. The problem with this situation is that Newmont has a right of first refusal if Fury and Sirios reach a deal. Most likely Fury will want a combination of cash and stock because the stock would allow Fury to participate in any upside once Sirios consolidates the entire area 100%. The most recent resource estimate gives Cheechoo 67.4 million tonnes indicated and inferred at 0.87 g/t gold (1.9 million ounces), but this estimate understates the reality because the pit shell can only be extended to the property line. This reduced intrusion related gold system has a potential resource in the 4-5 million ounce range, with at least 75% on the 100% owned Cheechoo property. With the whole being worth more than the sum of the parts, Fury would like stock, but if Newmont exercises its right of first refusal it would only pay the deemed cash value, denying Fury any future upside. Once Sirios owns 50.022% it would become operator, and it would make sense to approach Newmont with a deal to acquire its 49.978% stake, possibly for stock that takes its 12% Sirios equity stake up to 19.9%. As owner of the Eleonore underground mine it is the natural future purchaser of Cheechoo, assuming it does not sell Eleonore to a smaller producer.
There is also the bizarre potential that the northern half of the Cheechoo property which straddles the contact between the Opinaca and La Grande geological subprovinces hosts a decent sized pegmatite grading 1% Li2O or better which at $10/lb lb lithium carbonate would have a rock value of $545/tonne, equivalent to 8-9 g/t gold. In contrast the Cheechoo deposit has a rock value of only $55/tonne. The Eleonore South JV covers different geology and would not have LCT-type pegmatite potential. Sirios could split the pegmatite potential ground into a separate property and sell the consolidated Cheechoo gold project to Newmont.
Sirios did put out an update in early July about the Maskwa property which has been repurposed as a lithium play. Back in 2016 Sirios formed a 50:50 JV with Sphinx Resources called the Cheechoo-Eleonore Trend which was a conceptual play. They conducted till sampling which did not deliver much joy and in 2018 Sirios sold its 50% stake to Quebec Precious Metals Corp, a company related to Sphinx by way of Normand Champigny. Dominique Doucet revisited the area in 2020 with the idea that they should have been looking at the subprovince contact for intrusion related gold systems, which in this area was perpendicular to the Cheechoo-Eleonore "trend". Sirios conducted a till survey in 2020 seeking gold and tungsten grains whose 3 lines did yield gold and tungsten grains at the down ice limit of the property. Although the property does have anomalous lithium lake bottom sediment values these do not mean much because Maskwa was covered by the Tyrell Sea during a prior round of global warming. But tantalum is a heavy element (density 16.4 compared to 0.53 for lithium) it would have been recovered during heavy mineral screening (gold is 19.3). So they went back to samples and counted the tantalum grains which are anomalous. The only problem I have with the results is that all 3 lines perpendicular to the ice direction have similar elevated values, so no obvious vectoring. The source could be to the northeast on somebody else's property, or there could be several pegmatites near the subprovince contact. Maskwa is well inside the part of James Bay still closed to access, but for now Sirios is focused on trying to acquire the Newmont/Fury property next door to Cheechoo.
As an aside, I asked Dominque if Sirios still had the till sampling data from the 2000s when Sirios and Dios co-funded a regional survey with the gold targets going to Sirios and the diamond targets to Dios. That led to the Pontax lithium discovery now owned by Cygnus and Stria. He did, but only in paper form. The Cheechoo property offers first order pegmatite discovery potential because nobody ever looked hard at the lithium potential. Dios, in contrast has digitized its copy of the till survey data set and scrutinized it for clues to less obvious pegmatites, what I call second order exploration. Sirios would have have to walk the entire Maskwa and Cheechoo properties to find outcropping first order pegmatites. In contrast Dios has used multiple data sets including satellite imagery to pinpoint likely pegmatite locations. So even with a late boots on the ground start in August Dios could leapfrog other juniors who need to look at everything in order to find anything.
Maps of the Cheechoo gold project with LCT pegmatite potential
Yellow Gold Cheechoo Resource Estimate & White Gold Rock Value Matrix
Origin of the Maskwa Project repurposed as a liithium play
Comparison of Maskwa 2020 Till Survey Results
Disclosure: JK owns Brunswick, Dios, FPX Nickel and Verde Agritech; FPX Nickel and Verde Agritech are Good Spec Value rated Favorites, Brunswick is a Fair Spec Value rated Favorite; Dios and Sirios 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 July 14, 2023: Short Attack boosts PMET Credibility
Jim (0:00:00): What do you think of the short attack launched against Patriot Battery Metals?
On July 6, 2023 an outfit called Night Market Research that specializes in identifying short selling opportunities published a length report title: Patriot Battery Metals: Aggressive Vancouver Promotion with Multiple MRE Delays and Fake Buyout Rumors Running Headfirst into Wall of Risk (and Warrants). This caused the stock price to decline on July 7 and the ASX requested PMET to provide a response which the company did on Monday July 10 when it also published the final assays for the winter drill program. The ASX will allow a stock to be halted for a number of days while material news is disseminated, but the remaining assays are not material because they are all within the CV5 pegmatite body and do not really change the market's perception of the extent and grade of CV5 for which a resource estimate is anticipated in a "few weeks". The TSXV allowed the stock to trade on Monday while the ASX allowed trading to resume on July 11, enabling the Canadian market for the first time in a long time to set the tone for PMET. The stock recovered into the $15-$16 range as the market shrugged off the Night Market Research report's allegations which fall into two categories.
The first is that in fundamental terms the Corvette project is over-valued and is destined to correct downwards as the project proceeds into the feasibility demonstration stages of the 9 stage exploration-development cycle that starts with grassroots exploration and finishes with commercial production. In terms of my rational speculation model this is true, for the stock is in S-curve territory, the initial valuation surge of what is commonly called the Lassonde Curve, namely the discovery delineation stage where the sky is the limit as to how big the discovery can become until a maiden resource is delivered, after which the market sees the limits and focuses on cost discovery which forms the basis for a discounted cash flow model valuation expressed as a net present value (NPV) accompanied by an internal rate of return (IRR). (Nicholas LePan of the Visual Capitalist has done an excellent job Visualizing the Life Cycle of a Mineral Discovery.) I have observed that the peak valuation frequently matches that of what the project ends up being worth in DCF valuation model terms years later when the project is ready to go into production. The valley in between while the company engages in cost discovery after deposit discovery has been completed is called the "value trough" from the perspective of those who don't already own the stock. Whatever back of the napkin valuations are done during the transition usually shrink as flow-sheets and permitting requirements are sorted out. An additional source of outcome value shrinkage can be the future metal prices, though sometimes they end up higher, the perennial hope for gold projects.
An example of the Lassonde Curve in action is Dia Met Minerals whose Ekati diamond discovery reached a peak $2 billion valuation in 1993, two years after the initial discovery announcement. Three years after Ekati went into production in 1998 BHP acquired Dia Met and its 29% interest for cash at an implied value of $2.3 billion on a 100% basis. Why did Ekati hit a $2 billion value during the discovery stage before we had any numbers for tonnage, grade and carat value? Because this was a brand new diamondiferous kimberlite field outside of Africa where it was legitimate to dream that world class monsters like Jwaneng or Orapa in Botswana might emerge within the Slave Craton of Canada. This did not happen, but the collection of pipes selected for production did end up having a world class value.
Completely missing from the Night Market Research short attack is any discussion of the "district scale" implications of the Corvette property which covers 45 km of the La Grande Shear Structure of which the CV5 resource will represent only a portion. NMR is making the assumption that the CV5 maiden resource estimate will be the culmination of what the Corvette property has to offer, something which the Australian and Canadian brokerage analysts think will be comparable to what Liontown accomplished with Kathleen Valley, which earlier this year attracted a conditional bid from Albemarle that priced the project at about AUD $5 billion (see KW Episode Mar 29, 2023 for background on Liontown's 8 year journey from grassroots lithium exploration in 2015 to the current status of mine construction). Liontown rejected the conditional bid but the stock has since then consistently traded above the proposed Albemarle buyout price. NMR correctly points out that Liontown has pushed Kathleen Valley through 5 years of feasibility demonstration to get the current valuation, as a result of which it has 2.2 billion shares issued, but what it ignores is that Kathleen Valley is now an optimized mining scenario for that project. This project is as good as it is going to get.
PMET's situation at this stage is equivalent to owning the entire 40 km long Carlin Trend in Nevada, and CV5 is the equivalent of finding Goldstrike as the first Carlin-type gold discovery within this trend. And we know a lot more such gold deposits were subsequently found. How many more CV5 deposits might be found within the Corvette property that could be developed as standalone open-pit mines? Perhaps 3-5 more, perhaps none. The point is we don't know yet because the first order lithium discovery boom in the James Bay region is only 2 years old; all the other advanced lithium deposits (Galaxy-Cyr, Wabouchi, Moblan, Rose) were discovered decades ago and are valuable today only because of the climate change crisis and the electric vehicle as a partial solution to achieving the goal of net zero emissions by 2050. How many Kathleen Valley deposits are left for Liontown to find on its property? If there were any more would they not have been found during the past 5 years while the main pegmatite plodded through the feasibility demonstration stages? If the big producers knew that CV5 is all that will ever be found and developed within the Corvette property, there is no way they would consider paying $2-$3 billion to own PMET.
The IEA has projected that the world will need 600% more lithium supply if 2030 EV rollout goals are to be met. That is with existing lithium ion battery technology. Rio Tinto has made even more aggressive predictions. If the EV sales goals are met, the lithium market will be worth $100-$200 billion in 2030-2040 assuming current battery technology remains unchanged. During the past few weeks Toyota, which was in the vanguard with its Prius hybrid model but has been a laggard with full plug-in electric vehicles while it focused on leapfrogging lithium ion battery technology through hydrogen fuel cell technology, made the stunning announcement that it had solved the processing cost problem for a solid state electrolyte which allows lithium metal to substitute for graphite in the anode. Toyota predicts that by 2027 it will be selling a high end model that has a range of 1,200 km and a charge time of 10 minutes. Neither the IEA nor Rio Tinto forecasts allow for this greater usage of lithium in future electric vehicles.
Since you are probably not going to achieve the required lithium supply if the price of lithium crbonate tanks back below $5/lb, what we are facing is a massive scramble to find and harvest the low hanging LCT-pegmatite fruit that is suddenly in the money, and which faces a 5-10 times demand expansion. Australia has already been through this low hanging fruit cycle which I call Lithium Mania 1.0; the second phase targeting stable regions such as Brazil and Canada is Lithium Mania 2.0 for which PMET is the poster child. Rio Tinto has said the world needs 60 Jadar scale lithium mines; the James Bay region has the capacity to deliver a couple dozen Jadar equivalent mines.
