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Kaiser Media Watch Blog - April 1, 2023 to April 30, 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.


Posted: Apr 21, 2023JK: Kaiser Watch April 21, 2023 with Jim Goddard and John Kaiser
Published: Apr 21, 2023KRO: Kaiser Watch April 21, 2023: Chile makes the case for Lithium Mania 2.0
Kaiser Watch is a weekly 15-30 minute audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.

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Kaiser Watch April 21, 2023: Chile makes case for Lithium Mania 2.0
Jim (0:00:00): What does President Boric's plan for greater government involvement in Chile's lithium resources mean for Lithium Mania 2.0?

On April 21 Chile's president Gabriel Boric gave a televised speech in which he proposed a plan to give the government a dominant role in the future development of its lithium brine potential. This knocked 20% off the price of SQM and 10% off Albemarle which has the benefit of lithium supply from Australian hardrock mines. Boric's proposal requires a majority approval from Chile's congress in which Boric's party does not have a majority. The left wing extremists are calling for a full nationalization as Bolivia has done with its giant lithium salar which not surprisingly is going nowhere. Chile already controls the lithium resource and leases development rights, which is why Chile has been so slow ramping up output compared to Australia. Mexico nationalized its undeveloped lithium resources and these are now stuck in the mud. Boric's proposal is not as extreme as the lefties want. In the case of existing operations he proposes that Codelco, the national copper company, will negotiate a greater share of Chile's participation in existing contracts. Botswana is currently grinding De Beers for a greater government share of the diamond output. None of this affects existing supply, just lower profits for the producers like Albemarle and SQM.

The biggest threat is for the undeveloped salars whose mineral rights are now all owned by private parties. Boric proposes that Chile will have a majority stake in all such developments, but it is not clear if Chile will fund its share of CapEx while the private party operates the development and mine. Zimbabwe's autocrat Robert Mugabe introduced a rule that the state owned a majority carried interest with the private sector at 49% or less footing all costs and absorbing all risks. Needless to say Zimbabwe sat out the multi-decade global exploration and development boom after the collapse of the Soviet Union in 1991. Boric may have to avoid the Mugabe approach if he is to get congressional approval. Some juniors with Chilean brine projects have hailed this development which could unjam the process by which Chile grants production leases. Much will depend on how heavy a state share Boric secures. Chile's slowness in expanding lithium supply compared to Australia testifies to this problem which is hurting juniors.

Boric is hitting the right notes in his play to swing a majority to his vision. There is general opposition to the evaporation method because of the way it makes water disappear permanently in a worsening climate change trend that is not channeling atmospheric rivers at the Lithium Triangle and gradually diminishing the Andes snow-pack that sustains community water needs. The push will be for DLE processes which shorten the production timeline but increase the extraction cost. While Boric does not have a party majority, the way he has presented the plan could secure a majority vote because it would give Chile more effective control over lithium production, especially with regard to the goal of developing downstream processing capacity while putting the brakes on environmental opposition. All of this is good news for pegmatite hardrock miners and developers because we know that when the government has a majority stake in everything, especially if it turns out to be a carried interest, NOTHING WILL HAPPEN!

Bolivia already owns its giant lithium salar and so far its negotiations with the Chinese and Russians have not mobilized lithium supply. Argentina is letting a laissez-faire process develop its salars, which is why work on Argentine brine projects is humming right now, though Argentina can still adopt wonky policies like when Mendoza decided to ban cyanide from mineral extraction processes. Lithium Mania 2.0 benefits hugely if Boric gets his way in the manner his extreme left flank demands because end-users will embrace hardrock lithium supply in places like Australia and Canada where nationalization is unlikely. Lithium Mania 2.0 is premised on supplying from pegmatite in safe jurisdictions beyond Australia the second half of the 600% expansion of lithium supply the IEA projects is needed to meet 2030 transition energy policy goals. Hamstringing brine sourced lithium supply will boost the urgency of Lithium Mania 2.0. This development may also nudge Albemarle into getting serious about acquiring Liontown and its Kathleen Valley pegmatite project before somebody else does.

Albemarle Corp (ALB-N)






Unrated Spec Value
Salar de Atacama Chile - Other 9-Production Li
Liontown Resources Ltd (LTR-ASX)






Unrated Spec Value
Kathleen Valley Australia - Western Australia 8-Construction Li Ta

Comparison of Australia and Chile Supply Response
Jim (0:07:37): Why did the market react negatively to Brunswick's Anatacau West update?

Brunswick Exploration Inc provided an update on April 20 which confirmed that the Galaxy-Cyr system of northeast striking en echelon lithium enriched pegmatite dykes continues at least 300 metres onto the Anatacau West project at the eastern end of Allkem's Galaxy project. Brunswick drilled 18 holes for 3,712 m of which 17 intersected spodumene bearing pegmatite within 200 m of the surface. Two of the pegmatite dykes have a strike of 250 m. The dykes dip steeply to the west and were tested with 45° angled holes so the true width will be about 45% of reported intervals of which the best was 32.9 m or about 23 m true width. Most of the holes yielded 5-32.9 m intervals of 10%-15% visible spodumene which would be 71% of true width. Some holes had multiple pegmatite intervals as they passed through several of the NNE oriented dykes.

To quantify what Brunswick has outlined let's assume two sets of pegmatite dykes striking over 250 m and persisting to a vertical depth of 200. Let's assume the near vertical dip is correct and assume an average intersected thickness of 15 m which we adjust to a true width of 10 m. Using a 2.6 specific gravity we can ballpark a tonnage footprint of 250 m x 10 m x 200 m x 2.6 at 1.3 million tonne per dyke or 2.6 million tonnes. Assays are pending but because this is an extension of the Galaxy-Cyr system it is reasonable to expect grades of 1.3%-1.4% Li2O. This is not a huge amount, but the Anatacau West claim block has an east-west extent of 4-5 km, somewhat smaller than the 6 km east-west extent of Allkem's James Bay claim block. Brunswick has stated that it will not do any further drilling but will investigate the eastern untested 90% of the Anatacau West claim block. However, Google Earth shows that this area is bog covered with no apparent outcrop compared to the main Galaxy-Cyr deposit Allkem is developing. So is the eastern extent of Allkem's own claim block which is not included in the mining reserve and which it has been delineating this winter. I've mocked up the approximate claim locations on a Google Earth screenshot so that it is easier to see the big picture context. Allkem and Brunswick have both been very penurious about providing graphics that are not just closeups within their claim boundaries.

So what does Allkem already have relative to what Brunswick has started to show on its side of the claim boundary? On December 21, 2021 Allkem published a feasibility study for a 2 million tpa (5,500 tpd) operation that would mine a probable reserve of 37,207,000 tonnes of 1.3% Li2O over a 19 year mine life. Open pit mining would involve a 3.5:1 stripping ratio. Although the plant will be designed to produce a 6% Li2O spodumene concentrate Allkem settled on a flowsheet to produce a 5.6% concentrate for which it used a USD $1,001/t base case price that yielded an after-tax NPV of USD $823 million at 8% discount rate with an IRR of 35.2%. Given the CapEx of $286 million the feasibility study outcome handily cleared all development hurdles, more so given that in 2022 the price of spodumene concentrate exceeded $5,000/t.

Assuming Brunswick's assays are similar to the Allkem reserve, Brunswick has indicated potential that is less than 10% of what Allkem already has and currently plans to spend 19 years mining though obviously, if lithium demand does grow as projected by the IEA and prices remain somewhere between Allkem's base case price and the peak achieved in 2022, the James Bay facility's capacity will be expanded. What is this potentially worth to Allkem? What is it worth to Brunswick. To some degree the market yawned at the results because by itself what Brunswick has intersected is not worth anything. Perhaps the system continues another 4 km to the east under the swamp cover, but Brunswick has stated that chasing this potential is not a priority given all the other LCT style pegmatite prospects it has generated in Canada.

The real value of the Anatacau West drilling is that it shows Allkem its Galaxy-Cyr pegmatite system does continue sufficiently onto Brunswick's ground to make it worthwhile acquiring. But since Allkem might not need to mine Brunswick's resource, why might it not just wait and acquire the claims many years down the road when they come open or the juniors has been rolled back severely and is pivoting to chase a future ambulance like will be the case with most of the juniors staking or acquiring land in the James Bay region? Allkem might prefer not to wait because Brunswick's strategy gives it a serious shot at becoming a multi-billion dollar lithium company, and when that happens selling Anatacau West will not be a Brunswick priority. But if Allkem makes a multi-million dollar offer soon, this would be a non-dilutionary financing for Brunswick while it is just getting started with its drill to kill exploration strategy. With an initial $500,000 drilling expense investment, any multiple of that amount would be good news for Brunswick. Both sides have incentive to do a deal sooner than later on terms that are beneficial for both. But we do need to wait for assays which probably won't arrive until June.

This analysis may explain why the Anatacau West news did not make the stock price take off, but it does not explain why it went down that day. The simplest answer is what was missing from the Anatacau West news release, namely an update on what Brunswick's team has discovered in the Plex core shack where the core from Virginia's 2005-2010 drilling of the Orfee gold zone is stored. The drill logs indicate broad intervals of pegmatite which have minimal visual descriptions and were not assayed because at the time lithium was a $200 million annual market which was supplied by Greenbushes and the Chilean brines. All Canadian pegmatites that didn't look like Greenbushes were worthless and just a curiousity to document for the academic geological community.

