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Kaiser Blog Comment: Leeward Capital - Gunning for an Endako lookalike at Nithi Mountain


Kaiser Blog

November 16, 2006

Leeward Capital: gunning for an Endako lookalike at Nithi Mountain


One of my most significant personal bottom-fish investments during the past five years has been Leeward Capital Corp (LWC-V: $0.12), a junior headed by toiling geologist Jim Davis whose flagship play is the Nithi Mountain molybdenum project near the Endako Mine recently acquired by Blue Pearl Mining Ltd (BLE-T: $7.28).



The stock slumped badly during the summer of 2006 when Leeward reported drill results that fell short of what was needed to attract the attention of Endako as potential future mill feed when the Endako Mine runs out of ore in 2011. Molybdenum prices have held up well since my MolyMania report in January 2005 which warned that market enthusiasm for molybdenum juniors would not develop momentum until molybdenum prices had retreated from their $30 plus peak and established a new floor in the $10-$15 per lb range. The molybdenum price has indeed weakened since peaking at $45 in 2005, but it never dropped below $20 and has since stabilized at the $28 level.



The resilience of base metal prices in the face of Cyclical Bear predictions of an imminent crash to historical levels in keeping with the boom-bust cycle that has dogged commodities since World War II has perplexed the market, which has wavered on the sidelines as it fearfully eyed The Sword of Damocles which I described in my Bottom-Fish Action Report for Q3 2006 published on October 10, 2006 (now available for viewing by non KBFO members). During October the Structural Bulls seized the upper hand as speculators defied the Sword of Damocles and bid up the price of base metal producers amid talk that private equity was considering privatizing intermediate mining companies. Such a development would fly in the face of textbook logic which warns that base metal producers trading at low price to cash flow ratios should be shunned as bargains because the cash flow looks best just before it is about to evaporate as the lagging commodity supply cycle collides with a downturn in the business cycle. Either the fund managers behind private equity had lost their marbles, or they had developed reason to believe that this time was different, that high cash flow levels would persist for quite a few years. In that scenario the base metal producers would prove to be dirt cheap, and privatizing them at current market prices would yield a high return on equity which could eventually be topped off several years down the road by re-selling these base metal producers at even higher prices to a trend happy public which had become convinced that this time is permanently different.



A pullback in copper during the past week triggered a market sell-off as the Cyclical Bears regained the upper hand. The copper price chart above is truly something to be feared, but not if you think good news is a copper price stabilizing in the $2.00-$2.50 per lb range, a range which less than a year ago was considered inconceivable as sustaining anything more than a short-lived supply-squeeze induced price spike. The commodity to watch is zinc, whose warehouse inventories continue to drop on a daily basis while those of copper climb. Zinc cringes on the downside when copper drops, but recovers when copper stops dropping. During the past couple weeks I have pointed out two zinc heavy bottom-fish to KBFO members and I'm researching other zinc focused potential bottom-fish buy recommendations. The commodity market anxiety pulses into the resource sector equity market, a sure sign that this market continues to be dominated by trend sensitive sophisticated investors and managed money. Overall this nervousness in the market is a strong signal that the third leg of the resource sector bull cycle which began in October 2006 has a long way to go. Most annoying is that when I went to book my hotel for PDAC the Royal York and Intercontinental were already sold out. I strongly recommend that Kaiser Blog readers revisit my Summary of the PDAC 2006 Commodity Talks for a refresher on what the experts were thinking last March.



