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Kaiser Media Watch Blog - December 1, 2022 to December 31, 2022

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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: Dec 30, 2022JK: Kaiser Watch December 30, 2022 with Jim Goddard and John Kaiser
Published: Dec 30, 2022KRO: Kaiser Watch December 30, 2022: Lithium Bottom-Fish Stocking Stuffers
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 December 30, 2022: Lithium Bottom-Fish Stocking Stuffers
Jim (0:00:00): Lithium Mania 2.0 has been a frequent theme on Kaiser Watch during the second half of 2022 though you have not said much about specific companies. You have pointed out lithium bottom-fish to your Kaiser Research Online members who pay $450 per year, but now you want to introduce a few as year-end stocking stuffers for our Kaiser Watch audience. Why do you believe lithium will excite the market more than gold in 2023?

The lithium bottom-fish stocking stuffers I will introduce today are all early stage exploration juniors who could end up repeating what Patriot Battery Metals delivered this year with its Corvette project in the James Bay region. Patriot started the year in the $0.40-$0.50 range and started to break out in March when drilling got underway at Corvette. By June it was reporting long intersections of 1%-2% Li2O, confirming that the pegmatite bodies within the Corvette trend where big and rich enough to be future mine candidates. The stock has traded as high as $10.50 in early December where it had a $1.3 billion implied project value. The stock is volatile and will not have a resource estimate until the middle of 2023 when it will shift into a combination of feasibility demonstration and additional discovery exploration to reveal the scale of its future lithium supply potential. Lithium Mania 2.0 is about spending the next few years identifying the second half of the ten-fold supply expansion required to allow new EV sales to replace ICE car sales by 2035 as part of the energy transition needed to subdue the climate change consequences of global warming. The bottom-fish lithium juniors I have flagged as lithium enriched pegmatite hunters have market caps below $50 million, in some cases below $10 million. Any one of these could repeat the Patriot Battery success by the end of 2023 and deliver 10-100 fold gains. Institutional investors are not interested in exploration juniors, and retail investors don't yet understand the nature of Lithium Mania 2.0.

Most retail investors heard about lithium in 2015-2018 during which advanced lithium juniors got going. They benefited from Lithium Mania 1.0 while lithium carbonate prices were $10-$15/lb but then had to struggle through the 2018-2020 slump of lithium carbonate prices back below $3/lb after the Australian pegmatite hunters proved way to successful. But when the Australian created lithium supply-demand imbalance began to reverse in 2021, sending lithium carbonate prices up ten-fold in 2022, it carried two messages.

The simple one that we have learned to distrust (rare earths, cobalt, vanadium) is that lithium projects are now well in the money and need to be funded to production. The second more important one was that the supply-demand imbalance reversed to the benefit of lithium suppliers because the car makers had gone beyond the point of no return, and suddenly those future demand projections made in 2015-2017 linked to the idea of EV replacement of ICE car sales by 2035 were no longer wishful thinking. It is this combination which pulled institutional capital into the more advanced projects like Sigma Lithium, Critical Elements, Frontier Lithium and Cypress, both through market purchases which created the upwards revaluation, and through treasury purchases which nailed the new valuations to the wall and provided the means to execute on the development cycle.

From what I have seen so far the valuations appear to reflect fair value based on long term $10-$15/lb lithium carbonate pricing. The institutional audience is sophisticated enough to understand current prices should not be the basis for valuing a project. The way I see it, if current prices prevail in the long run the EV replacement dreams evaporate because car prices simply won't be low enough to support mass adoption. On the other hand if LCE drops below $10/lb as Goldman Sachs believes it will, there won't be enough lithium available by 2030-2035 to build the volume of affordable cars needed to displace ICE.

Although EV sales as a percentage of total sales are rising, it is still just the beginning, and as such this trend will be less vulnerable to an economic slowdown than total car sales. We might even be given the optics of EV new car sales share rising while total car sales are declining if we are forced to work our way through a recession.

The pricing upside for advanced projects such as Sigma Lithium comes from expanding the production scale either before the facility is built or adding more capacity (an analogue would be Verde Agritech which started with 600,000 tpa and initially struggled, but in 2020 felt justified to expand to 3,000,000 tpa, which it must now fulfill over the next two years, though it is already planning for an expansion to 10M tpa, premised on farmer adoption of K Forte and continuing high KCl prices).

