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 Mon Dec 19, 2022
Tracker: Speculative Value Rating for NioBay Metals Inc
    Publisher: Kaiser Research Online
    Author: Copyright 2022 John A. Kaiser

NioBay Metals Inc (NBY-V: $0.170)

Tracker - December 19, 2022: Speculative Value Rating for NioBay Metals Inc

NioBay Metals Inc was confirmed on November 28, 2022 with a Bottom-Fish Spec Value rating at $0.105 based mainly on its 100% ownership of the James Bay niobium deposit near Moosonee in northern Ontario. This deposit was discovered in the 1960s but never developed because of the remote location and the superior Niobec deposit in southern Quebec. Niobium supply is dominated by CBMM's giant Araxa deposit in Brazil which pursues a pricing policy that allows several standalone mines including Niobec to be profitable so that end-users are not exposed to an extreme single-point-of failure supply risk. Niobium is mainly used as an alloy in steel to add strength and corrosion resistance, but it may have a future as an anode input for the lithium ion battery. The James Bay project, acquired early 2016, was stalled until mid 2019 because the chief of the Moose Cree First Nation refused to engage in consultations with NioBay as required by Ontario's drill permitting process. She represented an anti-mining stance with an emphasis on traditional Indigenous activities such as hunting, fishing and trapping.

She was ousted in mid 2019 tribal council elections and replaced by a new chief who engaged with NioBay in a manner that would protect community interests. This allowed NioBay to conduct a drill program in 2020 to support an updated resource and delivery of a PEA in October 2020 for a 6,600 tpd open pit mining scenario. Open pit mining was chosen over underground mining because the Moosonee community members relished jobs operating equipment above ground rather than underground. At the base case price of $45/kg ferro-niobium James Bay has an after-tax NPV ranging from USD $638 million at 10% to $1.25 billion at 5% discount rates with an IRR of 30.4%. With CapEx at USD $393 million James Bay clears development hurdles. Based on 82 million shares fully diluted this represents a future price target in the $11-$22 range.

NioBay proceeded with PFS work which required additional drilling to upgrade the resource, but a warm winter in early 2021 and corners cut by a MCFN contractor prevented mobilization of a drill program. Anxiety about Covid prevented a summer drill program. The program was on track to begin in Q1 of 2022 but the anti-mining faction managed to pull the chief into a survey trap that split the community but resulted in a thumbs down to exploration activity in their backyard. NioBay, which has the Osisko group as a major shareholder and which has numerous projects in eastern Canada that require engagement with First Nations groups, decided to respect the community's wishes and suspended work. NioBay, which should be trading in the $2-$4 range if the PFS work were underway, slumped to bottom-fish levels as the market concluded that nothing would ever overcome the anti-mining opposition in Moosonee. With about $6 million working capital at the end of 2022 NioBay was mainly a contrarian bet on a turnaround in MCFN sentiment.

The stock began to rise off the bottom in mid December when NioBay announced it had drilled 10 holes for 4,000 m at the 72.5% owned Crevier project in Quebec, and that thin sections had confirmed the presence of niobium bearing minerals, including pyrochlore. The program was started in September after summer field work in the area surrounding the Main Zone, which is a 4 km syenite dyke discovered in 1975 and which has a resource of 25.4 million tonnes of 0.2% Nb2O5 and 234 ppm Ta2O5, revealed carbonate dykes and boulders in topographical lineaments parallel to the Main Zone up to 2 km to the west. Unlike the resistive syenite dyke which like a pegmatite is a hard rock, these lineaments were depressions that vegetation had previously obscured. The niobium grades were similar to that of the Main Zone, so the market paid no attention.

This prospecting work became possible because the area had recently been clearcut logged, and was pursued because CEO Jean-Sebastien David attempted a rethink of the project's potential. Crevier covers a 10 km by 4 km alkaline intrusive complex, a nepheline syenite body with a late stage syenite dyke that cuts through its long axis, averages 20 m wide and has been chased as deep as 500 m. Although the intrusion is described as having experienced injections of carbonatite, a much softer host rock than syenite, past exploration never encountered much niobium enriched carbonatite. JS David, however, wondered from where the syenite dyke harvested its niobium-tantalum payload, which is too low grade to be economic as NioBay demonstrated in 2009-2012. The initial holes stepping west and north of the dyke confirmed the presence of carbonatite style dykes, but hole #6, drilled under Lac Touladi revealed the hidden presence of a giant carbonatite body just 2 km west of the dyke which has received 105 drill holes since 1975. Three more holes drilled under the lake bottomed in carbonatite before snow ended the drill season.