Enthusiasm for uranium plays continues to flourish as increasingly junky juniors snag uranium plays in an effort to generate an after-market for the paper of late life cycle companies. I find this worrisome because it reminds me of early 2000 when the dot-com bubble was approaching its climax and the First Internet Bug was pumping that incubator stock whose name I have forgotten. On the other hand my skepticism is tempered by the overall irrelevance of uranium in the grand scheme of things, which was not the case with the Internet. Cameco's flooding problem at Cigar Lake will delay production until 2008 or beyond which will worsen the supply imbalance in the spot market to the point that a rise to $100 per lb during the next couple years is very conceivable. None of these juniors with low grade uranium deposits worth billions in the ground is in any danger of securing a production permit, nor is a new high grade unconformity style discovery likely to flood the market with uranium any time soon. After all, it has been more than 20 years since Cameco discovered Cigar Lake in the Athabasca Basin, one of the richest uranium deposits in the world. But in the mean time uranium juniors will be able to talk a blue streak about the potential value of their uranium projects, and although there are several hundred juniors already involved in the uranium sector, their combined market capitalization is still a drop in the bucket.

Although Democrats tend to be leery of nuclear energy, they generally have no doubt that global warming is a consequence of loading the atmosphere with carbon dioxide from the combustion of fossil fuels. While a Democrat will hesitate to give up the convenience of gasoline fueled car transportation, he or she might not have to think hard about which is preferable for electricity: a compact nuclear energy plant in somebody else's backyard whose nuclear waste can be squirreled away inside a Nevada mountain, or a coal fired plant that spews globe warming carbon dioxide into the atmosphere. The enthusiasm for nuclear energy receives a particularly strong boost when it is the Chinese who choose to develop nuclear power plants in their backyard rather than coal fired power plants. We can expect the topic of global warming to acquire a higher priority now that the Democrats have squeaked into control of the American House and Senate. There is even a possibility that the "us-them" polarization between Christian fundamentalists and non-fundamentalists that the Karl Rove Republicans manipulated will resolve itself into a collective revival of a global warming focused green movement. The uranium play greater fool spiral that I feared would soon exhaust its supply reservoirs has been granted a tremendous boost by the Republican defeat. I do not expect the UraMania greater fool spiral to collapse any time soon, which is good news for the uranium juniors and bad news for analysts such as myself whose job it is to figure out which of those intrinsically worthless uranium juniors will outperform their peers.

Don't get me wrong about nuclear energy. I personally do believe we have a global warming problem related to carbon dioxide emissions, and I do believe that nuclear energy is a sustainable alternative whose risks technological innovation has reduced and whose waste disposal problem is of a local rather than a global nature. I just have a tough time getting excited about a sectoral bubble premised on an entrenched structural unwillingness to permit new supply production. Perhaps I am a glutton for punishment, but I prefer the uncertainty associated with the supply dynamics of molybdenum which has complexity that goes well beyond Hiroshima associated Nimbyness. UraMania is for wusses while MolyMania is for, well, the opposite of a wuss.



MolyMania linked to Battle between Cyclical Bears and Structural Bulls
The acquisition of Thompson Creek Mining Company by Blue Pearl Mining Ltd (BLE-T: $7.28) for $575 million, of which $225 million was provided by equity at $5.50 per share, is a sign that MolyMania's time has come. Unlike UraMania, which draws its strength from feeblemindedness, MolyMania draws sustenance from Structural Bull optimism that the global economy is on a major expansion growth curve that is driven by the aspirations of China and India and only marginally dragged down by the decadent late life cycle credit-dependent behavior of the American economy. MolyMania is not for weepy gold bugs who foolishly think they will profit from a collapse of fiat money by owning speculative gold stocks whose price is denominated in fiat currencies. Nor is MolyMania quite a UraMania style vote of confidence in NIMBY permitting hostility. MolyMania is an extrapolation of the Structural Bull theory that the global economy is undergoing a major scale shift in demand which will redefine downwards the grade threshold deemed economic for raw materials. It is not for wusses because it immerses participants in the anxiety of game theory which dictates that if everybody pushes their molybdenum deposit into production, everybody loses. Yes, there is a lot of permitting resistance to key molybdenum deposits in Canada and the United States, but the opposition is not insurmountable in every case. MolyMania is a high stakes arena, and Blue Pearl has positioned itself to absorb the winners on terms that grow its own value. The shift of Endako's control into a publicly listed junior that overnight has become an intermediate mining company specialized in molybdenum production has given me fresh reason to take my Leeward bottom-fish investment seriously.