Brunswick has had a team at the core shock relogging the core, shooting it with an XRF gun to see if any of the LCT pathfinders like rubidium are present, and looking for visual evidence of spodumene crystals as was done with the Anatacau West core. By now Brunswick will know if the Plex core represents evidence of a major Corvette style discovery made nearly two decades ago. If the answer is yes the company would be in a position to mobilize a drill program in June to properly delineate the pegmatite portion of the Orfee area. Given that management knew Anatacau West was nothing more than low hanging fruit it could perhaps convert into a $5 million cash windfall with a $500,000 drill program, it would make sense that it would bundle good news about Plex with this week's news release. The stock went down because there was no mention of the Plex core shack investigation and the market concluded that the potential for Plex to deliver a Corvette equivalent will require a summer field season of boots on the ground.

Brunswick is planning to mobilize a drill program for the Hearst project in Ontario this weekend where it plans a 1,000 m drill program. That is not much but the pegmatite outcrop that sports visual spodumene has a strike of only 65 m with the rest covered by overburden and bush. A program of this scale is enough to make or break the Hearst pegmatite as a discovery with sufficient scale to justify delineation drilling. If the drilling gets underway this weekend we will get a press release next week which hopefully includes an official update about the Plex core shack investigation so that we can get any further disappointment driven market reaction out of the way. When I talked with Brunswick's Killian Charles he was brimming with excitement about the upcoming Hanson Lake drill program. Brunswick will be on the property in early May and has lined up a drill program to test the outcropping pegmatite bodies which archival research indicates have visual spodumene but have never been systematically sampled, let alone drilled. At the moment Saskatchewan is perceived as a LCT pegmatite also-ran relative to Quebec, Ontario and Manitoba, but Brunswick's drilling could put Saskatchewan on everybody's Lithium Mania 2.0 radar. Goose hunting season began in the James Bay area on April 20 and will run until late May, which is also the nasty spring thaw period. Brunswick and all the serious juniors are now making plans to put boots on the ground on June 1 for what may be the most intensive prospecting season the James Bay region has ever experienced.

Brunswick Exploration Inc (BRW-V)





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

Brunswick's Anatacau West Project

Mockup showing relative locations of the pegmatite trend on the claism of Allkem and Brunswick

Drill to Kill Hearst, Drill to Make Hanson
Jim (0:15:23): What did NioBay's initial results for Crevier reveal?

NioBay Metals Inc saw its stock price collapse back into the $0.10-$0.12 range when it released results for 3 holes from the Crevier niobium project in Quebec. The first hole was in the vicinity of the Main Zone and yielded similar niobium grades below 0.2% Nb2O5. The big disappointment was the results for hole #6 and partial results for #9, both drilled under Lac Touladi to the west of the Main Zone. The Main Zone is a late stage nepheline syenite dyke that has about 40 million tonnes of low grade niobium and tantalum that has been the focus of exploration since 1975. CEO JS David undertook a drill program in 2022 to see if there was more to this intrusive complex than the Main Zone dyke. Clearcut logging had exposed the area to the west, so the NioBay team headed west. The Main Zone's host rock is resistive so it outcrops along much of its linear strike.

Hole #6 was a surprise because it encountered a large body of carbonatite beneath Lac Touladi. Carbonatite is the host for the Niobec Mine to the southeast of Crevier, and because it is a softer rock tends to weather recessively unlike harder pegmatite and syenite bodies. The former develops a gouged out hollow lake or swamp fills, while the latter emerge as prominent bush and mosquito free ridges. The first is a horror for geologists to prospect, the latter a joy. The large volume of carbonatite rock intersected by #6 had never been observed at Crevier and this got JS David sufficiently excited to conduct a thin section study which confirmed that some of the samples had pyrochlore present, the key niobium mineral. NioBay drilled holes #8-10 under Lac Touladi, establishing a 500 million tonne plus carbonatite footprint.

Although NioBay was a bottom-fish junior whose missing piece was a social license for its James Bay niobium deposit near Moosonee, the tantalizing Lac Touladi intersections prompted me to make NioBay a Fair Spec Value rated 2023 Favorite. Had Lac Touladi been hiding a giant niobium enriched carbonatite while companies focused on the outcropping Main Zone with the mediocre niobium grade? In mid February NioBay got assays but they were all over the place, including some very high niobium values which made no sense in terms of sample visuals, so JS David concluded that something had gone wrong at the lab which was instructed to redo assays with new splits from the sample bags.

Well this time around the results came back as expected for hole #1, but for the Lac Touladi holes they were an all out bust as far as niobium is concerned. For hole #6 there were only a few 1 m intervals with niobium values and they were only 0.1% Nb2O5. The assays did yield rare earth values, which you might expect for a carbonatite, but they were between 0.1%-0.2%, well below the commercial threshold. Only a third of hole #9 was reported. Since it is reasonable to assume that the best looking holes were prioritized for assaying, there isn't much reason to hold one's breath for holes #8 and 10, also drilled under Lac Touladi. This is a huge disappointment given how enthusiastic the CEO was about Crevier which sucked up over $2 million in expenses in 2022. The press release was short on geological context but mumbled about tantalum, which was the reason NioBay's predecessor thought it could make a go of Crevier more than a decade ago.

The reality of tantalum is that this critical ingredient for capacitors in cell phones has an annual supply of 2,000 tonnes worth less than $500 million and 68% of which comes from artisanal workings in conflict mineral places like Congo, Rwanda, Nigeria and Burundi, while 21.4% comes from hardrock mines in Brazil and Australia. The rest comes from other environmental shit-holes or geopolitical nightmare countries. But that doesn't matter because when anti-mining lobbyists descend upon the poor town of Moosonee in the James Bay Lowlands to coordinate MCFN opposition to development of the James Bay niobium deposit with the help of their cell phones, they couldn't give a damn about the misery created to make available the tantalum inputs. Why not? Because they probably realize that when all these LCT enriched pegmatites come on stream to feed the EV deployment goals of the energy transition, so much by-product tantalum will result that the conflict zone supply will vanish because it will no longer be profitable for the warlords to feed the cell phone market. Only NioBay's CEO doesn't seem to understand that tantalum is a non-starter.

The odd thing about NioBay was that since mid February the CEO has been buying stock in the open market all the way up to $0.20. Even after the stock crapped out he was still buying stock. He is either a genius or a fool and the market has concluded the latter. Where to from here? The CEO had said he wanted to drill more holes under Lac Touladi in the summer and even did a benefits agreement with the local First Nations group, but with only $4.5 million working capital left I suspect NioBay's board may not approve further work at Crevier in light of the dismal results. There may be high grade zones within the Lac Toulad carbonatite that detailed drilling may coax into view, but for now the future of NioBay hinges on the outcome of the MCFN General Election in Moosonee which will establish the chief and 12 tribal councillors for the next 4 years. The James Bay niobium project is ready to go to the PFS stage, but because Chief Marven Cheechoo let an informal survey be done which resulted in more participants saying no than yes to advancing James Bay, NioBay suspended work in early 2022. The Cree people in the James Bay Lowlands area of Ontario appear to be different from the Cree in Quebec who appear eager to benefit from Quebec's James Bay lithium boom. Unless JS David can reveal a story about Crevier's carbonatite potential that s not eveident in the disclosures so far, NioBay will be hard for investors to get excited about.

NioBay Metals Inc (NBY-V)





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

Tantalum Supply Evolution Chart

Tanatum Supply in 2022
Jim (0:22:14): What caused Tower's stock price to plunge two-thirds this week?

The market reacted very negatively to news from Tower Resources Ltd that hole #42 had completely missed the orogenic gold Thunder Zone. The market had already cooled after they published the results for hole #41 on April 5, and dropped into the $0.30-$0.35 range after I posted the April 6 Kaiser Watch episode in which I highlighted that the original story we heard on March 1 was no longer so straightforward. What I provided was a geological context to make sense of what we might expect from the steeper hole #42 drilled beneath hole #41 whose gold intervals were somewhat less than what the market was expecting. The initial market excitement was based on Stu Averill's enthusiasm about the sulphide content of the holes into the Thunder Zone, the hitherto unexplained Central gold-in-till train, and the presence of a shear structure that would serve as a good sponge for soaking gold from orogenic fluid flow. A key part of the story was a 130 m interval of promising mineralization and the observation that the system was blossoming at depth, that the Thunder Zone appeared sub-vertical, and that hole #42 would deliver a juicy gold interval.

On April 20 Tower released the results for hole #42 which had no meaningful gold interval. The press release included a new section which explained the absence of an orogenic gold interval through a reinterpretation of the Thunder Zone from being sub-vertical to having a 70° eastward dip. This meant that the 480 m 65° angled hole #42 had no chance of reaching the Thunder Zone. Whether this new interpretation is correct or not will have to be tested with holes drilled on the eastern side of the Thunder Zone in a westward direction. But the consequence of this new interpretation which the new section provided by Tower makes clear is that the Thunder Zone is not very wide. What hole #42 did intersect where we expected the Thunder Zone to be present as a series of short low grade copper-molybdenum-gold intervals which represented mineralization from the older 210 million year old porphyry system. There was lots of sulphide, but it was in the form of pyrite and unrelated to the sulphides associated with the orogenic system that exploited structures 60 million years after the porphyry system developed. Averill has come to the conclusion that when copper sulphides are present the drill is not intersecting the younger orogenic gold system. The market punished the stock because the Thunder Zone gold discovery had shrunk into a long shot requiring further drilling, in effect a repeat of last year's Lightning experience.