The timing of this report just ahead of PMET's plan to publish a maiden resource estimate appears designed to force a stock price retreat if the resource proves lower than the lofty conceptual estimates published by various Australian and Canadian brokerage firms. I have speculated the resource will come out within the range of 50-100 million tonnes grading between 1%-2% Li2O, but Night Market Research has presented a range of estimates from 90-160 million tonnes with grades ranging 1.12%-1.35% Li2O. It offers its own prediction of 73 million tonnes of 1.28%, whose grade is near the upper range of the analyst predictions, though its tonnage is lower than the 90 million tonnes at 1.35% Li2O it attributes to National Bank. NMR claims that PMET CEO Blair Way has been encouraging the market to think in terms of at least 100 million tonnes, which has supposedly set up the market for disappointment. NMR is predicting that the CV5 resource will be similar to the 68.5 million tonnes of 1.34% Li2O proven and probable reserve Liontown is putting into production.
The reality is that we do not know what cutoff grade PMET plans to use. If it uses a higher grade cutoff the tonnage will be lower but the grade higher. Initial development could focus on the higher grade Nova zone within the CV5 deposit. NMR has in fact created a straw man to knock down the market if we see a resource closer to its number. The reason it thinks the analysts are over-estimating the resource is that PMET stopped publishing sections along with its holes last year. However, PMET has an excel spreadsheet with all the drill hole data which includes the azimuth direction and dip angle for each hole, plus all mineralized intervals greater than 2 metres. Combine that with the drill plan and an analyst can construct a 3D model, especially if they have Leapfrog software at their disposal. What the company has not published is the assay interval breakdown which would allow analysts more granularity in defining the geometry of their choice using their own cutoff grades. NMR argues that the implied project value of about CAD $2 billion on a fully diluted basis is excessive if the estimate is more in line with its own prediction, but it does not provide a quantitative basis for this view which requires one to visualize an operating mine and calculate a net present value from the resulting cash flow.
Once we have a 43-101 resource estimate the market will be in a position to create an outcome visualization in the form of a DCF model which depletes the resource within 15 years. For example, NMR's resource would be mined at about 13,000 tpd to be depleted within 15 years. The economic value of that scenario will depend on CapEx and OpEx as well as the long term price of lithium carbonate. Suppose the DCF model does generate a future target outcome of CAD $5 billion. Under my rational speculation model fair speculative value should be 2.5%-5.0% for a project that has delivered a resource estimate but not yet done cost discovery in the form of a PEA. So we are talking a fair value range of $2.50-$5.00, well below the current valuation. However, if the project moves to PFS stage the FSV should be 50%-75% of the target outcome, which would be $25-$38 per share. What NMR is arguing is that the current valuation is an S-Curve peak which will follow the Lassonde Curve downwards once the project enters feasibility demonstration stage and follows into the value trough.
This can be expected to happen if PMET stays in charge of moving the project through the feasibility demonstration stages, but a likelier outcome is that a major producer will buy out PMET and do it properly. The most obvious candidate is Rio Tinto which has been optioning nearby properties from Azimut and Midland in what amounts to an effort to tie up as much of a new district as possible. NMR seems to be trying to talk down the price of PMET in order to help a third party get a better deal. But this may not work because we are talking about an emerging world class lithium district serving a market that by 2030 will be worth $100-$200 billion, more if Rio Tinto's own predictions are to be believed, and even bigger if Toyota is not bullshitting us. CV5 represents only a fraction of an LCT-pegmatite mineralized trend. There may be multiple CV5 deposits present, each of which could be developed as a standalone mine. It is conceivable that Rio Tinto, Albemarle or Pilbara Minerals would be willing to pay an S-curve valuation based on the strategic district value. Far from making a case that PMET's stock price will be a lot lower once the maiden resource estimate is published, Nigh Market Research has in fact boosted the credibility of PMET's discovery.
NMR's other angle of attack is to slag the history of Patriot Battery Metals, such as the sordid 18 month marketing deal PMET did at USD $500,000 per 6 month term with some obscure entity based in an ordinary Vancouver residential neighborhood. This deal was made just before the company announced an RTO of a private rare earth company that was canceled a couple months later when Blair Way became CEO and steered PMET back to the Corvette lithium project. I abhor these awful and expensive marketing deals Canadian juniors do to pump their stock, and sometimes I wonder if these deals are just ways for hidden insiders to steal their private placement money back into their pockets. In the ASX requested response to the short attack Blair Way stated the marketing deal was terminated after 6 months when PMET had a market capitalization of only $20 million, a hundredth of what it is today. Regardless how sleazy the marketing deals a junior may have done, none of that matters if the company has delivered a fundamental success. One thing I keep repeating is that the nature of Lithium Mania 2.0 is such that even juniors with horrible management practices can achieve a huge fundamental success, provided they spend money on competent exploration. Whatever questionable marketing deals PMET management has done, it did let Darren Smith's competent exploration team do their stuff.
NMR also tries to scare PMET shareholders by pointing out that Ken Brinsden, who played a key role in the success of Pilbara Minerals during Lithium Mania 1.0, was previously involved with an iron company that failed. Who cares? That is like arguing that Robert Friedland's Mongolian Turquoise Hills copper-gold discovery in Ivanhoe One, after he delivered a $4 billion buyout for the Voisey's Bay nickel-copper discovery by Diamond Fields, is doomed to fail because Friedland's earlier company, Galactic, crashed and burned. Not every Friedland effort is a winner (Kaizen and Cordoba come to mind), but Ivanhoe Two's Kamoa-Kakula grassroots copper discovery in the DRC is a monumental fundamental success. This complaint is the most feeble one NMR makes.
NMR does make a valid point when it frets that PMET has a large overhang of unexercised warrants that are very much in the money. Many of the holders will already have dumped the long positions from those private placements done in 2021 and are sitting on huge paper profits. Frankly I do not understand why so many cheap warrants remain unexercised. I pointed out this problem in KW Episode March 17, 2023 and it is still a problem. NMR's main strategy is to prime the market for a sell-off after the maiden resource estimate is released by predicting it will be lower than analysts are projecting. During the past year there have been several rumors about possible takeover bids for PMET, none of which are credible because no producer is going to pay a "strategic" premium without at least a resource estimate in view to explain its reasoning. The market risk is that even if the resource estimate come in within the analyst predicted range, there may not be a quick follow through. The attitude of the warrant holders is that they will exercise when they have to, such as in the event of a takeover bid. But if that does not promptly happen because Pilbara, Mineral Resources, Albemarle and Rio Tinto are all disciplined and reluctant to start a bidding war, the stock could stall. At Friday's $15.70 closing price the 24,330,190 warrants that expire between December 21, 2023 to March 21, 2025 have an implicit profit of $365 million, which to collect would require $382 million worth of buying at $15.70. Psychologically this type of warrant based paper profit is more unstable than if the holders exercised them a long time ago without selling any. NMR is in effect reminding all the warrant holders of their prisoner's dilemma situation and setting up a selling cascade after the resource estimate is released. The potential bidders for PMET are right now chortling with glee at the predicament of the warrant holders.
NMR also worries about the permitting regime in Quebec which is fairly detailed and could benefit from streamlining. It also mentions a lake sturgeon that supposedly lives in the lake which would be disrupted by open-pit mining CV5. The Canadian and Quebec governments are going to have to do a cost-benefit analysis. Billions are being shoveled at downstream fabricators serving the EV market to encourage them to set up their operations in Canada. One reason to do so is they can all see the potential lithium supply coming from Canadian pegmatites. But if the government is going to take a purist stance that there must never be a local loser, at the expense of net zero emission goals, there is a surprise coming. This year is shaping up to deliver a new round of extreme weather records, as Quebec's forest fire debacle has already shown. It is time to become pragmatic about all aspects of the various climate change mitigation solutions, in particular the discovery and mining of critical minerals.
NMR also invokes Goldman Sachs which has been predicting that Chinese and Latin American lithium supply will meet all demand growth, and mentions a GS prediction of $34,000/tonne for lithium carbonate in 2024. That is equivalent to $15.42/lb. If lithium carbonate is at that level rather than $10/lb as I assume, what is there to worry about? In fact $10/lb will be hugely profitable for pegmatites grading 1% Li2O or better. Demand will probably grew faster than supply, which NMR dwells on but treats it as a negative for PMET along the lines of "your project will take a lot longer to permit than anybody else's project, so by the time you are producing the market will be in oversupply and the lithium carbonate price will be a lot lower". Understanding the discovery exploration game is not something Goldman Sachs has much experience with because it is such a small space; its revenue generating strategy will involve helping downstream raw material consumers secure their supply. So of course GS is trying to talk down the prices of the lithium developers. And Night Market Research appears to have volunteered itself as foot soldier in this process. But in fact it has helped fulfill the requirement that no major new discovery is real until it has attracted a major short attack.
Where NMR thinks PMET sits in the Lassonde Curve, its own resource estimate prediction, and the Warrant Time Bomb
Dia Met's Ekati as an illustration of the Lassonde Curve
Liontown's Kathleen Valley reserve and price chart
Lithium Carbonate Price Chart and Price-Grade Rock Value Matrix
Jim (0:16:52): What do you think of the farmout deal Azimut did with Rio Tinto?
Azimut Exploration Inc announced a farmout deal on July 10, 2023 that has very positive implications for the James Bay region, though perhaps less for Azimut despite it being a stronger deal than the one Rio Tinto did with Midland Exploration Inc in mid June. Rio Tinto can earn up to 70% in the Corvet and Kaanaayaa properties by spending $114 million split between the properties over 9 years. The first stage requires Rio Tinto to spend $7 million on each property over 4 years to earn 50%, of which the first year is a firm commitment of $1.5 million for each property which Azimut gets to operate. In addition Rio Tinto must pay $850,000 per property, of which $250,000 is up front and $150,000 on each anniversary of the initial term. On this basis alone the farmout deal is much stronger than the one Midland secured from Rio Tinto on June 13, 2023.
Under Midland's deal Rio Tinto can earn up to 70% in 10 James Bay properties by spending $64.5 million over 10 years, with $14.5 million over the first 5 years to earn 50%. Unlike the Azimut deal where the amounts are split between the 2 properties, allowing Rio Tinto to spend only half the total if it drops one of the properties, the Midland deal appears to allow Rio Tinto to vest in all the properties regardless on which one it spends the money. Midland gets $500,000 up front and $100,000 on each anniversary of the five year 50% vesting term. The first 18 month expenditure is a firm $2 million but Rio Tinto is the operator and as such has complete control over where the money gets spent. In this deal Midland CEO Gino Roger handed off the lithium potential of its James Bay properties to Rio Tinto to figure out so it can concentrate on its other Quebec prospects.