Leeward proposes $1,250,000 private placement at rock bottom price
Is Leeward Capital Corp dead in the water, or is it an extraordinarily cheap speculative junior on the verge of a discovery that could reward its shareholders tenfold or more? To find out the company is conducting two private placements intended to raise $1,250,000 for a major drill program that will make or break an intriguing geological hypothesis that the Nithi Mountain property hosts a displaced sister to the world class Endako deposit. The first private placement consists of 5 million units at $0.10 that includes a warrant exercisable at $0.13 for one year. I am participating in this financing. The second financing consists of 5 million flow-through units at $0.15 that includes a warrant exercisable at $0.20 for one year. The flow-through benefit allows a Canadian resident to write off against income the entire value of the flow-through designated investment during the year the investment is made. The $0.13 warrant has an acceleration clause that sets the expiry to 14 days if the weighted average trading price for 10 consecutive days is $0.20 or higher. The flow-through warrant's expiry acceleration trigger price is $0.30. The accelerated expiry price will be no earlier than 14 days after the end of the 4 month hold period for the private placement stock.

Forcing oneself to not miss the big score
My initial inclination had been to pass on the private placement stock and just sit on my free trading position, perhaps selling it into the market if speculators drove up the price during the next four months as a drilling program got underway. But I went to the trouble to understand why Jim Davis is willing to risk his company on a dilutionary financing that will doom Leeward Capital to a rollback if the Nithi Mountain drill program kills the story. Once I got my head around the story I felt that I had to make a direct financial contribution to support Leeward's gambit and ensure that I was forced to make a big pile of money if success came our way as happened to all those Diamond Fields shareholders whose cheap paper Robert Friedland had forced into a "voluntary" pooling agreement that was not unwound until Voisey's Bay was well on its way to being a world class nickel-copper discovery.

What follows is a narrative which describes why in 2009 I will either have a very big tax problem or a tidy tax write-off.

Jim Davis: a cynical realist realist with optimistic tendencies
Leeward's Jim Davis, who describes himself as a "cynical realist with optimistic tendencies", is not somebody whom mother nature has showered with favors during his lengthy career. When Davis sensed in late 2003 that molybdenum was awakening from its multi-decade slumber, he did not embark on a mission to discover another Endako. Instead, he set his sights on a more modest goal, namely extending the life of the Endako Mine by another 5-10 years.

In late 2003 Davis knew that the Endako open pit mine had about 5-10 years of life left unless the operator was prepared to incur a high pre-stripping cost to widen the pit to access deeper ore. Blue Pearl's October 13, 2006 prospectus reveals that as of September 30, 2005 the Endako deposit had 51.7 million tonnes of proven and probable reserves at a grade of 0.07% molybdenum which the current mining plan would deplete by 2011. At a recovery of 77% this represents 62 million lbs of molybdenum which at a price of $26 per lb has a gross value of US $1.6 billion. Endako has additional stockpiles of 22.2 million tonnes of 0.046% molybdenum that it can process during 2012-2013 after mining has stopped.

What's left at Endako is worth $377 million in worst case price scenario
The Endako Report has estimated pre-tax net present values for the remaining life of mine using a 10% discount rate and a price declining from $25 per lb to various levels. In the optimistic scenario where the price of molybdenum declines from $25 to $20 per lb, the NPV works out to CAD $822 million. In the pessimistic scenario where molybdenum declines from $25 to $5 over the next 7 years, the NPV is CAD $377 million. Even if we lop off 35% for taxes, the pessimistic scenario still leaves a staggering NPV of $245 million for what is in effect a 51.7 million tonne deposit grading 0.07% molybdenum. The reason this number is so high is that there are no real capital costs associated with mining the remaining Endako ore because the mill and roasters already exist.