Although an XRF unit indicates significant niobium content, the grade and distribution will require assays which are expected in January 2023. NioBay has lifted off the bottom because the market realizes that NioBay may not just be a long term bet that the James Bay niobium project will get back on track, but that Crevier may be a major emerging carbonatite hosted discovery with a scale that could rival Niobec located 150 km to the southeast. The project falls within the jurisdiction of the Pekuakamiulnuatsh First Nation which is already immersed in the economy of the Lac St. Jean and Saguenay region, very much unlike the Moose Cree First Nation. There are also no cottages in the area to oppose mining. NioBay has already initiated permitting for followup drilling in Q2 of 2023 if assays confirm a new niobium discovery. NioBay had hoped to acquire the 27.5% stake of Magris, which operates the Niobec Mine, but Magris, which has seen the core and data, has decided to keep its stake and pay its share. What started as a misguided effort in 2009 may deliver a moonshot for NioBay.

The core asset of NioBay is its 100% interest in the James Bay project which is located about 40 km from the town of Moosonee. A legitimate concern of the MCFN is the North French River watershed because unlike the muddy water of the Moose and Abitibi Rivers, the North French River and its tributaries have crystal clear water flow before draining into Moose River just south of Moosonee. Before NioBay acquired the James Bay project it confirmed that the deposit is outside the North French River watershed. The community is divided between members who desire a local economy with meaningful jobs and those who prefer a traditional lifestyle bankrolled by those with meaningful jobs elsewhere. Opposition to the James Bay project has to be overcome locally, so NioBay is pretty much powerless. The economic value of developing James Bay is evident in the DCF graphics for the James Bay project.

The above graphic presents the project in absolute after-tax net present value terms based on the PEA assumptions and calculated at various ferro-niobium prices. Unlike for most metals, a niobium project is not an opportunity for metal price speculation. CBMM can decrease the price by increasing production at Araxa, or increase it by curtailing production or refraining from expanding it to accommodate new demand arising from macroeconomic growth or new usages such as might happen if a niobium-titanium based anode becomes a commercial substitute for the graphite anode in a lithium ion battery. CBMM recognizes the world's growing aversion to single-point-of-failure risk, so pursues a policy of providing 80%-85% of global niobium supply. That creates room for other smaller and lower grade niobium deposits to be developed as mines. James Bay is a robust candidate for such a mine. The graphic below converts the above graphic into a CAD NPV per share basis so that one can see the impact on the stock price, subject to adjustment for dilution, if the project proceeds towards a production decision. A believable breakthrough in MCFN support for advancing would allow the project to be priced at 25% to 50% of the projected outcome value under the rational speculation model, which would be $2.75 if you adopt the pessimistic end by using 25% as the certainty and 10% as a discount rate, and $10.63 if you adopt an optimistic stance by using 50% as the certainty and a 5% discount rate.

The Crevier alkaline intrusive complex was recognized in 1975 by SOQUEM through an airborne radiometric survey. The so-called "Syenite Porphyry Dyke" was first drilled in 1976 and was delineated with a series of drill programs in each year until 1983 totaling 72 holes which led to a non 43-101 compliant resource of 15,838,000 tonnes of 0.204% Nb2O5 and 212 ppm Ta2O5. In 1980 a 100 tonne bulk sample was collected followed by a 1,000 tonne sample in 1983 for metallurgical testing by Lakefield. The Crevier project ended up in Cambior which SOQUEM spun out as a listed company in 1985 to hold its operating mines so that it could return to its mandate of exploration. In 1986 Cambior completed a feasibility study which concluded Crevier was sub-economic and shelved it until 1997-2000 when Soquem optioned it to explore for a phosphate deposit. In 2002 Cambior drilled 33 holes as part of a resource validation effort.