The institutional audience at this stage is not interested in betting on discovery stage juniors like my bottom-fish stocking stuffers, but it is primed to respond rapidly to new discoveries such as what PMET delivered at Corvette because a resource estimate and PEA are possible within two years of a discovery hole.

Pegmatite plays are preferable over brine and claystone because the impurity issues of a pegmatite can be rapidly isolated through metallurgical studies making spodumene concentrate, whereas for brines and claystones customized processing technology needs to be refined. Back of the napkin calculations about the value potential of en emerging pegmatite discovery can be done very quickly compared to brine and claystone plays.

Retail audiences at this stage do not appreciate the pegmatite discovery basis of Lithium Mania 2.0, even though success can deliver 10-100 fold gains. One could speculate that retail investors are thinking they missed the boat, that winners of the past year which are advanced lithium juniors will solve the supply problem. But I think the retail audience, especially the younger generations, simply never had eyes on the junior resource sector, at least the critical metals part of it. And 2022 was a very bad year for the stories they had sunk their teeth into, so for the moment they have no fear of missing out on anything, and the basis for greed is not yet visible.

There is the eternal optimism that gold will make a comeback and inject life into the juniors. But what circumstances that could take gold to $4,000 would be helpful to gold exploration plays and currently marginal ounces in the ground? I've long thought of gold as a way to hedge large scale uncertainty, and I think it will continue to play that role, but it won't play that role in terms of real price gains that are of a sufficient multiple to create a gold exploration and development mania. The experience of gold from the 1970's onward, however, is a roadmap for understanding the lithium sector and appreciating why some people call lithium "white gold".

Consider the situation of lithium, which for decades bumbled along at $2-$4/lb lithium carbonate, with demand tracking macro-economic growth until small lithium ion batteries began to be incorporated into cell phones and laptops. That helped the price into the $10-$15/lb range around 2010 which was a substantial real gain, similar to what gold underwent during the seventies. Lithium Mania 1.0 kicked in during 2015 when the market saw Tesla leading EV growth sectors and the other car makers waking up to the EV threat to their ICE fleets. The Australian mobilization of new pegmatite sourced supply created the 2018-2020 LCE price collapse back to where it started, but with the reversal of the supply-demand imbalance in 2021 lithium is now at an all time record real price high. Even if we see a retreat back to $10-$15/lb, that is still a huge real price gain similar to what gold experiences in the 1970s.

When gold stabilized at $400 in the eighties it created a whole new exploration and development reality for juniors, ranging from heap leaching low grade oxide deposits in Nevada to chasing wider but lower grade mineralized structures than was feasible while gold remained fixed at $35/oz. By the 1990s copper-gold systems had become a development target. The comparable situation today with lithium is in the form of all those pegmatites noticed while exploring for precious and base metals in past decades but ignored because the global market size was small and dominated by a few high value brine (Chile) or pegmatite (Greenbushes) sources. The lithium market worth $200 million in 2005 became worth $18 billion in 2021, and will be a $100-$200 billion market in 2030-2040 before new technologies display the lithium ion cell.

Consider that annual gold production in 1971 was worth $2 billion. From 1980-2002 its annual value ranged $15-$25 billion. In 2010 the value of gold production leapt to $102 billion and in 2021 was worth $173 billion. It took 30 years for the value of annual gold supply to grow from $20 billion to $100 billion. From 1980-2021 the mining industry doubled the above ground gold stock to about 6.5 billion ounces. Most of this gold worth about $12 trillion today sits in vaults serving no purpose other than to hedge against uncertainty and inflation. $400 gold in 1980 inflation-adjusted to the present using US CPI is $1,434, which means gold has undergone a 25% real price gain during this period. The best hope for a bigger real price gain for gold over the next few years is a continuation of official buying by central banks eager to diversify away from US dollar reserves in light of actions the United States and democratic allies have taken against thug nations like Russia and will take if China chooses to annex Taiwan.

A higher creeping real gold price will not make currently marginal gold systems worth developing and will not ignite a speculative frenzy. It would help gold exploration juniors because the annual gold market is very deep, which means a new gold discovery does not need to worry about individually over-supplying the market as can be the case with smaller critical mineral markets. So gold focused discovery exploration juniors are still exciting to own as bottom-fish. But ounces in the ground need a substantial real price gain to become interesting. Gold blipping to $2,200 in 2023 won't be good enough.