Although similar in terms of spending requirements and vesting timelines, there is a dramatic difference that makes the Azimut deal superior and which undermines Rio Tinto CEO Jacob Stausholm's bluster that valuations of major LCT pegmatites (ie Patriot Battery Metals) are too expensive. Azimut's CEO Jean-Marc Lulin was able to secure an option where once Rio Tinto has vested for 70% in either property Azimut, instead of becoming a 30% joint venture partner at the mercy of Rio Tinto's cash calls, can elect to reduce to a 25% interest carried through production in the form of a loan from Rio Tinto that is repayable from 50% of Azimut's 25% share of cash flow. If Rio Tinto makes a major discovery on either Corvet or Kaanaayaa and quickly blows through $57 million on either property, Azimut can avoid the risk of death by cash call funding dilution. This is a part of the value trough within the Lassonde Curve that is deadly to juniors who must fund all or part of the boring feasibility demonstration stages. Midland did not get this option, perhaps because CEO Gino Roger did not ask for it. No doubt Lulin studied the Midland deal and the market's less than enthusiastic reaction to it, which allowed him to push for a stronger deal. What is surprising is that Rio Tinto capitulated to this demand.
However, neither deal is truly strong and both are strategic blunders created by an obsession with the prospect-generator-farmout model and what appears to be a dismissive attitude about Lithium Mania 2.0. Rio Tinto is doing its best to lock up title to claims near PMET's Corvette project for which we should get a maiden resource estimate by the end of July. Midland already blundered on November 10, 2022 when it optioned 85% of the "critical mineral (lithium)" rights to the Mythril property adjoining to the north of Corvette to Bob Wares' Brunswick Exploration Inc for $700,000 and $3.5 million exploration over 5 years. If there is any lithium pegmatite potential on Mythril, Brunswick will find out within 2 years and reap all of the speculative upside because the market does not care about the residual 15% contributing interest Midland will end up with.
Neither of Azimut's farmed out properties directly adjoins Corvette, so they represent potential for a parallel trend to the south, similar to the Champion Electric trend to the north owned 100% by Champion Electric Metals Inc. One hopes that by now Champion's CEO John Buick sees the wisdom of rebuffing similar farm-in overtures by Rio Tinto. So far Rio Tinto does not have any exposure to the La Grande Shear Structure trend which PMET's Corvette property straddles for 45 km, which continues another 15 km westward through the Pikwa property owned 50:50 by Azimut and Soquem, and another 30 km through the Cancet property of Winsome Resources Ltd, and then bends northwest into Brunswick's 90% optioned Plex property which straddles another 40 km of the prospective trend.
Why is Rio Tinto doing these apparently strong deals with Azimut and Midland? In the case of Midland only one property, Mythril East is near the Corvette trend; the rest are scattered throughout the James Bay region, with Galinee near Winsome's Adina discovery and the Komo property west of Allkem's Galaxy-Cyr project the most interesting in terms of standalone discovery potential. Rio Tinto was unable to secure the Galinee project of Azimut because it is already a 50:50 JV with Soquem. While it looks like Azimut got the better deal out of Rio Tinto than Midland, the opposite is actually the case. It will not take much exploration work to kill the low hanging fruit LCT pegmatite potential of Azimut's Corvet and Kaanaayaa blocks. Within two years after spending $3 million Rio Tinto can drop these properties knowing that they are not part of emerging world class lithium district. Its willingness to meet Jean-Marc Lulin's demands is really just a shoulder shrug for Rio Tinto, whose real target is PMET despite its professed aversion to high early stage valuations.
Whereas Rio Tinto is letting Azimut do the first pass lithium exploration, it is doing its own work on the Midland properties because some may have real but not obvious potential for major LCT-pegmatites. I am frustrated that Midland chose not to spend its own money on first pass boots on the ground exploration, but the company is busy with its many other Quebec projects and does not appear to believe Lithium Mania 2.0 is real. I don't think Azimut believes Lithium Mania 2.0 is real either; the James Bay map JML included with the news release is speckled with red dots representing claims targeting nickel which is where JML thinks the James Bay future lies, and perhaps the Patwon pencil deposit at Elmer into which Azimut has sunk $25 million without yet delivering a maiden resource estimate. In fact at the Metals Investor Forum in Vancouver in January 2023 JML spent 30 seconds on his lithium slide and at least 60 seconds on his nickel slide. It will be interesting to see how much the Azimut-Soquem JV gets done on Pikwa and Galinee this summer, the two most promising LCT-pegmatite properties accidentally in Azimut's James Bay portfolio. The real importance of the Midland and Azimut deals by Rio Tinto is that if PMET becomes the target for a hostile takeover bid, and the army of timid Canadian investors sitting on the sidelines swarms into the market as FOMO takes hold of the James Bay Great Canadian Area Play, they will be targeting those juniors who retain 100% of their holdings and have meaningful exploration strategies underway.
Regional Map of James Bay showing Azimut's Nickel and Lithium Postage Stamps
Map showing location of Midland's James Bay Properties
Azimut spending $3 million on peripheral plays but how much on Pikwa, the one that counts?
Pikwa is where Azimut's boots should be pounding the ground in 2023!
Jim (0:25:56): What did the market like about Brunswick's latest news?
Brunswick Exploration Inc announced on July 13, 2023 that it had identified multiple spodumene bearing dykes on its 90% optioned Anatacau Main project east of Allkem's Galaxy-Cyr project where Brunswick's Anatacau West property hosts the eastern extension of the Galaxy-Cyr system at least 300 metres onto Brunswick's property. The northern part of the Anatacau property hosts the continuation of the Galaxy-Cyr structure 22 km to the east, and Brunswick managed to have boots on the ground for 5 days in late May before sending the team off to the Mirage property where it spent a day outlining a spodumene enriched pegmatite boulder field about 200 m wide and with a 1,700 m strike perpendicular to the ice direction. Brunswick would have spent more time at Mirage to track down the bedrock source but on June 6 the Quebec government issued a forest access ban due to the fires in southern Quebec whose threat to infrastructure and communities forced the requisitioning of all helicopters to support firefighters.
The James Bay region is still subject to forest access bans, but these are expected to be lifted soon as heavy rains make their way across Quebec. Southern Quebec has in fact shifted to flood warnings as severe thunderstorms pummeled the Montreal-Ottawa areas and spawned tornadoes. The government has been letting fires in the James Bay region burn because they are not near infrastructure and the setting of height-challenged spruce tree stands separated by lakes and swamps makes wildfire spread in this region a much smaller threat than in the incendiary south. Resource juniors are lacing up their boots in anticipation of a green light next week.
The market reacted strongly to the news, bidding the stock as high as $0.82 on just over 1 million shares of trading after touching $0.68 on July 12 when the Red Cloud unit financing done at $0.85 in March came free trading. The stock had stalled as the market waited for a surge of clip and flip selling from Canadians no longer gripped by fear of missing out on Lithium Mania 2.0. But it was not obvious what the market was so excited about. The news was that prospecting had identified a cluster of parallel pegmatite dykes within which the largest was one that outcropped for 100 metres and at surface was 15 metres wide. Brunswick took 19 grab samples which assayed 1.2%-3.8% Li2O, generally above 2%. The Main dyke has light grey spodumene crystals up to 20 cm long and so these values are not representative but do confirm this is an LCT-pegmatite. The company did not disclose this outcrop earlier because it is small, similar to the Decoy outcrop at the Hearst property in Ontario where the absence of an update from a 1,000 m drilling program that began April 24 hints at disappointment. Brunswick wanted assay confirmation for the Anais showing before announcing it.
As Brunswick makes clear, its exploration strategy is one of search and destroy; if a property survives the first pass boots on the ground, it is followed by drill to kill, a massive process of elimination strategy. With properties in Saskatchewan, Manitoba, Ontario, Quebec and Atlantic Canada the junior's hope is that a discovery will emerge sooner than later. The forest fire ban has sabotaged this goal as far as its James Bay properties are concerned, for these have the highest potential to deliver a discovery comparable to PMET's CV5 pegmatite on its Corvette property.
It wasn't until I talked to Brunswick CEO Killian Charles that I discovered why they were so excited about the Anais showing at Anatacau Main. Unlike at Galaxy-Cyr and Anatacau West 22 km to the west where pegmatite occurs as an en echelon series of short northeast oriented dykes within an east-west shear structure, the Anais cluster of pegmatite dykes is oriented in the same direction as the structural zone they call a "deformation corridor". Whereas the Galaxy-Cyr pegmatite system outcrops so extensively it is visible using Google Earth, this is not the case to the east which consequently has seen little exploration for LCT-pegmatites. The Galaxy-Cyr dykes are filling Ridel dilation zones within the deformation corridor because the wandering pegmatite bodies exploited these openings. The risk with this type of system is that the dykes, while high grade, can be narrow and separated by wide spaces of country rock. Since this has to be open pit mined the grade of the resource will be the average of mineralized dyke and barren intervening rock. This is the problem with the Pontax lithium dyke system on which Cyngnus and Stria are working.
If, as seems to be the case at Anatacau Main, the pegmatite bodies exploited the weakness of a corridor in the direction of its strike, as has clearly happened with PMET's CV5 pegmatite for which brokerage analysts are estimating a resource exceeding 100 million tonnes of 1% Li2O or better, there is greater potential for significant pegmatite strike length to develop. The next step once the James Bay forest access bans have been lifted will be to channel sample the outcropping dykes to get a representative grade across the width and to step beyond the projected strike of the outcrop to see if it does indeed project under overburden. Brunswick has, apparently, already decided to permit a small drill program for the Anais showing because that is the most efficient way to establish the strike of a pegmatite body of which only a portion outcrops. The permitting cycle is about 45 days and is unaffected by forest access bans. It is Brunswick's goal to have a drill start roving from target to target in September.
The immediate priority will be to get back to Mirage and track down the source of the boulder field for which Brunswick should soon have grab sample assays. The prospecting team never made it to the Plex or Mythril targets in late May before the fires shut everything down, but these will become a priority in August, assuming a hot dry spell does not reappear. Killian also mentioned that Brunswick now has boots on the ground in the Hanson Lake area of Saskatchewan where there is a lot of outcropping pegmatite that could turn into low hanging fruit if prospecting confirms they are decently enriched LCT-type pegmatites. It remains to be seen how big the Anatacau Main pegmatites turn out to be. The company was able to option 90% from the Osisko group based on analysis of satellite imagery which revealed subtle signs of pegmatite. That, of course, is not sufficient to make the pegmatite LCT-type, so when the boots on the ground confirmed they were LCT-type with decent lithium grades, that was a boost for second order targets in the southern half of the James Bay region, and bodes well for juniors like Dios Exploration Inc which have developed similar second order targets in the southern half of James Bay using additional proprietary data sets that include lithium in till values. For me the key immediate milestone is finding the bedrock source of the Miraga spodumene boulder and confirming that its 1,700 m length corresponds with a similar length pegmatite body.
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 July 7, 2023: Tonopah Adventure Tour: Part II
Jim (0:00:00): What makes Carlin-type deposits so much better than epithermal deposits?