In 1967 SOQUEM had discovered the Niobec carbonatite 150 km to the southeast and in 1974 it optioned Niobec to Teck which brought Niobec into production in 1976. SOQUEM transferred its 50% stake to Cambior in 1986. Teck sold its stake in 2001 to Mazarin which Cambior acquired in 2004. Both the Crevier and Niobec projects ended up in IAMGOLD when it merged with Cambior in 2006. NioBay's predecessor MDN Inc acquired an option on April 14, 2009 to earn up to 75% of Crevier with the goal of demonstrating the feasibility of developing it as a tantalum-niobium mine. A PEA was published in January 2010 which envisioned a 2,740 tpd open-pit mining operation with CapEx of $267 million and OpEx of $39.85/t (CAD) which, using USD $51.50/kg niobium oxide and $150/kg for a potassium-tantalum-flouride product, generated an after-tax NPV (5% discount rate ) of $104 million and IRR of 7.7%, well below development hurdles. However, analysis showed that a recovery better than 70% and an operating rate up to 4,000 tpd could boost the economics, so NioBay continued to the PFS stage which included scaled up testing of the flow-sheet. In February 2012 NioBay suspended work when it became apparent that the bench scale flow-sheet assumptions were not holding up at pilot scale tests. Crevier has been in limbo since then while management looked at other potential processing technologies, though by 2016 the focus had shifted to the 100% optioned James Bay niobium deposit in northern Ontario.

Crevier is an alkaline intrusive complex that formed as a nepheline-biotite syenite that intruded Grenville country rock courtesy of major Saguenay Graben structures. As it settled it underwent injections of carbonatite and finally it was intruded by nepheline syentite dykes which formed pegmatic textures. Niobium is present in the form of the mineral pyrochlore within which the tantalum hides on a one to ten ratio. The Main Zone on which the resource is based dips to the north at 80-85 degrees.

The hard, outcropping dyke with large pegmatitic crystals received all the exploration attention. When NioBay's team went into the field this summer it was much easier to prospect to the west of the dyke which until recently was overgrown with trees that have since been logged. This allowed the crew to get intro creeks and other zones of weakness which revealed the presence of carbonate rocks that indicated something else, possibly predating the dyke emplacement, was going on. The initial 4 holes at the northern end of the dyke, east of which 4 planned holes ended up being cancelled, probably did not yield anything interesting. Hole 5, cutting across the creek, seems to have piqued the team's interest, leading to hole 6, a 600 m stepout to the west drilled under Lac Touladi. I'm not sure why hole 7 was drilled east of #5 towards the dyke, but holes 8-10 were all drilled under the lake, bottoming in carbonatite. The maximum vertical depth was about 350 m. The realization set in that the thin "carbonatite injections" observed during the syenite dyke delineation were squirts from a giant carbonatite hidden beneath Lac Touladi. The minimum dimensions are a strike of 2,000 m, a width of 200-400 m and a depth at least 350 m which at 2.6 specific gravity gives us an open pittable tonnage footprint range of 350-700 million tonnes which is ten times bigger than James Bay and on a par with Niobec. Of course at this point we have no idea how niobium grade will behave within this system, nor what niobium minerals are at play (the petrographic work indicates more than just pyrochlore, the only mineral that hosts niobium in the Main Zone). JS David has asked the lab to prioritize the four best holes which are likely #6 and #8-10.

NioBay initiated permitting for follow up drilling a couple months ago because the XRF guns were already telling the company that something bigger and better than the Main Zone was showing up in core. JS David contemplated pushing for a winter drill program but decided that such a tight deadline was too difficult to permit, and, that it made sense to wait for assays to confirm the discovery. The outcome will fall into three groups: 1) 0.3% Nb2O5 or less like the Main Zone and not interesting, 2) 0.3%-0.5% which is very interesting for an open-pit mining scenario and comparable to James Bay but with potentially much bigger scale, and, 3) greater than 0.5% NB2O5 indicating a major new niobium discovery in Canada.

*JK owns shares in NioBay Metals Inc


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