For Davis Nithi Mountain is unfinished business from 1981
Molybdenum showings at Endako were first discovered in 1927 by hunters, but the project did not undergo exploration until the early sixties when Placer optioned the property and put it into production in 1965 at an initial capacity of 9,000 tpd. The underlying owner also staked claims on Nithi Mountain 18.5 km to the southeast where the presence of molybdenum mineralization in outcrop on the south side of Nithi Mountain spawned an area play that blanketed Nithi Mountain with numerous small claims. The fragmented ownership prevented systematic exploration and by the early seventies most of the claims had lapsed. A junior called Nithex Exploration staked a large land package during the seventies and optioned the property to Amax which drilled 12 percussion holes before dropping its option in 1976. No work was done until 1980 when Rockwell Mining Corp, a junior controlled by Bruce McDonald, optioned the Nithi Mountain property from Nithex. Rockwell retained Taiga Consultants to conduct an exploration program. Yes, the same Taiga Consultants which is still run by Jim Davis, who happened to be the geologist who operated the Nithi Mountain exploration program for Rockwell. Drilling produced a couple interesting holes and a number of sniffs, but Rockwell declined to fund further work after molybdenum prices crashed in the wake of the 1982 recession. For the next two decades molybdenum prices stayed depressed as a slew of Chilean copper mines with molybdenum by-product production came on stream, and gradually all the claims on Nithi Mountain lapsed, including those of Nithex, which eventually went on to become a coal producer called Pine Valley Mining that recently went bankrupt. For Jim Davis, however, Nithi Mountain was unfinished business, and when he saw molybdenum prices start to rise amid all this talk about the Rise of Asia, he quietly staked Nithi Mountain on behalf of Leeward Capital Corp.

When is a "technical success" a home run?
Placer, which had stopped mining Endako in 1982 and resumed in 1986 with production capacity expanded to 28,000 tpd, sold the operation in June 1997 to Thompson Creek Mining Company and a Japanese company, which now goes by the name of Sojitz Moly Resources Inc. Their purchase was not particularly timely, and when molybdenum prices started to rise in 2004 it was greeted as a godsend. Finding additional ore during the intervening period to prolong operations beyond 2011 was not a priority for Thompson Creek and Sojitz, which explains why no effort was made to stake and explore Nithi Mountain while it was open. But after Davis had staked Nithi Mountain and approached Endako with the question of their willingness to custom mill Nithi Mountain ore, they responded that they would be happy to process Nithi Mountain ore if Leeward could establish a resource of 100 million tonnes of 0.1% molybdenite (0.067% molybdenum). This was music to the ears of Davis, who figured that while mother nature would never grant him a world class discovery, she might, if she was not paying attention to context, give him what would otherwise be deemed a "technical success". Finding 100 million tonnes of 0.07% molybdenum in the middle of nowhere was tantamount to failure, but finding this resource down the road from a major mine with roasting capacity that would run out of ore in 5-10 years could translate into a buyout offer worth $100-$200 million if molybdenum prices held up. At the time Leeward had only 30 million shares fully diluted, which would have translated into a target buyout price of $3-$6. Today fully diluted Leeward has 68 million, so the buyout target has shrunk to $1.50-$3.00, still a respectable target given the current price below $0.20.

The Alpha Trend: a corridor of molybdenite
The first thing Jim Davis did was compile all the historical information into a single data set. This included molybdenum occurrences mapped in 1997 by the Geological Survey Canada along new logging roads on the west and south side of Nithi Mountain. The picture that emerged was a 1-2 km by 4 km northeasterly trending corridor of molybdenum mineralization and soil geochemical anomalies on the southern flank of Nithi Mountain which Davis dubbed the "Alpha Trend". Leeward drilled 17 NQ holes in April to June 2005 on the Beta, Delta and Gamma Zone targets in what appeared to be a road access guided drilling strategy. The Beta zone was a dud and the Delta yielded some short intervals while the best results came from the Gamma Zone which lay to the west of a strong geochemical anomaly that coincided with a circular geophysical anomaly interpreted as a possible feeder system. Followup drilling of 8 holes in September-October 2005 in the Gamma Zone area yielded further intersections but failed to test the deeper geophysical target.