What the market has overlooked is that hole #42 provided further evidence that Tower may be on the eastern edge of a major new copper-gold system. The surprise in hole #41 was the the 36 m interval of 0.19% copper and 0.34 g/t gold with a trace of molybdenum which Tower calls the Rainbow Zone. It begins at a vertical depth of about 50 m, and much to Averill's surprise was covered by a thin veneer of the much younger Chilcotin basalt lava which is barren and consequently obscures the older rocks with porphyry or orogenic potential. Hole #42 encountered the Rainbow Zone at the same vertical depth and yielded 72.4 m of 0.27% copper and 0.4 g/t gold, both higher grade than the #41 interval. Even the molybdenum grade increased. When I talked to Stu Averill in March he was generally dismissive about the older copper porphyry potential, but when the #41 results came out with the Rainbow surprise and we discussed it, his attitude had changed.

Five decades of porphyry exploration has focused on the Durand Stock and its northern flank. The western flank has been ignored because soil sampling yielded no geochemical joy and neither did sparse outcrops. The area was mapped as volcanics, but the latest map from Tower shows basalt as the cover rock. The Rainbow Zone may be the edge of a copper-gold porphyry system within open-pittable reach of the surface that has eluded past discovery because it is blind. The amount of sulphide with anomalous copper and gold in the vicinity of the Durand stock indicates a powerful system. Perhaps an Afton style heart with similar scale is present on the western flank of the Durand Stock. The scale of the orogenic Thunder Zone story has shrunk, but its pursuit may have revealed a substantially bigger scale emerging copper-gold discovery in a very good location for future development. Why the harsh market reaction? Speculators do not like it when a story on which they had pinned high hopes vanishes. But their violent departure creates an opportunity for bottom-fishers. Joe Dhami and Stu Averill have their work cut out rebuilding the support of a retail audience that orbits inside social media forums. Ironically, the majors, who in 2020 told Joe Dhami to gather up some additional geochemical data if Tower wants them to seriously consider a Rabbit North farm-in deal, are probably now knocking on Tower's door. And while Stu Averill is probably right now dodging flying tomatoes which were originally aimed at John Kaiser, the decision to bring him and his till sampling method to bear at Rabbit North may have revealed an extraordinary upside potential that Stu did not anticipate, but because he is the type of geologist who follows the data, he will suck up the Thunder Zone fizzle and embrace the Rainbow Zone. Enough of thunder and lightning; bring on the rainbow and damn the tomatoes!

Tower Resources Ltd (TWR-V)






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

Section for Holes #41 & #42 at Rabbit North

Illustrating the part of Rabbit North with little exploration that may hst a major Cu-Au deposit
Disclosure: JK owns shares of Brunswick and NioBay; Brunswick and NioBay are Fair Spec Value rated Favorites; Tower is Bottom-Fish Spec Value rated

Posted: Apr 14, 2023JK: Kaiser Watch April 14, 2023 with Jim Goddard and John Kaiser
Published: Apr 14, 2023KRO: Kaiser Watch April 14, 2023: $2,000 still a ceiling or a new base for gold?
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.

Podcast Download

Kaiser Watch April 14, 2023: $2,000 still a ceiling or a new base for gold?
Jim (0:00:00): Will $2,000 become the new base for gold or remain a ceiling it never really breaks through?

Gold managed to spend the past week above $2,000, injecting life into resource juniors across the board whether focused on gold or other metals. But the market interest remains fickle, especially among retail investors who lack conviction that gold will undergo a sustained rally beyond $2,000, which, when it eventually stalls, will not crash back through $2,000 and plumb the $1,700-$1,800 per oz range. One cannot blame retail investors for viewing $2,000 as a ceiling for gold rather than soon to become a base for gold as speculation shifts to $3,000 as the next target. When the reality of covid hit in March 2020 and the Federal Reserve unleashed massive quantitative easing to prevent an economic free fall into a depression, retail piled into gold which rallied above $2,000 before stalling in September 2020. When Russia invaded Ukraine in late February retail piled into gold once again, but got blindsided when the Federal Reserve began its rapid interest rate increases to tame inflation that had become persistent rather than just a temporary supply-chain related problem.

Since then there has been a trend of declining gold holdings for the World Gold Council backed GLD ETF which has a mechanism in place that allows a dozen or so designated bankers to either submit physical gold in exchange for GLD paper or submit GLD paper in exchange for physical gold. Initially established as representing one tenth of an ounce of gold, a GLD share is less these days because of administrative costs, but the bankers know exactly how much gold a GLD share represents and engage in arbitrage activities between the bullion and GLD ETF markets. When there is great GLD demand that results in premium pricing relative to physical gold, the bankers short the GLD and buy physical gold to capture the margin. When there is GLD selling pressure the bankers buy GLD paper and short physical gold in the bullion market. When either GLD trend persists, the bankers unwind their short position by either delivering GLD paper to the ETF in exchange for physical gold which they use to cover their physical short position, or deliver physical gold to the ETF which prints GLD paper in exchange.

A chart tracking the holdings and daily volume of the GLD ETF does not tell us about retail investor sentiment towards gold because the trading activity includes lots of institutional and hedge fund activity. This activity does not tend to cause GLD gold to trade at a premium or discount to the physical gold market price because it is driven by complex hedging strategies rather than sentiment. Premium or discount pricing tends to happen when retail investors chase gold because there is some big picture story such as covid and its money printing narrative or the Ukraine invasion with its geopolitical narrative dominating the media. When these stories wane retail loses interest and exits its GLD positions. For this reason I also have a second chart which plots the daily change in the GLD RTF gold holdings. The daily changes do not reflect what happened that day because the bankers unwind their GLD long or short positions in batches after they were put on, but the daily holding changes do reveal what was going on with retail sentiment around that time. It is especially useful in showing the duration of retail sentiment in the form of long periods of daily decreases or increases in gold holdings.

I have provided a long term chart of daily GLD holding changes since the GLD ETF's inception to show all past waves of positive and negative retail sentiment, and a short term chart starting with 2018 the provides greater granularity for daily gold holding changes. Just to make it easier for everybody I've circled in red the three key period of positive retail sentiment. The first was in Q2-Q3 of 2020 when the covid pandemic was breaking out. The inflow of gold tracked an uptrend in the price of gold which ended when gold's rally above $2,000 stalled and gold retreated below $2,000. Gold sentiment was weak during 2021 because other themes attracted retail, such as crypto-currencies, meme stocks like Gamestop, energy transition stocks like Tesla, and social media technology.

The next wave of retail interest emerged in Q1-Q2 of 2022 when Russia invaded Ukraine and geopolitical risk dominated the media. Once again retail interest tracked an uptrend in gold which breached $2,000 briefly, confirming once again $2,000 as a ceiling for gold. Retail interest vanished when Federal Reserve Chairman Jerome Powell started increasing interest rates which delivered losses across the board to bond and equity positions. The prospect of a Volcker style shock therapy to tame inflation by inducing a recession dampened retail enthusiasm for gold. The most recent spike in retail gold interest came in March 2023 when Silicon Valley Bank failed, followed by two more regional banks in the United States and Credit Suisse in Switzerland which UBS was forced to absorb.

The SVB bank failure turned into a major learning moment for retail investors when it was explained that while banks deposits are supposed to be available on demand, the cash in fact gets either loaned out or invested in bonds offer a spread between what the bank has to pay the depositor, which until recently has been next to nothing, and what it gets from its loans and bond investments. The arbitrary $250,000 guaranteed amount for a depositor is not a problem for most people, while the rest are smart enough have their surplus savings parked in money market funds. It is a problem, however, for businesses which have to keep a lot more cash on hand to pay for business and payroll expenses, and this turned into a huge problem for the startups that banked at SVB. The government stepped in to stop the contagion by effectively suspending the $250,000 guaranteed cap, but there is still a bank run underway whereby money is being pulled from regional banks and either moved into larger "too big to fail" banks or into money market funds.

The problem is not so much that the banks have their clients' money parked in junk bonds, but more so that they put deposits into long dated T-Bills like the 10 year which in mid 2021 was yielding 1.45% versus 0.04% (next to nothing) for 3 month T-Bills (basically what money market funds yield). Today the 3 month is yielding 5.1% while the 10 year is yielding 3.45%. Because the value of a bond is inversely related to its yield, SVB suffered paper losses on its long duration T-Bill investments. Bank depositors who for a decade received near nothing from their savings deposits are now taking revenge by chasing the higher yield which has almost no paper loss risk because it has such a short term to maturity.

Although there was a flurry of interest in GLD in early March that saw the ETF gain 743,711 ounces from March 13-29 when gold was at $1,965, it has as of April 14 since then lost 560,222 ounces even as gold peaked at $2,048 on April 13. In fact, since gold bottomed at $1,634 on September 27, 2022 the GLD ETF has lost 422,396 ounces of gold even though gold has rallied 25% to its recent peak. There is a stealth gold bull market underway in which the retail investor is not participating. You can see this clearly in the recent flat pattern of the long term GLD holdings chart. The demand driving up the price of gold is coming in the bullion market. Why is there such strong non-retail interest in gold? One explanation is that autocracies thinking hard about the weaponization of the US dollar interfering with their trade are relying more on gold in addition to trying to trade in their partners' currencies. Another may be big money hedging against a hard landing that could trigger a landslide of bank failures in the United States.