Epithermal deposits primarily of the low and high sulphidation type were the source of most of the 28 million ounces of gold produced in Nevada from 1860 through 1980. But since the recognition of micron-sized gold encapsulated by pyrite in the Carlin district in the late 1970s, gold that you cannot see by crushing and panning a sample, epithermal deposit sourced production has paled in comparison to Carlin-type production, which has helped bring all time Nevada gold production from 1860-2022 to 249 million ounces. What makes Carlin-type deposits so special is that high grade and large scale come together in these sediment hosted deposits which, although structurally controlled, consist of a replacement type of mineralization rather than filling cracks, fissures and stockworks in the manner of epithermal deposits for whom grade and tonnage manage to have an inverse relationship. The company projects visited during the Tonopah Adventure Tour were either epithermal high grade small tonnage vein systems within the old Tonopah mining district or low grade disseminated deposits on the outskirts, some of which have been fussed with by others for decades. The challenge for the epithermal systems in the hundred plus historical mining districts throughout Nevada has been that the high grade deposits are too small for the majors, and the disseminated deposits too low grade to be worth mining at prevailing gold prices. The promotion of these epithermal systems by juniors thus either targeted older investors nostalgic for a past of bonanza grade mining or included an ideological pitch about how fiat currency debasement would cause the price of gold to soar and drag marginal low grade deposits into the money. Never mind that the idea of a gold price soaring in dollar terms because the purchasing power of a dollar is crashing does nothing to lower the real cost of extracting ounces from the ground. With Carlin-type deposits, most of which are too deep to be open-pit mined, the goal was simply find one and you have a winner. For this reason I have for the past 15 years been primarily interested in Nevada juniors exploring for Carlin-type deposits.
Nevada's epithermal gold-silver systems are younger than its Carlin-type deposits which themselves are relatively young, forming 42-25 million years ago. UNR's John Muntean developed a now widely accepted theory about what caused this extraordinary mineralizing event through his 2011 paper Magmatic-hydrothermal origin of Nevada's Carlin-type gold deposits. It is worth understanding Muntean's theory about how and why Carlin-type deposits formed, because there are similar sediment hosted gold deposits with the same pathfinder elements elsewhere in the world, but none have a comparable combination of grade and tonnage.
Although today the Pacific plate is rotating parallel to the western margin of North America, over 100 million years ago the ocean floor basalt called the Farallon slab was subducting eastwards under the continent. Around 60 million years ago the Farallon slab stalled and spent the next 20 million years dehydrating, a process that stripped metals out of the slab which ended up in brines that ponded within the lithosphere beneath the crust. Around 42 million years ago the edge of the slab began to founder, sinking into the mantle which generated magmatism that mobilized the ponded brines along cracks within the crust. An unusual aspect of northern Nevada was that it had once been a continental shelf which formed carbonates (ie limestone) in the shallower near-shore environment while finer sediments flowed farther out to sea where they formed siltstones. About 150 million years ago an island arc collided with the western margin which caused thrust faulting that pushed rafts of siltstones over the top of the carbonates. Today the siltstones are called Upper Plate rocks while the carbonates are called Lower Plate rocks even though they are the same age.
These two types of sediments have different physical characteristics; the siltstones have a much lower permeability than the chemically vulnerable and brittle carbonates. Ongoing compressive forces caused the Upper-Lower Plate stratigraphy to fold, the result of which the carbonates crackled beneath the tight rubber like wrapper of the siltstones. Deep seated fault structures would nevertheless propagate through this contorted stratigraphy, and served as conduits for fluids bearing gold and a collection of elements such as arsenic, mercury and thallium which have become known as Carlin pathfinders. Carlin-type mineralization formed when the vertical structures transitioned from permissive Lower Plate rocks to tighter Upper Plate rocks. Since fluids follow the path of least resistance they traveled sideways within the porous carbonates, largely avoiding the Upper Plate structural bottleneck. That is why Lower Plate rocks have much bigger and richer Carlin-type gold zones than Upper Plate rocks.
When the right temperature, pressure and chemical conditions are present sulphides encapsulating micron sized grains of gold would crystallize, forming the rich and extensive deposits in the so-called Carlin, Getchell, and Cortez "trends". This was not a type of mineralization the prospectors from the 19th and early 20th century had the capacity to recognize. The Carlin-type mineralization was not recognized until the 1970s and it was during the 1980s that Barrick, with its acquisition of the Goldstrike property within the Carlin trend, emerged with the foundation to become a giant gold mining competitor to Newmont, the established Nevada gold producer. Through the formation of the Nevada Gold Mine joint venture on March 11, 2019 Barrick (61.5%) and rival Newmont (38.5%) pooled their vast holdings in northern Nevada in order to more efficiently utilize roasting capacity for recovering gold from the refractory ore.
The Carlin-type deposit forming period ended around 25 million years ago when the Farallon slab had rolled back to what is now called the Walker Lane. John Muntean's map showing the ages of the Carlin-type gold deposits illustrates this deposition history. The youngest Carlin-type deposits are Quito and Northumberland which sit on the eastern margin of the Walker Lane. It is why the Carlin-type production is concentrated in Humboldt, Elko and Eureka counties. As the Farallon slab rolled into the vicinity of the Sierra's eastern flank the magmatism turned into volcanism which gave birth to the epithermal deposits. The Carlin-type deposits formed well beneath a surface that was probably fairly flat, but around 15 million years ago Nevada began to stretch apart in a northwest and southeast direction, which complicated future exploration for Carlin-type deposits.
This rifting had two major consequences. One was the creation of Nevada's basin and range topography, a series of northeast oriented mountain ranges and valleys whose bedrock in places is a mile deep. Erosion subsequently filled the valleys with gravel. The rifting fault lines had little to do with the structures along which the Carlin fluids traveled, but the resulting topography effectively hid half of Nevada's Carlin-type gold endowment. With 250 million ounces already identified within the uplifted ranges and the shallower pediment flanks of the basin valleys, a similar amount is likely lurking beneath gravel cover, not to mention under barren overlying Upper Plate rocks like at Fourmile. Finding these blind Carlin-type systems is terribly expensive and these days largely the domain of the Nevada Gold Mines JV between Barrick (61.5%) and Newmont (38.5%) whose exploration strategy, now that the claim boundaries of these former revivals no longer matter, involves groping into the brownfields around their mining operations for new zones. By dissolving claim boundaries the JV opened new opportunities to chase expansion potential and reduced the urgency to offset falling Carlin type production by exploring under cover in other areas of northeastern Nevada.
The other important consequence of the rifting was that the thinning of the crust allowed intrusions to work their way toward the surface where they erupted as volcanoes whose center blew or collapsed to form calderas whose margins became structural gateways for lingering magmas whose heat drove hot spring type systems that created epithermal deposits which form both high grade bonanza zones within veins and lower grade disseminated envelopes. Blackrock Silver's Bill Howald has created a nice slide showing how these caldera settings are created. Epithermal deposits generated most of Nevada's 28 million ounces of gold production from 1860 until 1979, or about 11% of total production. During the past four decades while the counties of Humboldt, Elko and Eureka overwhelmingly dominated gold production from Carlin-type deposits the Walker Lane limped through a series of failed open pit and underground mines, most of which ended up being acquired out of bankruptcy by Waterton which in the past few years has been spinning them out to majors and juniors eager to give them another shot.
The Walker Lane became synonymous with old school pick and shovel underground mining fantasies with small sized prizes, and low grade bulk mining dreams which would become profitable if only the Federal Reserve would just stop manipulating the gold price downwards as part of a grand strategy to hide the true precarious status of the fiat currency system. That is why during the past decade I largely ignored the Walker Lane with its boring marginal bulk tonnage scenarios and skinny high grade fantasies. I chose to focus on the hunt for world class Carlin-type systems in northern Nevada. I hoped the gold in groundwater sampling strategy of Nevada Exploration Inc might lead to a major discovery under gravel cover. At South Grass Valley the method did result in the discovery of a previously unrecognized altered Lower Plate window that has been the focus of intense hydrothermal activity involving fluids with Carlin pathfinders, but no gold zone has yet been found within this deep system. In the case of NuLegacy Gold Corp whose Red Hill project is next door to the Goldrush deposit and not that far from Cortez Hills I hoped that creative geological hypotheses tested with well funded drilling would deliver a major discovery. Neither NGE nor NUG delivered, and in the case of NGE the stock crashed and burned after a series of strategic errors.
Pictorial Collage from Blackrock showing how Calderas form
Nevada's Walker Lane Epithermal District & the Tonopah Calderas
Jim (0:14:12): Why do you believe the resource junior exploration focus is shifting back to epithermal deposits?
I have come to the conclusion that discovery exploration for deep Carlin-type systems outside the known corridors controlled by Barrick-Newmont is just too difficult, time consuming and expensive for a junior to pursue. The Nevada Gold Mines JV includes an area of interest roughly 300 km by 250 km or 75,000 sq km (7.5 million hectares) which encompasses most of northeastern Nevada that is prospective for Carlin type deposits. If a junior makes an encouraging Carlin-type discovery, there is no longer any competition between Newmont and Barrick to do a farm-in deal or a buyout. Thanks to the Nevada rifting around 15 million years ago this part of Nevada does have potential for high grade gold-silver epithermal deposits like Midas, and juniors like Blackrock Silver which is currently drilling Silver Cloud are active in this area. But those projects are of no interest to the Nevada Gold Mines JV. The main hope for a junior lies with SSR Mining which operates the Marigold complex, and perhaps one day i-80 Gold Corp which purchased the Lone Tree complex from Newmont. Both these projects consist mainly of Carlin-type mineralization hosted by less permissive Upper Plate rocks.
The Walker Lane offers prizes with a smaller size than northeastern Nevada, but, unlike with under-cover Carlin-type exploration where it is always all or nothing, exploring for epithermal systems does allow incremental progress toward a prize to be demonstrated. That is critical for funding not to get trapped on a dilution treadmill as we witnessed with NGE's South Grass Valley project where a gold interval eluded Wade Hodges. Three gold producers have in recent years shown an interest in the epithermal systems in the Walker Lane. One of them is Newcrest which secured a major farm-in deal with Headwater Gold Corp, but Newcrest is being acquired by Newmont which is unlikely to have much interest in Nevada's epithermal systems. AngloGold Ashanti has focused on the Bullfrog district near Beatty at the southern end of the Walker Lane where it has been busy consolidating the district around its grassroots Silicon deposit discovery which is currently at feasibility stage. A more recent arrival is Centerra which has acquired the Goldfield project from Waterton after losing its Kumtor project in Kyrgyzstan.