These results did not quite qualify as the "technical success" Davis and the market were seeking as future mill feed for Endako, and the stock broke down, forcing Davis to conduct further financings below $0.20. Leeward resumed drilling during the spring of 2006 with 16 holes designed to flesh out and expand the Gamma Zone mineralization. The results included a couple long intersections (ie 155 metres) reported as 0.05% MoS2 (0.033% Mo), but this grade falls short of the minimum 0.07% Mo threshold sought by Endako. One hole yielded 76.2 metres of 0.1% MoS2, but that average grade was largely due to a high grade spike of 3.05 metres of 0.944% MoS2. Grades improved in the western portion of the Gamma Zone, but then petered out in the final westernmost holes (#15 & #16). What emerged was that the Gamma Zone was cut by a couple of flat-lying, northeast trending molybdenite bearing vein sets which could have represented a bulk mineable resource of 50 million tonnes with a low stripping ratio, but the frequency of these veins was insufficient to produce the average grade needed to make ore.

Plenty of smoke on Nithi Mountain but no fire
When Leeward reported its drill results in late July 2006 the stock price slid towards a dime as the market realized that although there was plenty of molybdenum smoke on Nithi Mountain, there did not appear to be a fire. Frustrated and appalled that mother nature would not even grant him a "technical success" for a prospect whose molybdenum distribution had a scale comparable to that of the nearby world class Endako deposit, Jim Davis refused to accept defeat and set about figuring out why he could not see a fire when there was so much smoke.

My own reaction was that Nithi Mountain was a bust, that more than $1 million had been spent without coming even close to the sort of mineralized intersections that characterized all these other molybdenum deposits such as Roca's Max, Blue Pearl's Davidson, Adanac's Ruby Creek, and even New Cantech's Lucky Ship. The bar for success was so low given the Endako context and still Leeward couldn't clear it!

The brilliance of longshot geological hypotheses that pan out
No doubt Davis shared my frustration, but while I mentally wrote off Leeward as another highly leveraged personal bottom-fish dud and went off in search of better success candidates, Davis rolled up his sleeves and googled Nithi Mountain. What he came up with is a geological hypothesis that is fascinating and risky. It reminds me of the 1,000 metre #109 stepout hole Murray Pezim drilled at Eskay Creek that revealed the fire behind the gold smoke Tom MacKay and others had chased over the decades. It reminds me of the Frutta del Norte fire Aurelian found deep beneath the conglomerates covering a hypothesized extensional basin setting in southeastern Ecuador. It is a story which, if proven correct, will go down as an example of geological brilliance.

When I say Davis googled Nithi Mountain I am not kidding, though it is also appropriate to say he goggled Nithi Mountain. He first pulled the digital images of the Fraser Lake area from Google Earth which includes the Endako Mine site and Nithi Mountain. This image along with some regional geological cartoon markings is presented as the graphic below.



If you ain't got structure you got nothin'
I'll return to the significance of the overlaid cartoon markings later, but first I must provide some background. From 1969-1974 while Jim Davis was still a youngster and not yet a portly chain-smoking greybeard he worked for Texas Instruments in the GeoPhoto Services division it had set up to supplement the instruments it had developed for the energy and mineral exploration sector. It was Davis' job to analyze air photos and satellite images for fracture patterns and other geomorphic controls that could be clues for the presence of oil reservoirs or mineral deposits. In geology as in all the sciences, and arguably in metaphysics as well, the operative word is "structure". Good things are associated with structure, nothing with its absence. The most interesting philosophical question is why there is difference rather than nothingness, but that is a topic for another time. The goal at Texas Instruments was to identify potential orebody targets. Davis spent countless hours scanning these images and became quite an expert at discerning patterns that were invisible to the untrained eye.