Consider lithium in contrast. The lithium market went from $1 billion in 2015 to $9.6 billion in 2018 before crashing back to $2.8 billion in 2020. This year's nominal value will be $30-$40 billion (reality will be lower because suppliers were locked into lower contract prices, though that will not be the case going forward). Assume a ten fold demand expansion over the next decade to 1 million tonnes of lithium metal. Assume lithium carbonate ends up back in the $10-$15/lb range. That annual lithium market would be worth $120-$180 billion. This magnitude of metal value appreciation over such a short time scale is without precedent. And the demand is not being driven by grumpy old people fearful of fiat currency debasement and resentful about social safety nets. It is being driven by a combination of policy and decisions car makers have already made that can't be changed even if a fossil fuel pumper becomes president.

I have been stuffing these lithium exploration bottom-fish into stockings because the market will begin to understand the enormous scale of Lithium Mania 2.0 in 2023. In the graphic above I have tried to illustrate how three decades of growth in the annual value of gold production is being compressed into just one decade for lithium. This is an unprecedented window of opportunity for resource juniors focused on pegmatite exploration, in particular in Canada which is on almost nobody's radar. My big prediction is that in 2023 the world will awaken to the problem of Lithium Mania 2.0 and why regions such as Canada, Brazil, Scandinavia and parts of Africa are crucial to delivering the second half of the ten-fold supply expansion needed by 2030 to make EV replacement of ICE by 2035 a reality.

Patriot Battery Metals Corp (PMET-V)

Unrated Spec Value
Corvette Canada - Quebec 3-Discovery Delineation Li

Long Term Annual Average Gold Price with CPI Adjustment

Charts comparing long term lithium and gold prices

Lithium Supply Evolution Chart

Annual Gold Supply Value with Projected Lithium Supply Value Superimposed

IPV Chart for Patriot Battery Metals
Jim (0:15:28): Why do you like Brunswick Exploration?
Brunswick Exploration Inc (BRW-V)

Bottom-Fish Spec Value
Hearst Canada - Ontario 2-Target Drilling Li

IPV Chart for Brunswick Exploration
Jim (0:20:45): Why do you like Dios Exploration?
Dios Exploration Inc (DOS-V)

Bottom-Fish Spec Value
Nemiscau-North Canada - Quebec 1-Grassroots Li

IPV Chart for Dios Exploration
Jim (0:26:42): Why do you like Xplore Resources Corp?
Xplore Resources Corp (XPLR-V)

Bottom-Fish Spec Value
Surge Canada - Ontario 2-Target Drilling Li

IPV Chart for Xplore Resources Corp
Jim (0:31:45): Why do you like Lodestar Battery Metals?

IPV Chart for Lodestar Battery Metals
Jim (0:35:10): Why do you like Searchlight Resources?
Searchlight Resources Inc (SCLT-V)

Bottom-Fish Spec Value
Jan Lake Canada - Saskatchewan 1-Grassroots Li

IPV Chart for Searchlight Resources
Disclosure: JK owns shares of Brunswick, Dios, Lodestar and Xplore; Brunswick, Dios, Lodestar, Searchlight and Xplore are Bottom-Fish Spec Value rated

Posted: Dec 22, 2022JK: Kaiser Watch December 22, 2022 with Jim Goddard and John Kaiser
Published: Dec 22, 2022KRO: Kaiser Watch December 22, 2022: Can you guess the 2023 Favorites?
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 December 22, 2022: Can you guess the 2023 Favorites?
Jim (0:00:00): You have frequently talked about Lithium Mania 2.0 but have not mentioned many lithium companies and there were none in your 2022 Favorites Collection. What sort of lithium juniors would you consider including in your 2023 Favorites?