AngloGold and Centerra, however, are interested in open pittable mining scenarios such as Allegiant Gold, West Vault Mining and Viva Gold have in the Tonopah region. It is more difficult to see who would want to acquire Blackrock Silver and Summa Silver in order to revive underground mining of the Tonopah silver-gold vein system at depth and along strike. Underground mining, however, has a much smaller surface disturbance footprint than open pit mining, so new discoveries and a higher real gold price which seems likely as a result of the growing geopolitical conflict between the Global West and Global East could attract the interest of producers that specialize in underground mining such as Hecla and Coeur. And then there is Kinross which operates the open pit Round Mountain Mine an hour north of Tonopah but which had an excellent experience developing the now depleted underground Buckhorn Mine in northeastern Washington when the anti-mining lobby denied a permit for an open pit mine.
I will still keep an eye on juniors trying to make a world class Carlin-type discovery, but my interest in Nevada juniors is shifting to those exploring for epithermal gold-silver systems. A century of prospecting has killed the potential to find major new outcropping epithermal deposits, but newer concepts about alteration systems and deposit models coupled with digital compilation and the ability for 3D spatial presentation open the way for juniors with sophisticated geologists to trace seemingly inconsequential geological tidbits to something substantial that is not as deep as the Carlin-type targets in northeastern Nevada. But most important of all is the reality that exploration of epithermal targets allows construction of a data supported conceptual model towards whose validation exploration can progress incrementally. This is critical to retaining the attention of investors and being able to raise the next round of financing at a higher price, avoiding the dilution treadmill that plagues juniors engaged in all or nothing exploration for Carlin-type deposits.
Map showing extent of the Area of Interest of the Nevada Gold Mines JV
Map showing the portion of the Walker Lane where mining is possible
Jim (0:21:51): What is Allegiant Gold trying to accomplish in the Tonopah District?
Allegiant Gold Ltd's flagship project is Eastside which Andy Wallace generated back in 2013 when Robert Giustra's Columbus Gold had projects all over the place, including the Montagne D'Or gold project in French Guiana. Allegiant was spun out to hold the Nevada gold assets and listed on January 30, 2018 while Columbus carried on as Orea Mining Corp which optioned 55% to Nord Gold, the Russian gold producer now burdened by sanctions thanks to Putin's invasion of Ukraine. Wallace was a partner with John Livermore in the Cordex Syndicate which became a major privately held Nevada prospect generator during the seventies. Fund manager Peter Gianulis became CEO in Septermber 2019 and has raised $16 million, including $4 million from Kinross in March 2022 which is now a 9.9% shareholder. Allegiant delivered an inferred resource estimate in July 2021 for the Original Pit, now renamed the McIntosh deposit, featuring 1,090,000 oz gold at 0.55 g/t and 8.7 million oz silver at 4.4 g/t. This is bigger than the combined Hasbrouck-Three Hills resource of West Vault Mining Inc, but why does Hasbrouck have an updated PFS and a mining permit while McIntosh is still inferred with no PEA?
McIntosh is stalled because the deposit sits underneath a couple hundred meters of barren rock which represents a major pre-stripping cost and ultimately a high waste to ore strip rate for an open pit mining scenario. Unless the price of gold goes to the moon this would qualify as just another example of why the Walker Lane is a graveyard for resource juniors. During the past year, however, Allegiant retained a structural geologist called Alan Roberts to become exploration VP and he has created a potential future for McIntosh. The historical drilling has consisted of vertical RC holes, but a core program designed by Roberts has revealed that the zone is cut by a set of en echelon northeast oriented fractures which contain higher grade gold than the space between. The next step will be a core drilling progam designed to intersect the fracture set at a perpendicular angle so as to properly quantify the deposit's gold grade for bulk mining. This will not turn McIntosh into a conventional underground mine, but it could become an underground block-caving operation. Further drilling will also assess new nearby targets.
Allegiant expanded the Eastside property to the south in 2021 with the acquisition of claims covering the former Boss Mine open pit and heap leach operation along with the Castle, Black Rock and Berg zones for which there is an inferred resource of 19,986,000 tonnes of 0.49 g/t gold at 0.15 g/t cutoff representing 314,000 ounces. What makes the Castle area interesting is that the Boss Mine was operated by a private group during the 1980s which managed to shut down before stringent new reclamation rules came into force.This has left the BLM stuck with the liability of reclaiming the disturbed area including waste rock dumps and the former heap leach pad, none of which has any vegetation growing on it. Allegiant does not have a retroactive financial responsibility for this mess, but if it can expand the resource to an extent where open pit mining is justified, any development plan would include reclaiming the old mine site. Allegiant has a permit for a 20 hole 2,300 m drill program which will start this year, but it has applied for a plan of operations that would allow an additional program of 50 holes of 5,900 m. Although the BLM is very eager to see the Castle area become a mine development candidate, the permit is still going to take until March 2024 to arrive.
Resource estimates and deposit locations for Allegiant's Eastside project
Jim (0:28:22): Does Viva Gold's Tonopah project have development potential?
Viva Gold Corp acquired the Tonopah project in March 2017 from Midway Gold which had filed for bankruptcy in 2015, paying USD $50,000, 1.5 million shares and a 2% NSR plus assuming clean up obligations for past drilling activity. The Tonopah low sulphidation epithermal deposit has received exploration attention since 1986, including by some majors, but when Midway acquired it in 2002 its goal was to assess the potential for underground mining high grade zones within the low grade envelope of this system. Most low grade epithermal deposits like at Allegiant's Eastside and West Vault's Hasbrouck have boring core that never exhibits visible gold. But the Tonopah deposit is different, and during the tour I heard a story about how long ago a driller pulling core observed an inch wide seam of gold of the sort you can encounter drilling orogenic vein system in greenstone belts. They call this gold porn in mining circles.
Such an occurrence is atypical even for the Tonopah system, but when you come across it for the first time the imagination runs wild. Supposedly the driller drove to town about 30 minutes away and bought as much stock as he could. Stockwatch has a news database that goes back a long way, so I checked it to see if I could find when this happened in Midway's history. I turns out this happened in May 2002 when Midway Gold, then called Red Emerald Resource Corp, reported on May 24, 2002 that drilling on Tonopah (then called the Midway project) intersected a 2 cm by 3 cm seam of solid gold. The day before the stock had jumped $0.10 to $0.45 on 61,500 share volume compared to 6,000 shares the day before. The stock ran as high $1.75 before June 10 when the junior reported 5 ft of 4,112.7 g/t gold (132 opt). The stock slumped after the news was out, proving the adage, buy on rumor sell on news.
Under CEO James Hesketh, an engineer, Viva has treated Tonopah as a bulk tonnage scenario for which it has raised $16 million. Viva delivered a PEA in Aprl 2022 that envisions a series of open pits with a 4.6:1 waste to ore strip ratio that would crush and stack 7,500 tpd of ore with 71.8% heap leach recovery. The mining plan exploited only 12.5 million tonnes, half the M+I+I resource of 23,556,000 tonnes of 0.79 g/t gold. For some reason they used $1,400 gold as a base case which yielded an after-tax NPV (5%) of USD $44 million with a 22% IRR which, because of the USD $58 million CapEx, fails the development hurdle. By running the DCF model at $2,000 gold Viva shows that the pre-tax NPV would be USD $148 million with 67% IRR, so in after-tax terms the project likely clears development hurdles at the current gold price just above $1,900. However, what hurts this project is the small scale; over 5 years the mine would yield 219,000 ounces or about 43,000 ounces annually, which makes West Vault's Hasbrouck look like a champion in comparison. Hesketh was not able to be present when we visited the Tonopah property which is right beside Highway 376, so we were not able to grill him. Drilling last year apparently gave rise to the recognition that there may be a set of north-south fracture controls within this east-west oriented zone. A 3,000 m program to assess this hypothesis will be done this year ahead of an updated PEA which will likely use a base case gold price better reflecting current reality. Given that Midway Gold tackled this deposit as a potential underground mine, it seems odd that the high grade controls are not already fully understood.
Viva Gold, which has Dundee Corp and RAB Capital as 20% and 18% shareholders respectively, hopes to make a decision later this year to proceed with a feasibility study and environmental permitting. However, it is not clear to me if the Tonopah project will ever get permitted. Here is where the value of a physical site visit becomes manifest. Just 4 miles down the road is a plant that pumps water from the basin to supply Tonopah about 25 miles away by road. Next to it the district has created a literal oasis consisting of two artificial ponds around which it has set up picnic tables and BBQ grilles. Each table even has a canopy to protect visitors from the thunder storms that roll by during the summer. The water is clean and cold enough to support trout which people can catch with a fly rod. The Town of Tonopah has planted sterile white grass carp in the ponds to keep them clean so that trout can flourish; the sign asks that fishermen gently release them if they catch one. Nobody was at the oasis on Wednesday afternoon when we dropped by to check it out (many thanks to Blackrock's Bill Howald who took the Northern Miner's Henry Lazenby and myself off the tour track to visit this oasis and Goldfields). In my view for Viva Gold to become a buyout target for a producer it needs to make the Tonopah deposit bigger, which reluctance to do through exploration drilling nearly got Hesketh kicked out by dissident shareholders a few years ago, but at the same time Vivat must convince the town of Tonopah that an open pit mine will not ruin its water supply. Achieving both these goals may be a challenge.
Maps showing location of Viva Gold's Tonopah project and proposed pits
Viva's April 2022 PEA for Tonopah project
The good old days when a seam of visible gold moved stocks higher
Fly-fishing BBQ Oasis next to Tonopah water supply down the road from Viva's deposit
Jim (0:34:19): Will Blackrock Silver and Summa Silver revive underground mining beneath the town of Tonopah?
The Tonopah silver district boomed from 1905 until 1930 after which mining gradually faded until 1950. Mining ended because it became too expensive and technically difficult to chase the veins deeper. To the east where the Mizpah Formation was the primary host the veins were cut off by the Halifax fault and to the west where the Extension Breccia and Tonopah Formation are the primary hosts the veins seemed to peter out. About 55 km (34 miles) of underground workings exist with four main levels at 800, 1,200, 1,540 and 1,800 ft. During our tour we visited the site of the 1,800 ft deep Belmont shaft from which wafts the smell of sulphur. The Tonopah silver district produced 174 million ounces silver and 1.8 million ounces gold, a 100:1 grade ratio with the average grade 44 opt silver amd 0.5 opt gold. That is not quite as productive as the Comstock which produced 225 million ounces silver and 7.2 million gold, but the timing of the Tonopah, Goldfield and Bullfrog booms in the Walker Lane coincided with stock markets that made rampant speculation possible. Supreme among the newsletter writers was con-artist George Graham Rice (real name Jacob Simon Herzig) who switched from marketing a horse racing tip sheet to promoting mining stocks. What makes him different from the rest is that while waiting to go to jail he wrote "My Adventures with your Money" in which this somewhat unreliable narrator describes the mining sector's shenanigans. It is hard to imagine today the speculative frenzy, even though what is unfolding in the lithium sector is of far greater scale.