And yet another could be the need to raise the US debt ceiling in order to prevent a default. The debt ceiling is an artificial construct which needs to be raised periodically so that spending commitments already approved by Congress can be fulfilled. When the Tea Party Congress used the debt ceiling limit as a tool to blackmail the Obama administration in 2011 with the threat of default by the United States, Obama capitulated and we ended up with a decade of stagnant growth that helped Trump come to power. Trump promptly cranked up the national debt through tax cuts funded by imaginary trickle down theories. Fooled once, Biden will not be fooled twice, and has declared he will not negotiate with the Republican House in order to prevent a default. Even if the Republican House caves in the face of public rage, the inherent nihilism is not going to disappear. $2,000 is destined to become the new base for gold rather than its ceiling. Once the general public comes to believe this we will see a bull market for resource juniors get underway. The key, however, to such a bull market is that the United States, although losing its status as the sole hegemon, does so slowly rather than catastrophically, which will allow gold to rise in real price terms that justifies investing capital exploring for gold deposits and putting ounces in the ground into production.


Daily Trading Volume and Gold Goldings for GLD ETF

Long Term Chart of Daily Gold Holding Changes for GLD ETF

5 year chart for Daily Gold Holding Changes for GLD ETF

Long Term Chart of 3 mth and 10 year T-Bill Rates

Tracking the Real Price Gain History of Gold since 1980
Jim (0:12:19): Which of your 2023 Favorites is the best proxy for gold?

West Vault Mining Inc was made a Good Speculative Value rated KRO Favorite on April 13, 2023 because it is an excellent leveraged proxy for the idea that $2,000 will soon become the base for gold rather than the ceiling it either bumps up against or briefly punches through before retreating to $1,700-$1,800. Last year I had Perpetua Gold Corp as an equivalent proxy for gold establishing a new real high gold price, but demoted it to a Bottom-Fish Spec Value rating at the end of 2022 because of two uncertainties: when will it get off the perpetual permitting treadmill and what will the feasibility study look like after it is updated to reflect the recent cost inflation and whatever changes needed to be made to secure mine approval. My own 20% escalation of CapEx and OpEx applied to the FS model indicated Stibnite will need $2,000 gold to clear key IRR (minimum 15%) and after-tax NPV (equal or higher than CapEx) development hurdles. Given a cycle of gold only temporarily breaching $2,000 Perpetua was no longer a good leveraged proxy for gold at the end of 2022. The permitting process has proceeded beyond the comment period and the stock has responded positively to gold's latest rally above $2,000, but an updated feasibility study is still missing. Furthermore, the large scale of Stibnite and the need for an autoclave to process the refractory ore limits the field of gold producers that might be interested in acquiring Perpetua and developing Stibite, which could hamper the stock's ability to serve as a proxy for gold once a permit is in hand and the feasibility study has been updated.

West Vault already has the key permits in place for developing the Hasbrouck project south of Tonopah in Nevada as two sequentially open pit mined and heap leached gold deposits, and in January 2023 the junior updated the PFS it had delivered in 2016. The reserve numbers are done in the imperial system (short tons and oz per ton) to which the United States clings even though there is much hand-wringing about the math and science competence of Americans which adoption of the metric system would improve. For those who have adapted to thinking about the mining sector in metric terms the total Hasbrouck proven and probable reserve of 44,023,000 tons at 0.017 opt gold is equivalent to 39,936,961 tonnes at 0.58 g/tonne. Tracker April 13, 2023, which is unrestricted because West Vault is a 2023 Favorite, provides an overview of the story and how to treat West Vault as a leveraged proxy for gold.

Since acquiring Hasbrouck in 2014 West Vault has invested $48 million in both acquisition and feasibility demonstration costs. At 60.2 million fully diluted and $1.02 stock price the 100% owned project is valued at $61 million, a mere 27% premium above sunk costs. Three key shareholders led by Peter Palmedo's Sun Valley Gold own 68% of the stock. Nobody seems to have made any money West Vault, which underwent a 10:1 rollback in 2020. The company's stated plan is to treat Hasbrouck as an ounce in the ground gold vault, spending no additional capital on exploration, nor acquiring other projects. The goal is to wait for a mid tier producer to acquire West Vault at fair value. With $4 million working capital West Vault can survive for 4-5 years doing nothing before needing to replenish the treasury with additional equity dilution. A problem with a junior like Perpetua is that the company repeatedly has to refinance, diluting the company at prices which reflect market skepticism that a permit will ever be granted. The absence of equity dilution risk makes West Vault a very good proxy for gold.

Based on the updated PFS which used $1,790/oz as a base case price the stock should be trading in the $1.50-$2.00 to represent fair speculative value, higher if you believe $2,000 is becoming the new base for gold with inflation not getting out of hand. The stock, however, is ignored by the market, perhaps because the 71,000 oz per year output with an 8 year mine life is seen as too small. However, West Vault has left resource expansion potential within the existing property open, and there may be exploration potential to the east which a future acquiror of Hasbrouck may be able to consolidate. The market's unwillingness to assign a higher value to West Vault has prompted the junior to mount a normal course issuer bid to buy up to 2.9 million shares per year. I am not a big fan of juniors using scarce capital to buy their own stock while claiming it is under-valued; that money is better spent on marketing the story to a broader audience.

I have dumped the PFS data into my own DCF model which emulates the ore mining schedule and depreciation-depletion schedules as closely as possible. The result at the base case prices is about 10% lower than the PFS IRR and NPV figures, possibly because I am not including tax pools related to the sunk cost. But it is close enough to serve as a tool to see what happens at different gold prices while keeping the silver base case price of $22.50/oz constant. One chart shows how after-tax NPV in USD behaves at both 5% and 10% discount rates all the way to $3,000 per oz. Using higher gold prices is not worth the bother because circumstances that allow such a price increase likely involve significant cost inflation, which makes a DCF model that keeps costs fixed an inappropriate tool. The second chart converts the USD NPV into CAD and presents it on a per fully diluted share basis. These figures would decline if the Canadian dollar soars against the US dollar, which we did see in 2007 and 2011 when CAD achieved parity with USD and even was worth more for a short period. If the Republican Party refuses to increase the debt ceiling in 2023 this might happen again, though the decline of the USD against CAD will likely be more than offset by a substantial surge in the price of gold. The key reason to use these charts to figure out where West Vault could trade is the fact that fully diluted is unlikely to change over the next few years.

It is important to keep in mind that under the rational speculation model a project at the permitting-feasibility stage should be priced at 50%-75% of its indicated after tax NPV. However, if the metal is in an uptrend which the market believes is establishing a new pricing reality, such as we witnessed with base metals during the China super cycle of the 2000s, the market will not stick to rational valuation metrics. West Vault offers Good Speculative Value because the market does not believe $2,000 will become the new base for gold rather than its ceiling.

West Vault Mining Inc (WVM-V)





Favorite
Good Spec Value
Hasbrouck United States - Nevada 7-Permitting & Feasibility Au Ag

Maps showing location of West Vault's Hasbrouck Project

Maps showing Expansion Potential at Three Hills and Hasbrouck Deposits

Hasbrouck AT NPV Sensitivity to Gold Price

Hasbrouck CAD AT NPV per share Sensitivity to Gold Price
Jim (0:24:34): While yellow gold struggles to make $2,000 its new base, how far will white gold fall before it hits bottom?

The plunge in the price of lithium carbonate has accelerated in recent weeks like that of a bungee jumper who has not yet reached the point where the bungee rope begins to stretch to slow the fall. At $12.32/lb on April 14, 2023 the price is approaching the lower end of the $10-$15/lb range where lithium prices need to be in order to mobilize the supply required to fulfill the 2030 goals for the energy transition. Oddly, since Liontown Resource Ltd revealed that Albemarle had offered AUD $2.50 per share or AUD $5.5 billion on unacceptable conditional terms rejected by Liontown, the stock has risen to the $2.70 level.

The question now mesmerizing the market is whether the lithium price free-fall will result in a kersplat below $3/lb as it did in 2018-2020 in the wake of Lithium Mania 1.0 which got underway in 2015, or reach a limit around $10 and rebound in the manner of a bungee jumper whose rope stretched just enough to prevent smashing into a dry riverbed. Lithium Mania 2.0, which is the scramble outside Australia to identify and acquire potential lithium enriched pegmatites that could feed the second half the projected 600% supply expansion required for 2030 EV goals, is still active at the corporate level, though investors have paused, wondering if this will be a bust as it was in 2018-2020.

The $30-$35/lb range in which Lithium carbonate spent 2022 was never a sustainable price range, and most lithium supply delivered in 2022 was done at much lower prices contracted earlier. But contracts were running out, and as the Australian producers expanded output, the question emerged as to what should long term contract prices be set at? Doing them substantially lower than spot prices would not sit well with shareholders, and while the battery and car makers can eat the spot price of procuring their marginal needs, doing long term contracts at the 2022 elevated prices was not good for the business model, nor for policy goals whose actualization do require the future price of EVs to be within reach of the masses.