A layperson might wonder what Davis might see from the sky that a prospector would not already have stumbled across on the ground, or a geophysicist have discerned from the swirls and curls of geophysical data that peers beneath the surface. And what if much of the topography is covered with sand, glacial till and post-mineralization sediments or volcanic flows? If there was a key fault that served as a conduit for a hydrothermal plumbing system 155 million years ago, what could Davis see if the now inactive fault structure was subsequently obscured by younger rock or dirt?

How can a sky pilot see buried physical structures?
Most people understand that although the earth's crust feels hard and immobile except for its constant gravitationally driven crumbling due to erosion, it is constantly on the move as a result of plate tectonics, if ever so slowly. But while plate tectonics literally moves the earth's crust, plunging ocean floor basalts into subduction zones at continental margins that spawn magmatic intrusives, or shoving up mountain chains such as the Himalayas or Rockies when one chunk of crust collides with another, there is another type of movement which does not actually displace any rock. That movement is an earth tide which subtly ripples through the earth's crust on a daily basis. While this earth tide wave does not physically move anything, it does propagate information to which the earth's crust constantly adjusts. For this reason buried structures, or "differences" lodged in older rocks, can show up as patterns visible at surface in the younger rocks. They can even show up in overlying sand! It is this three-dimensional transparency which makes fracture and geomorphic analysis of air photo and satellite images relevant to the exploration for orebodies and oil reservoirs.

Not enough vein sets to carry molybdenum in ore grade abundance
The three drilling programs on Nithi Mountain had confirmed the widespread presence of molybdenum mineralization, but the results also showed that there were not enough fractures within the host rock to produce the abundance of molybdenum bearing seams and veinlets needed to create an ore grade. Molybdenite prefers to crystallize within the spaces of fractures rather than disseminate through the host rock. Within the eastern part of the Alpha Trend the rock at surface consisted of Casey Alaskite, a later phase of the Nithi Mountain intrusive system which evolved before the mineralizing event, but whose chemistry made it less receptive to the deposition of molybdenite. The fact that the Casey Alaskite nevertheless contained molybdenite gave Davis optimism that the more prospective quartz monzonite beneath the Casey Alaskite and to the west within the Alpha Trend could host a sizable volume of ore grade mineralization. But for that to be the case the intensity of the fracturing and stockwork had to increase several times. So Jim Davis put on his air photo goggles and set about to analyze the fracture patterns of Nithi Mountain.

The resolution of the Google Earth images was insufficient for Davis' needs, but fortunately for him British Columbia's forests have been devastated by a pine bark beetle infestation. In an effort to track the progress of the infestation the BC government has been taking high resolution air photos whose coverage includes the infested Endako-Nithi Mountain region. Davis was able to obtain these high resolution photos and put his expertise to work.

Yup, that's why your drill results suck and your stock is a dime
When he laid the resulting fracture pattern map over the Alpha Trend he came to the depressing realization that there was a good reason that he had not found an abundance of ore grade molybdenite on Nithi Mountain. The fractures within the target areas, namely Beta, Delta and Gamma, as well as within most of the eastern portion of the Alpha Trend, tended to have a northeasterly orientation and were too widely spaced to allow the development of ore grade mineralization. Furthermore, the most intense molybdenum soil geochemistry was within the Gamma zone and to the northeast. The obvious conclusion was that the mineralization encountered by drilling was as good as it was likely to get, and there was not much hope of encountering better mineralization beneath the Casey Alaskite in the northeastern part of the Alpha Trend. As Davis glumly studied the Nithi Mountain fracture pattern his colleagues clucked in the background, "yup, that's why your results suck and your stock is at a dime and headed to a nickel".

Gamma West: a spidery goose egg filled with moly?
But as Davis studied the fracture pattern beyond where he had focused his drilling programs he made a startling realization that the fracture pattern intensified substantially in the southwest corner of the Alpha Trend where little work had been done historically. He drew a big goose egg around this spider web laced area and dubbed it the Gamma West zone. This, he thought, is where a significant deposit exists on Nithi Mountain, if anywhere. This sort of rose pattern is typical of a hydrothermal center because the hot circulating fluids create weaknesses within the host rock that encourage multi-directional fracturing, which in turn boosts the circulation footprint of the hydrothermal system with the end result that an orebody is formed. This fracturing is enhanced when the rock undergoes multiple pulses of hydrothermal activity which subject the rock to heating and cooling cycles. The strength of the Endako molybdenum system is due to several mineralizing phases in the evolution of the deposit. The size of the Gamma West goose egg, roughly 1,500 metres by 1,000 metres, was sufficient to host a deposit of several hundred million tonnes.