In early 2020 two unrelated juniors undertook to revive the Tonopah silver district. Summa Silver Corp, which listed on the CSE on Feb 12, 2020 as a shell only to be halted a day later, acquired the Hughes project from a numbered company for 10.5 million shares and $400,000. The initial $5 million private placement at $0.25 included Eric Sprott who is an even bigger silver bug than a gold bug. On August 25, 2020 Summa expanded its silver portfolio by optioning 100% of the Mogollon project in New Mexico from Allegiant Gold for USD $2.8 million over 3 years. Mogollon was a high grade silver district that produced 16.4 million ounces silver and 339,000 ounces gold during 1880-1942. The Cordex Syndicate had checked it out during the seventies. CEO Galen McNamara has raised $40 million, most of it between $0.80-$1.00, and Eric Sprott remains an 18% shareholder. About $20 million has been spent on the Hughes project and $10 million on Mogollon. Summa had about $11 million in working capital as of February 2023 and 121.2 million shares fully diluted. Summa has finished chasing the Tonopah veins at depth and is currently focused on trying to find where the north-south Halifax fault displaced the Tonopah veins on the eastern side. Some silver zones such as Ruby have been found east of the fault where Summa was drilling during the site visit, but the displaced continuation of the rich veins, "gray ledges" as the outcropping tops were described during the early discovery days, remains elusive. Summa has not yet completed a resource estimate but will likely do one for early 2024 if the drilling east of the Halifax Fault does not find the missing eastern extension. The main exploration focus in 2023 will be chasing the Mogollon veins along strike and at depth using digital compilation to understand the system.
Blackrock Silver Corp started off as Blackrock Gold whose prior management optioned the Silver Cloud project in the Midas-Hollister district from Carl Pescio in October 2017. Midas is a low sulphidation epithermal system with bonanza veins that became the Ken Snyder Mine. These epithermal deposits in the midst of Carlin-type country formed during the rifting of Nevada about 15 million years ago. In May 2019 a shareholder called Andrew Pollard became grumpy about the way the company was being run, and when he knocked on the door as a dissident shareholder he was handed the keys. He promptly recruited Bill Howald to join the company as chairman due to his Nevada experience (Placer Dome, Rye Patch) and familiarity with Silver Cloud, which I remember Atna optioning during the 1990s and Geologix during the 2000s.
Blackrock optioned Tonopah West from Ely Gold in February 2020 for USD $3 million over 4 years and a 3% NSR, and, when the monetary covid mitigation response started, caught the gold-silver rally in July, raising $7.5 million at $0.72 of which Eric Sprott put up $5 million, sensing that if Tonopah East was any good, so would be Tonopah West. The name was changed to Blackrock Silver on March 17, 2021, not so much because the junior wanted to resonate with silver bugs, but more because the Nevada subsidiary had the same name as the parent which became a filing headache. Pollard has raised $58 million since taking charge, with the last financing raising $4.4 million in units at $0.37 that come free trading around August 17. The company had $3.5 million working capital as of April 30 and 242.3 million shares fully diluted. Eric Sprott is still a shareholder but below the 10% reporting threshold.
Unlike the owner of Tonopah East, Blackrock Silver delivered a resource estimate in April 2022 based on a good portion of 150,000 metres of drilling that reported 19.9 million ounces silver at 208 g/t and 238,000 ounces gold at g/t. Metallurgical studies have been done, but a PEA has not been initiated because the resource is short of critical mass for building a mill and resuming underground mining.
Similar to Summa Silver's effort to find the displaced extension of the veins east of the Halifax Fault, Blackrock has been trying to figure out where the veins reappear to the west. The Tonopah silver veins sit on the southern rim of the Fraction caldera, which formed about 20.2 million years ago. It seems to butt up against the Klondyke caldera to the south and it would seem the intersection of these margins might be relevant. However, the Klondyke caldera erupted only 17.3 million years ago, after the silver veins formed within the Mizpah and Tonopah Formations about 20 million years ago. The western rim of the Klondyke Caldera disappears under basin gravels to the northwest, so Blackrock has been drilling the "Northwest Extension" in the hope of finding rich veins. RC drilling last year was disappointing, but when the geologists looked closely at the assays for all the other elements, they saw a major pathfinder element spike in one interval. The hole was twinned with a core hole which delivered a high silver grade along with the pathfinders; the Denver Vein is a blind discovery which Blackrock will be delineating this summer with a 20,000 m RC and core drill program.
Tracing the inferred caldera rim beneath the basin to the north failed to intersect any silver-gold mineralized structure, but the post-mineral Siebert Formation yielded intervals of 800-1,100 ppm lithium, indicating a mineralized claystone horizon similar to that of American Lithium Corp farther north. Blackrock has optioned 70% of the shallow lithium rights to Tearlach Resources Ltd, the company Keith Schaefer was paid $250,000 last year to pump to his list. Tearlach must spend USD $5 million by January 9, 2026 to earn 50%, after which it can earn 70% by spending another $10 million by 2028. Tearlach has given the name Gabriel to Tonopah North. Last year as Lithium Mania 2.0 was catching on Tearlach raised $7.5 million through a $0.50 unit, but despite Keith's gushing praise while the stock was above $2 it has crashed and burned, trading to $0.10. The treasury has also been burned through huge marketing expenses, consulting overhead and property option payments; Chuck Ross has had to become interim CEO after the prior CEO bolted and it is not clear how Tearlach will go about raising money to vest even for 51% of Tonopah North. Whatever money Tearlach does spend will be for Blackrock's perhaps 100% benefit.
Blackrock is currently conducting a 2,200 m drill program on its Silver Cloud property where last year a hole intersected a 1.5 m bonanza vein interval of 70 g/t gold and 600 g/t silver. There is a good reason to wish Blackrock and Summa a lot of luck with their Silver Cloud and Mogollon drill plays. It is obvious to everybody that Tonopah West and East (Hughes) must be consolidated into a single property. If their respective pieces of the Tonopah silver district is all what each company is about, negotiating merger terms will spawn a clash of egos. But if Silver Cloud and Mogollon start shaping up as emerging discoveries, creating the potential for meaningful spinouts by each company, flexibility will emerge in sorting out the combination terms for the two properties whose whole will be worth more than the sum of the parts.
Stratigraphic Rock Type Column for Tonopah District
Scaled Matchup showing how Tonopah West and East adjoin
Summa Silver's Tonopah East (Hughes) Discovery Potential
Blackrock's April 2022 Tonopah West Resource Estimate
Blackrock's Tonopah West Property and current Denver Vein discovery drilling focus
Blackrock's Silver Cloud Epithermal Play in the Carlin Heartland
Jim (0:47:09): Are you watching any Walker Lane prospect-generator-farmout juniors?
The more I have studied the potential for Nevada's epithermal bounty to make a comeback as enthusiasm for Carlin-type discovery exploration by juniors fades, the more I like Mike Power's Silver Range Resources Ltd, which I have had in my bottom-fish collection for several years now. Insiders own 17.4% and Doug Eaton's Strategic Metals owns another 16.4%. Silver Range started off as a prospect-generator-farmout junior with a Yukon-NWT-Nunavut focus, but in recent years CEO Mike Power has focused exclusively on high grade systems in southwestern United States, with a particular emphasis on Nevada's Walker Lane. The latter makes sense since Mike lives in Goldfield and is even a director of the non-profit responsible for the International Car Forest.
He is not interested in low grade epithermal envelopes like the properties of Allegiant and West Vault; these need to be at surface in order to be open-pittable. Finding a deposit like Allegiant's McIntosh under a couple hundred metres of barren rock or gravel is not going to move the needle; and anything outcropping such as Hasbrouck and Three Hills has been owned by somebody since the seventies. His target is high grade underground mineable deposits grading at least 5 g/t Au or 500 g/t Ag. His acquisition strategy involves staking, which is not cheap in Nevada because it involves post staking and hefty annual BLM fees every August 31. But this means no accidental competition from map staking speculators. The bad rap Nevada's epithermal deposits earned during the past 4 decades while Carlin-type deposits earned all the glory and dollars also limits competition, especially from private geologists for whom there is a dearth of juniors eager to option a property that might allow a flashy lure to be trolled past Eric Sprott.
As a geologist Mike Power uses modern tools to see beyond what is sticking out of the ground, because if any gold-silver rich Comstocks, Goldfields or Tonopahs remain to be found, it will only be by following subtle clues at surface. Silver Range has 44 projects in Nevada, a number of which have been farmed out, with Mike favoring the Ely Gold model where the partner gets to earn 100% through spending obligations, payments and a royalty. The beauty of this approach on a large scale is Silver Range gets to ask for decent earn-in requirements, which more often than not the partner fails to meet, giving Silver Range back the property with enhanced data, as recently happened when Atac dropped the East Goldfield property, which has already been re-optioned.
Mike is also an information junkie who collects and digitizes the terms of all the deals he sees announced by juniors, which gives him a deep understanding of the variety of option terms and what works for different areas and types of prospects. In fact Tim Termuende of Eagle Plains sits on the board as an independent director, which is not a conflict because the two juniors specialize in different parts of North America. Recently Silver Range has attracted a generative alliance deal with Altius Minerals which invested $500,000 in a no warrant private placement at $0.15 in exchange for the right to select three properties in an undisclosed area of interest in which it will hold a 1% NSR if Silver Range acquires any. Interestingly, Silver Range is getting the strongest farm-in interest from private parties hoping to eventually go public and Australian companies who despite a complete absence of success in Nevada remain keen. I may be wrong about my thesis that discovery exploration for gold-silver epithermal deposits in Nevada is making a comeback, but Silver Range Resources Ltd is a cheap and leveraged proxy bet for being right.
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 July 6, 2023: Tonopah Adventure Tour: Part I
Jim (0:00:00): In June you went on a multi-project site visit centered on the former Tonopah mining district in Nevada. What was the purpose of this Tonopah Adventure Tour?
West Vault's CEO Sandy McVey organized and hosted a site visit on June 13-15 in the Tonopah area of Nevada for analysts, journalists, investors and newsletter writers that spanned several days and involved 5 gold-silver and 3 lithium claystone companies. I was at first reluctant to participate because I had already researched West Vault Mining Inc, made it a Good Spec Value Favorite on April 13, 2023, and featured it at the May 27, 2023 Metals Investor Forum. The company updated its PFS earlier this year for the permitted Hasbrouck-Three Hills open pit mines and has adopted a strategy where it will not spend any money on exploration nor attempt to build the mine. Instead it is presenting itself as a buyout target for an established producer and offering itself to investors as a leveraged proxy for the price of gold.