In early December when lithium carbonate was still at $36/lb I started reading in one of the daily metals publications to which I subscribe about how there was developing weakness in demand for lithium carbonate. This became a drumbeat that seemed to precede declines. There was all this talk about Q1 being a slow period for EV construction. In China there was the disappearance of EV subsidies to worry about. And there was hand-wringing about a weak Chinese economic rebound after scrapping the zero-covid policy. The rising interest rates in the rest of the world created talk about hard landings and recessions on the horizon. This narrative also applied to the magnet rare earths for which demand had also softened, both for the light rare earths neodymium and praseodymium, and the heavy rare earths dysprosium and terbium. And yet there were all these announcements about new battery factory plans everywhere including in China. And then in mid April we started hearing how Chinese exports in Q1 of 2023 were up smartly. And maybe the Chinese economy was rebounding quite well from zero-covid whose immediate after-math had to be shrouded in secrecy to prevent Xi Jinping from getting flack over all the covid deaths that happened since the end of zero-covid.

Was there perhaps a collective decision by end users to stand back and draw down their inventory so as to take some air out of the lithium carbonate price? While the big producers like Pilbara and Albemarle would have liked to continue to collect windfall revenues from elevated lithium prices, it really was not in their long term interest to see just about every LCT enriched pegmatite to be in the money, including all those claystone deposits Elon Musk thinks will feed his gigafactories. I've included the price-grade rock value matrix to remind people that $10-$15/lb lithium carbonate is still highly lucrative for pegmatites grading 1% Li2O or more. Between $5-$10/lb it is still lucrative for the better pegmatites, but the claystone projects start losing their margin for error. I suspect during the next few weeks this lithium bungee plunge will have reached a limit, and as the market stops holding its breath, we will see Lithium Mania 2.0 catch fire as investors embrace white gold. If at the same time we see $2,000 emerge as the new base for gold rather than the ceiling, the combination of white gold and yellow gold bull markets will result in 2023 becoming a year when the PDAC Curse gets violated.

Liontown Resources Ltd (LTR-ASX)






Unrated Spec Value
Kathleen Valley Australia - Western Australia 8-Construction Li Ta

Lithium Carbonate Price Chart - A Bungee Plunge to Behold!

Lithium Grade and Lithium Carbonate Price Matrix for Rock Value

Still time for the PDAC Curse to be violated in 2023
Disclosure: JK does not own any of the companies mentioned; West Vault Mining is a Good Spec Value rated Favorite

Posted: Apr 6, 2023JK: Kaiser Watch April 6, 2023 with Jim Goddard and John Kaiser
Published: Apr 6, 2023KRO: Kaiser Watch April 6, 2023: Verde Agritech spooks Retail Investors
Kaiser Watch is a weekly 15-30 minute audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.

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Kaiser Watch April 6, 2023: Verde Agritech spooks Retail Investors
Jim (0:00:00): Verde Agritech sold off sharply after reporting 2022 results last week. Was the market reaction justified?

Verde Agritech Ltd reported 2022 results on March 30, 2022 which revealed that revenues had increased 190% to CAD $27.7 million, physical sales of K Forte and the nutrient enhanced BAKS version had increased 57% to 628,000 tonnes, EBITDA had increased 271% to $23.9 million, and bottom-line earnings had increased 386% to $0.34 per share. What is there not to like about that? There was the disappointing confirmation that 2022 Q4 sales declined 7% to 125,000 tonnes of K Forte compared to 2021 Q4, but the company had already signaled late last year that the rest of the year was going to be dismal. The two key fertilizer shipping windows in Brazil are Q2 and Q3. In mid 2021 NPK got permits to mine 2.5 million tonnes from a second location and started building Plant 2 which with Plant 1 gives the company the capacity to produce 3 million tonnes of K Forte annually. Brazilian port potash prices (KCl) began rising in mid 2021 as the world rebounded from the covid pandemic, and reached record highs during H1 of 2022 after Russia invaded Ukraine. NPK engages in delivered KCl parity pricing with what now looks like a 10% discount. What this means is NPK negotiates a price that will be 10% lower for delivered K Forte than what it will cost the farmer for KCl delivered to his doorstep, with an adjustment for the fact that six times as much K Forte needs to be applied to the farmer's field to achieve the equivalent K2O content.

Potash underwent two supply shocks in early 2022. The first was when Lithuania acted on EU sanctions against Belarus by no longer allowing Belarusian potash to transit through Lithuania to a port from where it could be shipped to customers anywhere in the world. This meant Belarus had to transport its potash north through Russia to a port near St Petersburg, which created logistics and capacity problems. In late February Russia invaded Ukraine, and although no sanctions were imposed on Russian potash, a transportation bottleneck emerged as insurance companies refused to insure ships carrying Russian cargo. Brazilian farmers, realizing that the disruption of Ukrainian grain supply would boost global crop prices, panicked and srcambled to secure potash for their 2022 planting season. This was a boon for NPK which was able to book orders above and beyond the 600,000 tpa capacity of Plant 1. The key was to have Plant 2 operational by July. The reality was that Plant 2 was not operational until the end of August, and then NPK encountered a water problem with the Plant 2 access road which caused it to spend September building a new bridge and upgrading the road. By October Plant 2 was fully operational at 2.5 million tpa capacity, but the orders NPK needed to deliver in Q3 vanished. This forced NPK to change its 2022 guidance back to what it had set in January 2022 before an upward revision in May that accounted for orders whose fulfillment required Plant 2 to be operational for the Q3 fertilizer application and planting season. Construction delays and the unforeseen water problem that killed K Forte delivery rendered Plant 2, which cost $42 million to build, useless for K Forte sales in 2022. To top that off, coffee plantation orders that normally are delivered in Q4 were scaled back because the coffee growing regions have suffered a cycle of drought and unusual frost that has disrupted the biennial cycle of coffee trees (fruit productivity alternates between high and low in sucessive years). Anticipating poor yields coffee farmers opted not to bother with potash application (potash is the most expendable of the three key fertilizer inputs - the other two are nitrogen which makes photosynthesis possible, and phosphorous which affects the plant's plumbing system while potash boosts pest resilience). While the market would not have known about the coffee problem, which is only a portion of the crops K Forte fertilizes, the market knew about the other problem, and as far as I could tell, was focused on the 2023 selling season. So why the negative market reaction that dropped the stock price nearly 50%?

A minor contributing factor is that in H2 of 2022 the CEO Cris Veloso instituted a selling program whereby a third party sells stock during periods when the company is not in possession of potentially negative material information. Veloso sold $1.4 million worth of stock in two batches, the first in late August, and the second in late December. He continues to hold 9,807,934 shares which is 18.6% of the 52.6 million issued shares, and he is the largest shareholder of NPK. He is the founder of the company and has spent nearly 15 years turning this junior into a remarkable success story, dealing with a couple major setbacks along the way. At one point last year he was worth $100 million on paper. He has a family with two young children. I don't begrudge him selling some stock to enhance his lifestyle beyond what his salary makes affordable. But retail investors, goaded by short sellers, are always up in arms when they see insider selling, especially when the stock subsequently goes down. Where the market and myself have a problem is when the insider "forgets" to file insider trading reports within a couple days of the transaction. Veloso did not report the bulk of a sale done on December 29, 2022 until March 14, 2023, almost 3 months after the fact. I doubt there is any sinister reason for the delayed filing, but it reflects poorly on his attention to details that are a big deal for shareholders. I guess he has grown a beard as a form of atonement, like wearing a sack cloth; I look forward to him losing it.

The main reason for the sharp sell-off is the guidance for 2023 which shows a sales range of 800,000 to 1,200,000 tonnes which is 27% to 40% of current capacity. This range represents year over year product growth ranging from 27% to 91%, which may represent NPK choosing to err on the side of caution. To me the big question heading into 2023 is to what extent Brazilian farmers are willing to adopt K Forte as an alternative to potassium chloride (KCl). In 2022 NPK released a PFS showing a staged growth strategy that could see NPK delivering 50 million tonnes of K Forte annually to Brazilian farmers which is 17 times more than current installed capacity, and 42 times the best case guidance for 2023. While the market may shrug and say to itself, sales growth does not happen overnight, it is less happy with the revenue and earnings guidance provided by NPK for 2023. At the lower product sales end NPK estimates revenues of $78.1 million, down 2.6% from 2022, with EBITDA at $9.3 million, down 61% from 2022, and EPS at $0.04, down 88% from 2022. At the upper end revenues grow 44% to $115 million, EBITA grows 3% to $24.6 million, barely better than 2022, and EPS ends up 15% lower at $0.29 per share. In other words 2023 will fall short of the 2022 accomplishment.

A further reason for the sell-off is the gloomy assessment NPK has provided about the current potash demand situation in Brazil. The USGS has reported that Belarus potash supply declined 61% in 2022 to 3 million tonnes K2O equivalent. Russia's supply declined 45% to 5 million tonnes. Global supply shrank from 46.3 million tonnes in 2021 to 40 million tonnes in 2022, with expanded supply coming mainly from Canada. Brazil cfr KCl prices rose from $256/t in January 2021 to a peak of $1,183/t in April 2023 but have since fallen to $473/t in March. The lower revenue and earnings guidance is based on NPK assuming a $450/t average price for 2023, which, after deducting a 10% discount, will result in $405/t before port to farm transport costs. Although the world lost 8.7 million tonnes of K2O equivalent supply from Russia and Belarus (USGS figures published in January are preliminary) in 2022, it appears that that quite a lot of potash found its way to Brazil thanks to the high price in H1 of 2022. At the same time the central bank war on inflation which resulted in the fastest interest rate increases in decades cooled demand for agricultural products, which hit farmers with a double whammy of abnormally high fertilizer prices and declining crop revenues. Since August monthly KCl imports dropped two-thirds as farmers decided to wait out the Brazilian election and wait for a sudden potash glut to result in lower prices for 2023. NPK's muted sales growth projections reflect the uncertainty of the outlook for 2023. Last year Brazilian farmers were motivated to give K Forte a chance as an alternative potash; this receptivity will be lacking in 2023. The market's negative reaction reflects this uncertainty?