Reasons why Gamma West is a far cry from a slam dunk
But if the Gamma West Zone does host an Endako scale molybdenum deposit, why had it not already been found? Unfortunately, there was good reason no work had been done in this area which is covered by 5-6 metres of overburden and has virtually no outcrop. The exposure on the southern and southwestern flank of Nithi Mountain resulted in vegetation that was unsuitable for logging, so the area is largely untouched by logging roads that might have exposed mineralized outcrop as it did in the Delta Zone area where the GSC mappers found molybdenum mineralization in 1997. Whatever prospecting had been done in this area had failed to generate molybdenum showings, and there is no evidence that any holes were ever drilled in this area. But even more damning was the rapid fall off in the molybdenum soil geochemistry numbers in the direction of the Gamma West zone. Furthermore, the westernmost holes drilled by Leeward in the Gamma zone, #15 and #16, showed a weakening of molybdenum mineralization.



This created a quandary for Jim Davis. On the one hand he had a good reason why a major molybdenum deposit had been overlooked in the southwestern corner of the Alpha Trend on Nithi Mountain, but on the other hand the geochemical evidence suggested that while the fracture pattern could signal a hydrothermal center, it probably was not pumped by molybdenum bearing fluids. The story he was supposed to tell his shareholders was that he needed another million bucks to test a geochemically unprospective portion of the property whose only virtue was an intense fracture pattern whose existence most people would be inclined to attribute to the vivid imagination of a desperate geologist.

That, at least, was what I told him when he presented me with the Gamma West story. So Jim Davis took a big breath, stepped back several hundred million years in time, and gave me the sort of regional geology story for which I am a perennial sucker.

Big picture geology that links Endako to Nithi Mountain
The cartoons Davis had drawn on the Google Earth image of the Endako-Nithi Mountain region present an argument that the Nithi Mountain molybdenum system was located only several kilometres east of Endako during the deposit formation period 145-155 million years ago. Today Nithi Mountain is located 18.5 km southeast of Endako thanks to the northwest-southeast Casey Fault which separates the oceanic Cache Creek terrane to the east and the island arc Stikine terrane to the west. Today the Casey Fault is a regional northwest-southeast strike slip fault similar to the San Andreas fault familiar to Californians, but during the early Jurassic the Casey Fault was a suture between the Stikine and Cache Creek terranes. This suture, which involved subduction of Stikine rock underneath the Cache Creek shales, stimulated pluton formation within the suture zone.

Grand collisions that build major moly systems
The compressional force of the Stikine terrane butting up against the Cache Creek terrane during the middle to late Jurassic prevented the plutons from rising to the surface, with the result that the Endako batholith spent a long time deep within the suture zone cooking away. This slow cooking process allowed molybdenum to fractionate within the magma, which is a fancy way of saying that molybdenum widely distributed within the magma was able to concentrate at a certain level within the magma. Much of the molybdenum ended up in the magma as the magma digested the Cache Creek shales which would have been anomalous with a variety of metals, including molybdenum. During the late Jurassic the collision between the Stikine and Cache Creek terranes began to ease and the Casey suture eventually turned into a strike slip fault, meaning that the western Stikine terrane started sliding north while the eastern Cache Creek terrane started sliding south relative to each other. The pressure relief allowed various intrusive members of the Francois Lake plutonic suite to rise, creating the quartz monzonite Endako and Nithi Mountain intrusives in a series of spasms. Around 154 million years ago one of the spasms generated a hydrothermal system within the Nithi Mountain intrusive which deposited the molybdenum. A similar system evolved at Endako 148 million years ago.