At the $1,790 per oz base case price, which is below recent levels, the project clears development hurdles and at a 5% discount rate has an after-tax NPV of USD $190.5 million and IRR of 47.7% (my DCF model based on Jan 2023 PFS assumption - WVM PFS has USD $205.2 million NPV and 51% IRR). For a project at the permitting-feasibility stage waiting for a construction decision the fair value range is 50%-75% of the outcome value, which means the stock should be trading between $2.11-$3.16, 125%-238% higher than the current $0.90-$1.00 range (0.75 USD:CAD, 60.2 million fully diluted, 100% net interest). The leverage to gold comes when you calculate the NPV after increasing the base case price by 68% to $3,000 which results in an NPV 200% higher at USD $573 million. The fair value would jump to a range of $6.30-$9.45 which is 577%-916% higher than the current price.
So why is West Vault such a bargain the market is ignoring? A key problem is that the Hasbrouck project would produce only about 70,000 oz annually over 8 years. That seems too low to be worth the bother for a gold producer to acquire and turn into a standalone mine. But what if a producer decided to make the Tonopah district into its backyard with multiple gold mines? While I would not gain much from visiting the Hasbrouck-Three Hills project apart from the tangible experience of being there, I could potentially learn a lot about who else is active in the area and could become a collective target for a producer like Centerra or AngloGold Ashanti, both of which are active in the southern end of the Walker Lane.
Centerra Gold Inc acquired the Goldfield (Gemfield) project from Waterton on Februry 22, 2022 for USD $206 million. Waterton acquired the project when it bought Chaparral Gold Corp on February 20, 2015 for about CAD $73 million at $0.61. An updated June 2013 feasibility study by International Minerals Corp (from which Chaparral was spun out when Hochschild bought IMZ in 2013) reported a proven and probable reserve of 17,260,000 tonnes at 1.0 g/t gold (567,000 oz in situ 482,000 oz at 85.5% recovery). Waterton spent about USD $7 million to get Hwy 95 moved to bypass the Gemfield deposit. Centerra owns much of the old Goldfield district but as its map indicates there are still plenty of inlier claims held by others. Centerra has not released its own resource estimate. These deposits are classified as high sulphidation epithermal.
AngloGold Ashanti Ltd has tabulated 8.4 million ounces gold at grades ranging 0.24-1.26 g/t gold in the Bullfrog district, with Silicon, which it acquired 100% from Renaissance Gold, hosting 4,220,000 ounces at 0.83 g/t. AngloGold has consolidated the district by buying out Corvus Gold to get North Bullfrog and Motherlode, and purchasing Sterling from Coeur. Silicon is currently the focus of a feasibility study. AngloGold has its hands full with North Bullfrog, but apparently does have exploration claims north of Tonopah.
In the end I decided to participate in the Tonopah Site Visit so as to get a feel for the area and its potential to undergo a mining revival. Over the course of two days we visited the properties of West Vault Mining Inc, Allegiant Gold Inc, Black Rock Silver Corp, Summa Silver Corp and Viva Gold Corp. I call it the Tonopah Adventure Tour because on the second day we visited West Vault's Hasbrouck deposit which did turn out to be quite an adventure. On Tuesday we just piled into trucks and visited the properties of Allegiant, Blackrock and Summa. But on Tuesday morning after breakfast Sandy McVey handed out liability waiver forms for us to sign. It warned of Hasbrouck hazards like crazy donkeys, scorpions, lightning, poisonous snakes, flash floods and "other dangerous wildlife".
After Tuesday's tame site visits I wondered what awaited us. The adventure turned out to be a torturous drive to the top of Hasbrouck "mountain", which juts about 300 metres above the basin floor. The ascent with its hairpin turns was pretty interesting, but the descent promised to be rather hairy. One couple decided they would walk down, which took them only 20 minutes, so it really wasn't anything like my site visits in the Andes of Peru. We all survived without incident. And while I say the purpose of doing the Tonopah Adventure Tour was to assess the mining revival potential of Nevada's Walker Lane, there is something you get from a site visit that is never revealed by a technical report and corporate presentation: a sense for the sheer scale of a project. Standing on top of Hasbrouck it was amazing to realize that if everything works out, this small mountain will be gone, spread out on the valley floor below as 50 metre high piles of waste rock and heap leach pads contoured to blend in with the flat grazing land.
Hasbrouck-Three Hills Property Map & Location within Walker Lane
Hasbrouck-Three Hills Numbers from West Vault's Jan 2023 PFS
After-Tax USD NPV Hasbrouck DCF Sensitivity to Gold Price Model
After Tax CAD NPV per share Hasbrouck DCF Sensitivity to gold price
Map of Centerra's Goldfield Project and 2013 Reserve by Micon for IMZ
2022 Gold and Silver Resources for AngloGold's North Bullfron Deposits
Jim (0:11:06): Is the southern part of the Walker Lane where Tonopah sits half way between Las Vegas and Reno receptive to a revival of mining?
Do former mining districts like Tonopah and Goldfield want a revival of mining in their backyard, or are these towns more interested in tourism such as is the case for the western Sierra foothills of California or the steeper eastern side where Mammoth Lakes is a major summer and winter destination for Californians? I live in the Bay Area of San Francisco and have made many visits to Yosemite and Tahoe which sit within the metal poor granite batholith called the Sierra Nevada. But the western foothills which are not granite were the source of most US gold production from the 1848 discovery of placer gold in the American River at Sutter Creek until the 1950s. The source of this gold was the orogenic gold veins that formed in the foothill rocks (also known as "mesothermal" and "Motherlode" deposits). Orogenic systems host structurally controlled high grade gold mineralization that can persist over thousands of metres in vertical depth. I have family in the Sonora area where the Columbia gold field is now a historic park. In addition to a tourist industry the foothills are developing vineyards to compete with the coastal wineries. There is no geological potential for bulk tonnage open pit mines, and there is no interest in a revival of underground mining made possible by a higher gold price. The former Idaho-Maryland mine which juniors have tried to restart since the 1980s sits outside the former mining town of Grass Valley which people from the coast going to Tahoe make a detour to visit.
The eastern Sierra is a combination of the older granites and quite young volcanics which create a spectacular landscape of variously colored rocks with a jaggedness absent from Yosemite. This eastern flank of the southern half of the Sierra Nevada sits on the California side of the boundary with Nevada. Geologically it is still active with intrusive activity; the Long Valley caldera is very young, has hot springs in its center, and has the potential one day to blow up as a super volcano, similar to the predicament of Yellowstone Park. The former mining town Bodie north of Mono Lake has been preserved as a historic site that is absolutely fascinating to visit. Unlike the western flank the gold deposits are low sulphidation epithermal systems which have a much shorter vertical extent than orogenic systems. In recent years I have done summer vacations in the Mammoth Lakes area south of Mono Lake and I rave about the geological richness in Kaiser Watch Episode July 15, 2022. But juniors which hope to discover and develop a gold deposit on the Californian part of the Walker Lane are wasting their time. This area is for mountain climbing, hiking, skiing, geology watching and museum visiting. In terms of economic activity it is ranching and tourism support services.
Rather than fly to Las Vegas, rent a car, and drive to Tonopah like most of the people on the Tonopah Site Tour did, I decided to drive from the Bay Area to Tonopah, a trip that takes 7-8 hours depending on how many 30 minute delays you encounter thanks to the highway department laying culverts across roads. It takes about 5 hours to get to Mammoth Lakes from Los Angeles and 6-7 hours to get to Tonopah. It takes 6-7 hours to get to Mammoth Lakes from San Francisco, though only during summer because in winter one has to cross the Sierra via Tahoe (no fun in its own right) because Sonora and Monitor Passes are closed whereas Los Angeles residents drive past the southern limit of the Sierra. And the long way around the southern Sierra limit takes 10 or more hours from San Francisco. Sonora Pass opened the Friday (June 9) before my trip and at its summit there was still five feet of snow from this winter's record snowfall.
Why are these driving times relevant? The extra distance it takes to get to former mining towns like Tonopah and Goldfield from major Californian population centers makes them unlikely tourist destinations. It takes about 4 hours to drive from Reno to Tonopah and 3 hours from Las Vegas, the two urban centers of Nevada whose population is 3.25 million compared to California's 38.9 million. If you live in Reno and want to visit historic mining districts Carson City and Virginia City are less than an hour drive. And I am not sure the residents of Las Vegas are interested in historic mining districts. Furthermore, nobody who flies to Las Vegas for gambling will rent a car to drive 3 hours to Tonopah. The distances between Nevada towns is huge and when you finally drive through main street good luck finding a restaurant that isn't either a fast food chain or a dilapidated diner. The highway department posts helpful signs: "Next Gas 100 Miles". Although Tesla has a Gigafactory outside Reno, the rest of Nevada is not an EV friendly place. I heard that one Tesla owner coped with the charging problem by installing a fossil fuel generator in his trunk to recharge his battery if it ever dies in the middle of nowhere.
When I arrived in Tonopah on Monday evening and checked into the Mizpah Hotel I was shocked to see the lobby bar jammed with people who were clearly tourists. Maybe Tonopah had developed a tourist industry I thought. But the next two evenings the lobby bar was pretty much empty. It turns out that the Monday crowd was left over from an antique car festival, not there to check out the mining museum and tour the former mine site. While checking in I watched an Indian family respond with dismay after they asked the receptionist about Asian restaurants in Tonopah and heard there is one Chinese restaurant where the best dish to order is lemon chicken. I had seen billboard signs advertising the Tonopah Brewing Company so I checked it out and discovered a contemporary craft brew pub with a wide selection of beers and tasty dishes from its smoker. I had not seen anything like this during my long drive through Nevada. I had concluded that Nevada is no country for craft beer lovers, but the selection at TBC was outstanding. In particular I was impressed by "Mounds of Love", a pastry stout that comes as an 8 oz pour in a wine glass that compares with the best Californian versions of this style. A sign said ask for a Nevada Craft Beverage Passport which is an attempt by the Nevada Department of Agriculture to promote Nevada's craft breweries of which there exist several dozen. You are supposed to get your passport stamped when you visit a craft brewery, but they had none left. Most of the craft breweries are clustered around Reno and Las Vegas, but TBC's presence in Tonopah hinted at tourism potential.
The town of Tonopah has a linear layout between two hills which tracks Highway 95, in contrast to Goldfield, a 30 minute drive to the south, which sprawls in all directions. When I walked around Tonopah I was surprised to see so many ramshackle dwellings, some still occupied with junk littering their yards, others with smashed windows and falling apart. While the Mizpah Hotel, which sits on top of old silver mine workings, is in excellent shape, much of Tonopah has the look of economic despair. The used book store was "temporarily" closed due to "unforeseen circumstances". A red sports car with license plate "Assayer" had a $58,000 for sale sign. One exception that stood out was a building across from the Mizpah Hotel with the sign Tonopah Lithium Corp, the office for American Lithium Corp which has a lithium claystone project in the flats to the north of Tonopah.