But is the stock price decline justified? If one was counting on the windfall potash prices of 2021-2022 to be permanent then the answer would be yes. But just as thermal coal had a bumper year in 2023, created by the scramble to deal with the natural gas supply shock that came with the Russian invasion of Ukraine, so did oil. Lithium carbonate had a windfall year that has come to an end. Lithium needs a long term price range of $10-$15/lb lithium carbonate to justify mobilizing the supply required to meet energy transition EV goals for 2030. Naturally this has hit the price of lithium producers, though battery and car makers are celebrating. Whether NPK's stock price decline is justified is a question that only makes sense if you treat NPK like a mine that is in production at an optimum rate with defined mine life. NPK is in fact a product sales growth story from a near infinite reservoir of product. With 3 million tpa capacity operational NPK can respond very quickly to rising demand if Brazil experiences another potash supply shock, or the global economy avoids a recession and agricultural product demand rises. I confirmed Verde Agritech Ltd at $4.95 as a KRO 2023 Favorite with a Good Speculative Value rating at the start of the year and confirm it at the current price range of $2.50-$2.60 based on the idea that NPK will be successful growing its sales to 50 million tpa, replacing half of Brazil's potash import dependency.

During the 2022 Earnings Conference Call briefly talked about several potential developments in 2023. One was that the application for building an 85 km railway to connect Plant 2 to the farther agricultural states is moving along, and seems to have the support of the Lula government. NPK cannot build a railway on its own, but once it has a greenlight it can partner with a much bigger company. Another was the R&D into converting K Forte, currently sold as a powder, into a granulated form which would open up Brazil's blender network as a product sales gateway. Veloso indicated the company is still working on this, which at least leaves hope for a breakthrough. He also talked briefly about carbon sequestration. Although K Forte is a silicate which does not dissolve in water the way a salt like potassium chloride does, its K2O payload is liberated through a complex interaction between microbes and plant root secretions. Enhanced rock weathering is a concept whereby the natural weathering of rock into particles that absorb carbon dioxide to form carbonate minerals that permanently pack away CO2 is accelerated through geo-engineering processes. FPX Nickel Corp through CO2 Lock is pursuing accelerated carbon sequestration with the help of brucite dominated ultramafic rocks. There are geo-engineering solutions being contemplated which involved grinding up rock and dispersing it in the ocean, atmosphere and on the ground as a way of pulling carbon dioxide out of the atmosphere. That seems rather energy intensive.

In the case of NPK's glauconite material the main cost excluding transportation is the energy spent grinding up the silicate. The cost is offset by the value K Forte delivers as a source of potash fertilizer for crops. What if the amount of CO2 that a tonne of K Forte applied to a field packs away as a carbonate can be measured and certified so that a carbon credit could be attached to every tonne sold. While Jair Bolsonaro and Brazilian farmers have no interest in doing anything about global warming, the Lula government is more open-minded about climate change mitigation. Although Veloso did not spell out details, what if it could sell carbon credits for every tonne of K Forte applied as fertilizer? I wouldn't look at this as an extra revenue stream, but more as a way to reduce the delivered cost of K Forte, undercutting delivered KCl by more than a 10% discount. The greater good does not hold much sway with farmers, but show the farmer a significantly cheaper alternative form of potash that also doesn't harm his soil, adoption of K Forte could happen a lot faster than the market is currently thinking. On March 20, 2023 the Financial Times had a very interesting Big Read article: . It doesn't mention Verde Agritech and the climate change potential of K Forte, or the BioRevolution product which seeds K Forte with specific microbes. NPK has the potential to become very topical.

Verde Agritech Ltd (NPK-T)





Favorite
Good Spec Value
Cerrado Verde Brazil - Other 9-Production K

Late Insider Trade Reporting Blunder angered Market

2022 was a Fantastic Year but 2023 Guidance a Lame Sequel

NPK benefited from a windfall potash cycle that has for now ended

Brazilian Potash Imports and port KCl Price harts

Top 4 Potash Producers - only Canada had big supply increase

Potash Supply Evolution Chart

2022 Potash Supply Distribution Chart

Oil, Natural Gas, Coal & Lithium had a Windfall Year
Jim (0:19:34): Why did Jogmec and FPX Nickel form a generative alliance?

The generative exploration alliance with Jogmec announced by FPX Nickel Corp on April 3 seems trivial on the surface, but not when you hear that Jogmec's interest in awaruite systems, natural stainless steel, is based on the potential to make battery grade nickel sulphate from Decar's 63% nickel concentrate that is otherwise intended as a direct feedstock for stainless mills. The value for FPX Nickel resides in a government body validating these low grade natural stainless steel deposits as a source of nickel sulphate for the battery sector. In a Kerry Lutz Financial Survival Network Interview CEO Martin Turenne states that Jogmec and a number of Japanese corporations have been following the Decar story for the past year. Jogmec is a government agency which does farm-in deals and exploration alliances with juniors, and when a project achieves critical mass, auctions the Jogmec stake to Japanese corporate giants with a strategic need for the target metal. Most of the Jogmec option deals simply fade away, but some reach the auction stage.

For example, last November Jogmec put its stake in the Lofdal heavy rare earth project of Namibia Critical Metals Inc out for tender, with a decision expected in March, though we have heard nothing yet. Jogmec will have spent CAD $10,075,000 by May to vest for 40%, and will have an option to go to 50% by spending another $10 million by 2028. The Jogmec deal was done January 2020, prior to which NMI had invested CAD $24 million into Lofdal between 2008-2019, most of it during Rare Earth Mania 1.0 which ran from 2009-2012. Jogmec also has an option to pay $5 million to go to 51%, after which NMI can contribute 49% or dilute to 26% which includes not contributing to CapEx which the October 2022 PEA estimated at USD $207 million. In either case NMI retains pro rata offtake rights which would be of serious interest to non-Japanese magnet makers if NMI gets a solid Japanese development partner. China is exploring a technology export ban related to the production of rare earth magnets, which is seen as a tit for tat response to US restrictions on the export of semi-conductor technology to China. This is not the same as a magnet export ban which would seriously harm the non-Chinese EV sector; it is more a threat against Chinese citizens transferring their know-how outside of China. In an autocracy conformity is achieved by threatening the innocent relatives of anybody who acts contrary to the agenda of the thugs in charge. It is a bit too late for China to keep magnet making know-how in-house because Japan already has domestic rare earth production capacity so doesn't need to poach Chinese workers to learn how to make these high powered permanent magnets which Elon Musk claims Tesla no longer needs. Whether or not Elon is faking till he makes it, other EV makers might very well prefer to partner with a Japanese rare earth magnet maker, perhaps by acquiring NMI to control part of the dysprosium and terbium supply from Lofdal. A strong Japanese partner replacing Jogmec would be a major development for NMI.

While it is unlikely we will see China impose a export ban on the primary magnet rare earths, neodymium and praseodymium, the heavy rare earths dysprosium and terbium come from a different, rapidly depleting source, ion adsorption clay deposits. There are similar deposits in places like Brazil and Chile, but they are all very low grade (less than 0.1% TREO) and face local opposition, which, of course, does not exist in a country like China where the interests of local downstream victims are subordinated to the greater good. Bedrock sources of the heavy rare earths do exist, but they are either tiny percentages of the total rare earth content of big or rich light rare earth deposits (Mt Weld, Mountain Pass, Bayan Obo) and typically not worth recovering, or they exist in major deposits like Strange Lake in northern Quebec which are hampered by remote locations and complex mineralogy, or like Norra Karr in Sweden blocked by NIMBY opposition. Lofdal does not have world class scale, but its grade resides within xenotime, an HREO dominated cousin of LREO dominated monazite often found with it as a minor component of heavy mineral deposits and whose extraction technology was figured out in the days when monazite concentrates were separated from heavy mineral sands operations targeting titanium and zircon. Monazite has less than 1% HREO, but a small portion of the monazite concentrate would include xenotime grains. The problem with monazite and xenotime is that thorium occurs within the crystals. New rules created many decades ago for the handling of radioactive materials shut down monazite sands as a a source of light and heavy rare earths, though groups like Energy Fuels are using their uranium related certification to revive rare earth recovery form heavy mineral feedstock.