The Casey Fault: who moved my Moly deposit?
The Endako deposit is bounded on the south side by an east-west fault named the "South Boundary Fault" which predates the Casey Fault. Nithi Mountain is bounded on the south side by a similar east-west fault named the "South Nithi Fault". Davis speculates that Endako's South Boundary Fault and Nithi Mountain's South Nithi Fault were the same fault when the Endako and Nithi Mountain molybdenum mineralization formed between 154-145 million years ago. This fault may have played a critical role as an emplacement control for the quartz monzonite intrusives. Since then Nithi Mountain has been displaced southeasterly about 18 km along the Casey Fault. If Davis is correct in his geological reconstruction of the relationship between Endako and Nithi Mountain during the mineralizing period, then the Nithi Mountain system could be a mirror image of Endako with the Gamma West zone hosting an orebody.

Damn glacier pushed moly loaded soils off the Gamma West "deposit"
But what about the poor soil geochemistry in the area of the Gamma West Zone? To answer that question Davis pulled Quaternary maps that depict the glacial history of the Fraser Lake area. It turns out that ice sheets several kilometres thick covered the region during the past couple million years and flowed in an eastward direction. The ice sheet would have flowed over Nithi Mountain and dragged scrapings from the rock eastward along the Alpha Trend. Because the northwest-southeast Casey Fault represents a distinct boundary between Nithi Mountain and the Stikine rocks to the west, the area of the Gamma West zone would have been covered by till from west of the Casey Fault which would not be expected to be anomalous for molybdenum. It is thus possible that the fall off in the soil geochemistry in the Gamma West area of the Alpha Trend is an artifact of the region's glacial history. The lack of outcrop in the Gamma West area would have prevented "accidental" discovery of molybdenum showings by prospectors, and the weak soil geochemistry would have discouraged companies from spending exploration dollars in the Gamma West area.

Putting the Gamma West hypothesis together
The Gamma West zone did not show up as a meaningful target until Jim Davis conducted a fracture pattern analysis of the Nithi Mountain property using air photos available only during the past two years. None of this guarantees that the Gamma West zone hosts an economic grade molybdenum deposit, or even one with the "technical success" character that would be worth $100-$200 million in the Endako context. But the geological picture painted by Davis demonstrates that the positive scenario can only be ruled out by the truth machine. And the pervasive presence of molybdenum smoke within the Alpha Trend, coupled with the inferred geological genetic proximity to the Endako system, offers reason to speculate that a significant molybdenum deposit is present within the Gamma West Zone. The crowning touch is the facture pattern overlying the Gamma West zone, a geological signpost that not just any geologist could have dredged up.

Finding an orebody through geological sleuthing or stepping on the wrong end of a hoe?
When I explained this story back to Jim Davis to confirm that I had a reasonable grasp of his hypothesis, and told him I would publish it in my Kaiser Blog, the cynical realist in him grumbled that I was determined to hang the fate of Nithi Mountain and the fortunes of Leeward's shareholders on him. Then his optimistic tendency gleamed through as he exclaimed, but if you do that and it is there, nobody can possibly claim that I found the Nithi moly deposit by stepping on the wrong end of a hoe!



The risk is high, but so is the reward potential
And so it should be, for if Jim Davis is right, I'll be laughing to the bank while Davis collects prospector of the year awards. And if he is wrong, the market will shrug and say, "dog bites man is not news". That is the nature exploration geology. Given that with 68 million fully diluted shares the implied project value of Leeward's 100% owned Nithi Mountain project is only $7 million at $0.10 and $14 million at $0.20, the Gamma West hypothesis offers substantial reward potential that readily offsets the risk that the Gamma West zone is a dud. And in case you think Gamma West is the last rabbit in the hat of Jim Davis, keep an eye on something called Caledonia, another molybdenum play in the region scheduled for one or more assessment work related drill holes.

*JK owns shares of Leeward
 
 

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