Goldfield had a similar dilapidated look and feel. We stopped for a beer at the Santa Fe Club Saloon, an old style bar with a narrow corridor, slot machines on the side, dingy, dark and smoky. It was at the edge of the former mining area across from a preserved locomotive and old mining equipment. I got some spectacular photos with the mine dumps in the background under a dark sky bringing thunderstorms. The Saloon was trapped in a time warp; the bottled beer selection came right out of the seventies: regular and lite versions of Bud, Millers and Coors plus Heineken as the token foreign beer. Clearly the Saloon was catering to locals rather than tourists. As though to illustrate the fadedness of this former mining boom town a corner of it has been turned into the International Car Forest, a car burial ground with a twist. Junked cars of all sizes are partly buried face down so that they stick up into the sky. The founders, who have turned it into a non-profit, allow visitors onto the site free and have offered the cars up as canvases for graffiti artists. It reminded me of the unofficial cemetery on the outskirts of Tonopah, which, if you stumbled upon it without being warned it is for pets, you would freak out. These are informal expressions of local communities which hint at hope for a revival that is not going to come from tourism, but from the mineral sector. These former Nevada mining towns, hopelessly distant from urban centers, would endorse a mining revival if the economics supported it.
Past, Present and Future Images of Tonopah
Is Nevada no country for craft beer lovers?
The View from the Santa Fe Club Saloon in Goldfield
Weird and wonderful cultural activities in former mining districts
Jim (0:24:30): Does Nevada need a revival of mining in the Walker Lane?
Given the dominant role of Nevada in US gold production, with over 80% coming from deposits outside the Walker Lane, the obvious answer would seem to be no. Nevada accounted for 75% of just over 6 million ounces US gold production in 2021 and 39% of the 633 million ounces of US gold production since 1848. US gold production peaked at 11.8 million ounces in 1998, the same year Nevada's production peaked at 8.9 million ounces. In 2022 total US production dropped to 5.5 million ounces, with most of the drop attributable to declining Nevada gold production. Nevada's importance as a gold producer emerged only during the 1980's when the combination of a ten-fold increase in the price of gold and new heap-leaching technology allowed large scale open-pit mining of low grade oxidized gold systems. But that was only part of the story.
Historically gold production focused on high grade epithermal vein systems within the Walker Lane where the state of Nevada butts up against the eastern flank of the Sierra Nevada. The first major boom was the Comstock silver-gold district at Virginia City during the 1860s whose silver production helped fund the Union side in the Civil War (225 million oz silver 7.2 million oz gold (15-30:1 Ag:Au grade ratio). The second boom occurred during the 1900-1930 period in the Tonopah and Goldfield districts, with Tonopah also being silver rich like Comstock with a 100:1 silver to gold grade ratio (174 million oz silver 1.8 million oz gold averaging 44 opt silver and 0.5 opt gold). Nevada is called the "Silver State" because during the epithermal age the physical volume of silver produced far exceeded gold production. California gold production greatly exceeded Nevada gold production until the late 1950's when production tailed off as the orogenic vein systems in the foothills on the western flank of the Sierra Nevada could no longer be chased deeper with the gold price fixed at $35 per oz. Nevada gained the upper hand in the mid sixties, and although southern California re-emerged as a gold producer in the 1980s, Nevada gold production soared to unheard of levels with the discovery of the Carlin-type systems in northeastern Nevada.
Unlike the epithermal systems in the Walker Lane which formed near the surface in hotspring settings fueled by intrusive activity whose hydrothermally driven fluids intersected with groundwater which created a boiling zone that constrained vertical extent of gold-silver mineralization, the Carlin-type mineralization formed well below the surface from 42-25 million years ago. The recognition of the Carlin-type gold deposits marked the transition of gold mining in Nevada from the epithermal age to the Carlin-type age. In 2021 Carlin-type gold mines accounted for 82.5% of Nevada's gold production compared to 16.6% from epithermal mines and 0.9% from gold as a by-product of porphyry copper mines. The Nevada Division of Minerals Open Data Site is an excellent place to explore Nevada's mineral history and potential. Of particular interest is the Interactive Historic Mining Districts Map which highlights all of Nevada's historic mining districts, each of which is clickable for more detailed information.
Although I am optimistic that interest in exploring for and developing epithermal gold-silver deposits in the Walker Lane both as open pit and underground mines is making a comeback, the new story in the Walker Lane is the potential to develop claystone lithium deposits to feed the domestic electric vehicle sector. Strip mining thin but laterally extensive claystone deposits would seem like an environmental permitting nightmare. But a domestic supply of lithium would be helpful for energy transition goals, and while it is hard to imagine the anti-mining lobby supporting another gold or silver mine, the claystone situation is forcing everybody to think hard about priorities. The feature presentation during the second evening of the tour by ecologist Tamzen Stringham was an eye-opener about the possibilites.
US Gold Production from 1848-2021
All time total and 2021 US Gold Production by State
Nevada 2021 Gold Production by Mine and Deposit Type
Jim (0:36:08): How was Tamzen Stringham's presentation about rangeland restoration received by a bunch of investors, analysts, geologists and mine developers?
I thought perhaps Sandy McVey would bring in an academic from the University of Reno to talk about the geological potential of the Walker Lane for the after-dinner presentation on the second day, so I was surprised to hear that the presentation would be by an ecologist from UNR who specializes in the restoration of areas disturbed by fire, grazing and mining with an emphasis on Indian Ricegrass, Utah's state grass. The presentation by Tamzen Stringham (do not call her "Tammy") focused on strategies she is developing for reseeding disturbed areas with native plants that hold the soil together, have extensive root systems that pack carbon away into soil, and provide habitat for species diversity. Indian Ricegrass is the opposite of Cheatgrass, an invasive species from Eurasia that is rapidly taking over western rangelands. Indian ricegrass is a perennial bunch grass with a massive root system - if you lay all the roots within a cubic foot of soil in a single line it would stretch over a mile.
Cheatgrass in contrast is an annual with a single shallow tap root that reseeds very rapidly in disturbed areas. One would think this is a good thing, except that it is so effective it dominates the landscape, creating a monoculture that is unstable and does not foster habitat diversity. It is especially effective at moving into burnt grassland, a growing problem as climate change increases the prevalence of fires. Unlike a forest where periodic fires allow an ailing forest to regenerate itself, grassland fires are devastating to existing vegetation because there is no regeneration mechanism. Burned grasslands are vulnerable to rapid colonization by cheatgrass which prevents useful vegetation from getting a foothold. This is a major problem because when sage grouse lose their preferred habitat they move into less hospitable areas the mining companies thought were safe from protected species.
Government agencies are responsible for restoring these disturbed habitats but the methods for prevailing against invasive species like cheatgrass are not very effective. So part of Tamzen's job is to research more effective ways to enable desirable seeds to flourish. The problem with reseeding strategies is that most seeds in a disturbed area fail to germinate and even when they do, they fail to grow into a viable plant. She described research projects developing coatings that involve mixing nutrients with a binder that is applied to seeds as a coating that not only protects the seed during the germination phase but also provides a nutrient boost so that it has a chance in competition with fast replicating flashes in the pan like cheatgrass. She also talked about "fecal" strategies which involve feeding coated seeds to cattle who become distribution agents via their cow pies. That sounds like a no-brainer until you realize that a cow's digestive tract destroys just about everything the cow eats. Her colleague William Richardson provided additional material on this topic. It was a fascinating presentation and when they were done a very lively discussion ensued, driven by people from the company side such as Douglas "Stretch" Baker whose job it is to comply with restoration obligations that range from reclaiming drill sites to waste rock dumps and heap leach piles.
A big frustration that became palpable is that the companies are supposed to apply a mix of seeds prescribed by the BLM. But these mixes were invented decades ago and have the problem that they are not customized for the range of soil conditions that show up in Nevada. Some complained that they have done everything required such as contouring waste piles and seeding them, but years later nothing is growing on the disturbed land and everybody is mad at the companies as if they shirked their duties. Tamzen said that there is a gap between older BLM seeding solutions and new sensor technology that allows the surface conditions to be analyzed to facilitate selection of a seed mix that works for that particular soil. Some of the company people have figured out which seeds work in what location and supplement the seed mix prescribed by the BLM. But when BLM workers show up to inspect the restoration effort, they are unhappy to see plants growing that were not in the mix, and the absence of certain plants that were supposed to be in the mix. These plants are missing because the soil was unsuitable for them, but the restoration effort gets a failing grade. A major attitude change is required within the BLM agency, though the BLM is eager to make reclamation more efficient because its budget is partly paid for by annual mining lease fees.
While the US Forest Service seems to be run by anti-mining people, the BLM simply wants things done properly so that they are beyond reproach from the anti-mining lobby. That is why BLM officials keep asking Allegiant Gold about progress at the former Boss Mine which is located at the southern end of the Eastside property next to US95 Highway. It was operated by a private company which shut down operations in the early 1990s just before new reclamation rules came into effect. Three decades later the heap leach pad still has nothing growing on it. Reclaiming the Boss Mine is the BLM's financial responsibility, unless a redevelopment gets permitted, in which case it becomes Allegiant's responsibility. Allegiant hopes to have a plan of operations for an expanded drill program approved by March 2024.
Towards the end the discussion shifted to funding for the research academics like Tamzen's team are doing to make restoration efforts more effective. Some wanted to know if there is a way to make corporate donations to support research. In fact, a reason Sandy McVey was able to attract Tamzen Stringham as a speaker was that West Vault and others have already been sponsoring research projects. The University of Reno is the obvious place to donate funds, but the problem is that 51% of earmarked donations disappear into the university's overhead coffers. The researchers have in response started to set up special foundations where the majority of donations goes into the proposed research. All of this is of great interest to the lithium claystone developers because they will be stripping overburden from vast areas to mine a lithium enriched horizon 20-40 m thick. Removing and stockpiling the overburden for replacement after completion of strip mining will be done, but this process does destroy the vegetation. New technologies that accelerate the growth of desirable plants at the expense of invasive cheatgrass would benefit everybody, including ranchers who do not in the long run benefit when grazing depletes desirable vegetation. We did not get any geology in the presentation but the ecology lesson was much appreciated by everybody. And from Sandy McVey's perspective, better re-vegetation strategies helps reduce the future reclamation cost and the institutional reluctance to permit open pit mines. Something that the anti-mining lobby does not seem to comprehend is that the mining industry has changed, that it understands the need to minimize the environmental impact and to plan for restoration when the mine is depleted. Former mining towns like Tonopah and Goldfield want mining to return to the Walker Lane to support their local economies.
Dr. Tamzen Stringham - Ecologist Researching Reclamation Strategies
Douglas "Stretch" Baker - Tonopah's Get Things Done Hero
Disclosure: JK does not own any of the companies mentioned; West Vault Mining is a Good Spec Value rated Favorite