The only other advanced stage deposit like Lofdal is Browns Range in Australia controlled by Northern Minerals Ltd. Browns Range has a higher grade and has been running a pilot plant for several years. In October 2022 NTU did an offtake deal with heavy mineral sands producer Iluka Resources Ltd which will process a xenotime concentrate from Browns Range. NTU is currently updating its DFS with the help of funding provided by Iluka. The offtake deal does allow NTU some participation in higher rare earth prices, but Iluka has a right of first refusal on Browns Range output. A 25:1 rollback proposed in December was rejected by shareholders; the 5 billion plus issued stock limps along with ex Lynas head Nick Curtis now leading the company on behalf of its largely Chinese shareholder base. Namibia Critical Minerals is thus really the only pure bet on near term heavy rare earth supply with unconstrained upside, but for the moment the junior waits to see which partner, if any, emerges from the Jogmec auction of its Lofdal stake. For this reason NMI only has a Bottom-Fish Spec Value rating, though it is a candidate to become a KRO Favorite if a strong Japanese partner replaces Jopgmec.

Jogmec's pursuit of exploration deals should be seen as a geopolitical security of supply strategy for Japanese industry. The Jogmec deal with FPX Nickel is a much weaker deal than the NMI deal because Jogmec will spend only $1.3 million over two years on a project to identify acquisition targets. Since the value of low grade awaruite style nickel deposits is not widely understood, as is evident in the very low valuation the market assigns to FPX, acquisition costs will likely be low. But when a project is identified and acquired Jogmec and FPX will immediately form a 60:40 joint venture to which FPX must contribute 40%. That really is not something FPX shareholders want to see happen while they await a PFS in September or early Q4 and the response by an institutional audience that still seems to be missing from the shareholder base.

During 2010-2014 while Cliffs was advancing Decar FPX engaged in a global research project which identified and, where possible, visited similar ultramafic bodies, typically ophiolites which are slabs of oceanic basalt that instead of being subducted got obducted onto the continental crust, often ending up perched high in mountain chains like the Swiss Alps and the Himalayas. Under the right metamorphic conditions the nickel tied up in the olivine crystals of the peridotite gets squeezed out and melds with iron to form the awaruite mineral, a natural stainless steel. At the time this was a novel discovery and FPX was concerned there would be a super-abundance of such deposits around the world. This turned out not to be the case. In British Columbia they investigated many such ultramafic bodies but in the end retained only the Mich in Yukon, and Wale and Klow in British Columbia. The key to a Decar-like deposit is a uniform coarse awaruite grain distribution leading to a DTR grade of 0.09% nickel or better, and the absence of sulphides. Most of the low grade nickel deposits promoted by Canadian juniors have a significant nickel sulphide component which requires downstream smelting and results in acid generating tailings; both represent additional costs.

One of the interesting aspects of Decar is that it contains a magnesium mineral called brucite which is very effective at absorbing carbon dioxide when exposed to water to form a carbonate mineral similar to limestone that packs away CO2 permanently. FPX Nickel's research program discovered a number of ultramafic deposits that underwent the same serpentinization as Decar but failed to develop awaruite grains though brucite was created. FPX has formed a subsidiary called CO2 Lock which has started acquiring these rock bodies which are worthless in terms of metallic content but are in locations where they could be developed as carbon sinks for delivered carbon dioxide. This carbon sequestration strategy, which gets zero value from the market, would be spun out at some point, especially in the event of a takeover bid by a producer who wishes to develop Decar.

Although FPX Nickel's 2010-2014 research program established that ultramafic bodies dominated by awaruite were rather rare rather than abundant, it did identify promising bodies in other parts of the world. But the company decided not to acquire such systems outside of Canada because some were in difficult jurisdictions, and the PEA Cliffs delivered was not greeted as a proof of concept by the market, so funding a similar grassroots project was a bridge too far. But in September 2020 FPX delivered a PEA with an enhanced flow-sheet that produces a 63% nickel concentrate compared to Cliffs' 12% concentrate, which in turn opened the potential for an additional processing stage that deploys hydrometallurgy to produce battery grade nickel and cobalt sulphate. Some time in Q2 of 2023 we expect to see the results of Sherritt's study, and while the market will yawn at a 20 page press release filled with metallurgical details, Jogmec and its corporate Japanese friends will be paying close attention. There has been much speculation about the identity of the strategic investor who invested $12 million at $0.50 last year, and all we can glean from Martin Turenne's comments is that it is a public company and not a traditional mining company. Panasonic is Japan's leading battery maker, but Toshiba also makes the list. We know Toshiba is collaborating with CBMM to come up with a niobium-titanium based anode substitute for graphite, and that battery would require nickel in the cathode. With Jogmec teaming up with FPX Nickel to identify awaruite deposits elsewhere in the world and perhaps develop them, it is not a stretch to speculate that a Japanese battery maker is the strategic investor.

There is the puzzling question of why Jogmec optioned Klow to earn 60% by spending a mere $1 million over 2 years. The answer is purely technical. In order to create a generative alliance with a junior like FPX Jogmec needs to have a touchstone property. FPX regards Mich (Yukon) and Wale (northern BC) as important awaruite projects that emerged from the 2010-2014 research period, with Klow as the least prospective. So this easy $1 million deal for 60% over 2 years really is just to accommodate Jogmec's need for a specific option to anchor the alliance. FPX is willing to do the generative alliance with Jogmec because this is an opportunity for FPX to get a piece of those awaruite potential projects with the help of a strong partner. The current corporate presentation has a Jogmec slide and it includes a global map of ultramafic rock belts (the purple dots). FPX has a database from the research period with which Peter Bradshaw was very much involved. They are recruiting a VP of exploration to be in charge of this alliance. The alliance is not going to generate any acquisitions overnight, and you can probably guess which regions are no-fly zones. But because these ultramafic bodies with a low nickel grade due to an obscure mineral called awaruite are not really recognized as having commercial potential, acquisition costs will be low, though possibly time consuming in jurisdictions such as Zimbabwe where it can take years to get an exploration license application approved.

Looking at the map some obviously hopeless regions stand out: Turkey, Russia, the Himalayas, India, China, Venezuela, Saudi Arabia, southern Europe's mountain chain including the Swiss Alps, and most of mainland southeast Asia. Interesting areas are New Zealand, the eastern part of Australia, Brazil, Zimbabwe, Norway, and Spain. Japan also stands out, but Japan is outside of Jogmec's jurisdiction. What strikes me as interesting is that Alaska and the west coast of the United States, as well as its eastern coast host these type of ultramafic bodies. It will be interesting where the focus of Jogmec's generative alliance with FPX lands.

Indonesia stands out but it has become the world's dominant nickel producer based on its nickel laterite deposits. Indonesia and the Philippines emerged as major nickel producers in the past decade thanks to an innovation created by steelmaker Tsingshan which figured out how to make China quality stainless steel from nickel pig iron, which itself was created by feeding raw laterite ore into obsolete blast furnaces in China. Around 2015 Indonesia banned the export of raw nickel ore and forced Chinese companies like Tsingshan to build nickel processing capacity in Indonesia. The Indonesian nickel product does not qualify for delivery to LME warehouses, but it can be upgraded to produce battery grade nickel sulphate. Tsingshan, which knew how much new nickel supply was coming on stream in 2022 from Indonesia, went short LME nickel to capture the inevitable price decline. Tsingshan either did not know about Russia's planned invasion of Ukraine, or believed it would be a cakewalk about which the rest of the world would shrug and carry on business as usual. The disruption of Russian nickel supply created a short squeeze which the LME bobbled because it threatened some of its members who were also short. The situation was stabilized when Beijing bailed out Tsingshan by loaning it nickel from its stockpile that was deliverable against its short position while Tsingshan's own nickel stocks were not. The Chinese are now agitating for an Asian benchmark price for nickel that is separate from the LME benchmark which suffers from the supply type fragmentation and its bailout of Tsingshan last year.

If nickel prices are going to be weak because of over-supply from Indonesia, why would Jogmec bother looking for Decar-style awaruite deposits elsewhere in the world? The problem is that 65% of global nickel supply now comes from Indonesia, Philippines and Russia. While the Philippines are now edging away from former president Duterte's embrace of China, if the autocracy-democracy conflict escalates to a hot conflict, triggered by China annexing Taiwan or Putin resorting to tactical nuclear weapons, southeast Asian nickel supply will cease to flow around the world to whoever wants it. Furthermore, Philippines is still shipping raw ore to China, the only such market for it. After what Japan did to China during World War II it knows it cannot leave itself at the mercy of China. Jogmec's generative alliance with FPX Nickel for a source of nickel that may yield cheaper nickel sulphate than is possible from refined LME nickel which comes largely from smelted nickel sulphide concentrates makes strategic sense. It also bolsters the speculation that FPX Nickel's strategic investor is a Japanese entity.

I've updated charts for my DCF analysis based on the PEA with CapEx and OpEx escalated 20% which I first presented last year. At the current $10.39/lb LME nickel price Decar is well in the money. I do think the market is anxious about what has happened to costs, which usually increase more for the mining sector than general inflation. The PFS will be a very important milestone because it will reset the cost structure for the market. The PFS outcome, even with higher costs, may be better than the PEA because it will include flow-sheet optimization, and, if the upcoming nickel sulphate study is positive, expands Decar from just another stainless steel feedstock to one that can also provide a clean nickel supply for the battery market.

FPX Nickel Corp (FPX-V)





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Decar Canada - British Columbia 6-Prefeasibility Ni
Namibia Critical Metals Inc (NMI-V)






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Lofdal Namibia - Other 5-PEA REM U

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2022 Distribution of Rare Earth Supply

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2022 Distirbution of Nickel Supply

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Global Map of Friendly, Nimby and Unfriendly Awaruite Nickel Potential

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Cost Escalated DCF NPV/share Sensitivity Chart for Decar
Jim (0:29:35): Tower Resources has assays for some of the Rabbit North holes drilled this year. What are we learning?

Tower Resources Ltd has twice during the past week released results for the first 3 of 4 holes drilled into the new Thunder Zone at the 100% owned Rabbit North project in southern British. The first 2 holes (#39 & #40) released March 30 delivered decent gold intervals in both holes but the market was not overly disappointed because these had been drilled in a NW-SE direction to intersect a structure interpreted to be oriented NE-SW as was the original assumption for the Lightning Zone in early 2022. The second hole drilled 50 M to the NE of the first hole forced Stu Averill to rethink this interpretation of the structure's orientation which he had assumed tracked the trend of a valley that itself would have reflected a zone of structural weakness.

The third hole (#41) was a 45° 300 m stepout to the southeast drilled in a NE direction to a length of 303.5 m which had extensive pyrite mineralization that confirmed the new interpretation of a NW-SE orientation that lined up with the Central Train of till sample gold grains. This prompted a fourth hole (#42) from the same location and in the same direction but at a steeper 65° angle to undercut the third hole. It was pushed to 480.5 m, effectively reaching the eastern limit of hole 3 except at a vertical depth of 435 m. Although the 2 sets of holes were 300 m apart, the mineralized strike they tested was 200 m. Averill's published comments about how exceptional the pyritization and veining complexity looked for an initial drill campaign helped spawn market speculation that the Thunder Zone is a major emerging gold discovery after last year's disappointment with the Lightning Zone which saw the gold vanish from its northern extent and saw the southern extent interrupted by a diorite plug related to the Durand stock which was not a good deposition host for the younger orogenic fluid flow. The strike of the Thunder Zone was declared open to the north and south while down dip remained open.

The results for hole #41 were released on April 5 and perplexed the market because both the grades and discussion muddied expectations about the Thunder Zone as a wide north-south oriented, structure highly pyritized by an orogenic hydrothermal system also carrying gold whose exposure at the bedrock surface fed a Central Train of fairly coarse gold grains. The Thunder Zone contained two intervals of 13.25 m at 3.28 g/t Au at 124.5 m and 10.12 m of 2.19 g/t Au at 148 m. The 10.6 m gap between ran 0.345 g/t Au. The market was perhaps hoping for grades in the 5-10 g/t range as Endurance Gold has delivered for its Reliance orogenic gold play, and some shareholders scaled back their expectations.

The remaining 145.4 m of the hole was not described, though Averill grudgingly admitted that while it contained sulphides the gold content was anomalous in the 0.1-0.3 g/t range like it is for much of the Rabbit North project and probably related to the older porphyry mineralizing event. The Thunder Zone is characterized as a younger 149 million year old shear controlled orogenic system like the Lightning Zone to the east which fed the Dominic Lake Train, related to some deeper unidentified intrusion, in contrast to the copper-gold porphyry mineralization related to the 215 million year old Durand stock and which is responsible for most of the copper-gold mineralization intersected by decades of exploration at Rabbit North.

Although Tower never disclosed which hole had 130 m of mineralization, the description in the March 1 news release that kicked off market interest pretty much fingered hole #42 which is the only basis for the observation that the Thunder Zone appears to be blossoming at depth. The initial news release mentioned evidence of increasing chalcopyrite. When I talked to Stu Averill several weeks ago he was of the view that any copper mineralization is from the earlier porphyry event and at best a side story peripheral to the structures carrying orogenic gold mineralization. The big surprise in the April 5 release was the discussion of the Rainbow Zone which occurs updip from the Thunder Zone gold intervals and ran 36.0 m of 0.19% copper, 0.34 g/t gold and 0.004% molybdenum. The press release invoked both the Highland Valley deposit to the west which is a Cu-Mo porphyry system of similar copper grade, and the Afton system to the east which is a Cu-Au calc-alkaline porphyry system with a better grade.

I have modified the #41 hole section Tower provided with its news release today to highlight the uncertainty now haunting the market. There are several surprises in the #41 results. The first is why the hole was pushed to 303.5 m when the two Thunder Zone gold intervals show up between 125-157 m. Similarly, why was hole #42 pushed to a similar eastward extent at 480.5 m? The answer seems to be that the drillers chased the sulphides, but it is now clear that the correlation between pyrite and gold does not hold everywhere, which is the disappointment we experienced last year with the northern stepout on the Lightning Zone. It's a reminder that with sulphides one really must wait for assays to find out the gold grade. The second surprise is that the Rainbow Zone, which has a low copper, gold and moly grade occurred in the upper part of hole #41 west of the inferred NS strike of the Thunder Zone, rather than in the bottom part east of the Thunder Zone.

This raises the question of where the 130 m "mineralized" zone mentioned in the March 1 news release begins. I've plotted where the 65 degree hole #42 is relative to #41 which it undercut it in the same eastward direction. In the Mar 1 news release Stu said the Thunder Zone appears to be sub-vertical and that it blossoms at depth. I have created 3 segments of 130 m to illustrate the quandary we now face, one made worse because Stu won't say where within hole #42 that 130 m interval begins ("The mineralized core sections vary in length from approximately 30 m to 130 m; most importantly, the longest intercept is also the deepest and most strongly mineralized" and "Pyritization is most intense in the long, deep intersection of Hole 042 and the pyrite is increasingly accompanied by chalcopyrite, potentially indicating a significant Cu bonus").

When I originally read that I assumed the chalcopyrite was showing up in the bottom part of hole #42 east of the NS oriented Thunder Zone, possibly similar to the diorite plug that got in the way of the Lightning Zone. Reading between the lines from talking to Stu, I think his expectations have been scrambled by the latest results and he is waiting for #42 assays before offering any comments. So to reset our expectations I've colored the 3 segments to represent 3 outcome scenarios.

The black segment symbolizes the elevated copper grade Rainbow Zone and assumes it starts at the same vertical depth as with #41 (plausible since the cover rock beneath the till is a shallow much younger flood basalt that blankets a good part of the property, followed by a short saprolite later that is part of the Rainbow Zone and reflects tropical weathering probably within the Cretaceous period. The black segment ends about where the "sub-vertical" gold enriched Thunder Zone is supposed to begin.

The green segment is a blend of the Rainbow and Thunder Zones positioned on hole #42 to end at the eastern limit of the Thunder gold zone in #41, projected vertically. The red segment assumes that the 130 m interval starts at the western limit of the "sub-vertical" Thunder gold zone. This is the best outcome for an orogenic gold discovery which implies a 50-60 m wide structural zone. The open question is why hole #42 was pushed an extra 118 m deeper so that its horizontal limit lines up with that of #41, and what does the above quote from the March 1 release mean?. For now we are at the mercy of hole #42 results which, despite weaker gold grades in #41 than hoped for, could still be stunning.

Although the market is now looking at the Thunder Zone with a glass half empty perspective, we do appear to have two distinct discovery plays emerging at Rabbit North. The gold based Thunder Zone is the market's priority at the moment, but the unexpected Rainbow Zone has Averill wondering if there is a major copper-gold system to the west which has never seen any drill holes. The geology map shows that holes 41-42 were spotted in Nicola andesitic volcaniclastics which Stu says are contemporaneous with the Durand stock and existing porphyry mineralization. But the area to the west is largely till covered, and the first bedrock encountered in hole #41 was the much younger Chilcotin basalt which is mapped as bedrock 200 m to the north. The area to the west has no drill holes, apparently because there was never a geochemical or geological reason to do so. But if the andesites are mis-mapped, and the reality is a laterally extensive veneer of young basalts, who knows what is lurking to be discovered to the west "under cover".

Averill said he would like to turn that drill around on the same pad and drill west, though they won't do that until after spring thaw. In terms of the geometry of a blind porphyry system, Stu says it is unlikely the porphyry systems are intact in their traditional form; he suspects the Durand stock is tilted west. The presence of moly in the Rainbow zone tells Stu that area is part of the inner core which has lower copper, with the copper shell still to be found. In my annotated section the black 130 m segment begins where hole #42 can be expected to hit the Rainbow Zone beneath the till, basalt, and saprolite sequence. I've presented these three 130 m segments as exclusive alternatives, but in light of Averill's recent reluctance to talk about a "130 m segment", instead of pessimistically wondering where it occurred and what it will assay, one can also optimistically wonder if we will get multiple lengthy mineralized segments representing the copper Rainbow Zone to the west, the gold Thunder Zone in the middle, and perhaps another copper zone to the east. It may be that the Thunder gold zone is a younger system cutting through an older laterally extensive copper system that has eluded discovery due to an extensive cover of till and much younger basalt in this little explored area west of the Durand stock. This lengthy discussion may come across as tedious, but it also represents the entertainment aspect of emerging discovery plays as investors try to decode what a junior has been willing to disclose.

Tower Resources Ltd (TWR-V)






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Rabbit North Canada - British Columbia 3-Discovery Delineation Au Cu

Enhanced Section for Hole #41 into the Thunder Zone at Rabbit North
Disclosure: JK owns shares of FPX Nickel, Namibia Critical Metals and Verde Agritech; FPX Nickel and Verde Agritech are Good Spec Value rated; Namibia Critical Metals and Tower Resources are Bottom-Fish Spec Value rated

 
 

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