I have two lithium juniors flagged to be part of the 2023 Favorites which will be released to the public on January 3. One will be a diversified Canada focused grassroots explorer which is finishing the year with $10 million working capital. It spent 2022 assembling a large portfolio of prospects in Ontario, Quebec and Atlantic Canada and will begin drilling in January. The other is at the opposite end of the exploration-development cycle with a lithium pegmatite deposit in eastern Canada. It just completed a feasibility study on its pegmatite deposit and is currently in the permitting stage. The stock is being priced at the value generated by its lithium base case price, which is equivalent to $12/lb lithium carbonate whose spot price is currently at $36/lb. The general view is that by 2030 the price of lithium carbonate will have settled down into the $10-$15/lb range, but they may remain high or even higher over the next few years. Projects headed for production by 2025 are using higher prices in the first few years of their cash flow models, declining in the later years.

My concept of Lithium Mania 2.0 is all about exploring for lithium enriched pegmatite deposits. That caught fire in Australia during Lithium Mania 1.0 which ran from 2015-2018 when the success of Australian companies like Pilbara Minerals over-supplied the market. By 2021, however, the car makers had embraced EV rollouts to such an extent that the supply-demand imbalance reversed, causing lithium carbonate to increase ten-fold to its current level. The Lithium Mania 1.0 period also focused heavily on the Lithium Triangle area that includes Chile, Argentina and Bolivia. The Bolivian salars are off limits to juniors with Chinese and Russian entities negotiating with the Bolivian government for development rights. But in Chile and Argentina all the areas with lithium brine potential is locked up and we are seeing consolidation happen. For example, on Tuesday December 20 Arena Minerals agreed to be acquired by Lithium Americas for paper at a 28% premium to the market in a deal which values Arena at CAD $311 million. Recharge cycles, water rights and dealing with impurities make assessment of brine deposits a complex matter. I'm not spending too much time on the brine plays because I think their upside will be limited by the desire of existing shareholders to get a liquidity event such as was the case with Arena. This will help Lithium Mania 2.0 because the proceeds are unlikely to be recycled into other brine juniors, certainly not claystone plays which face flow-sheet demonstration challenges, but very likely into lithium pegmatite plays.

The Canadians are only now waking up to the potential for LCT type pegmatite deposits in Archean settings, often within greenstone belts where gold and base metals drove past exploration. This includes eastern Canada stretching into Saskatchewan and heading north into the Arctic. Other key regions are Scandinavia, Brazil and the cratons in southern Africa, in particlur Congo and Zimbabwe. Western Africa also has LCT pegmatite potential but this region is becoming unstable because of Islamic jihadi groups terrorizing the rural regions and Russian mercenaries getting involved with military groups. The Australians who have their Lithium Mania 1.0 pegmatite experience under their belt are leading the charge.

Currently KRO members are accumulating lithium juniors that made it into my 2023 Bottom-Fish Collection. Some of these may graduate to the 2023 KRO Favorites Collection next year. The main reason I believe Lithium Mania 2.0 will explode in 2023 is because the car makers are starting to understand that even if they build refineries outside of China, the ten fold lithium supply expansion required by 2035 to make EV replacement of ICE car sales a reality is not in place. Lots of money is going into direct lithium extraction (DLE) technologies to recover lithium from brines beneath salars without waiting for the sun to evaporate the water, as well as brines associated with oil field structures and even geothermal systems such as at California's Salton Sea. This process technology R&D may work out very well, but it also might not. When you discover a bedrock hosted lithium enriched pegmatite deposit you can delineate it very quickly, assess the impurities that need to be avoided, and design a flow-sheet to produce a spodumene concentrate.

Over the next three years we will see a tremendous exploration boom that will result in numerous discoveries, some of which will become development candidates for 2025-2030. The car makers need to see the future supply in place, or their EV plans become pipe dreams. This needs to happen even if we get stuck in a recession next year that tanks real estate and puts further pressure on equity markets in general. The Great Pegmatite Hunt has the potential to become an exploration boom island that attracts speculators. The recent LIFE exemption which allows non-millionaires to participate in private placements has the potential to draw the younger Gen Z and Millennial generations into the resource junior exploration game because the S-curve dynamic of a new discovery means lots of money can be made and the collective outcome benefits them much more than the Boomer generation which has been the primary audience for resource junior exploration.

During 2023 we will probably also see Rio Tinto make a major acquisition in the pegmatite sector. Their Jadar project in Serbia, which is a different type of mineral than the spodumene that typifies pegmatite deposits, is stalled because of politics. They have already moved into the Lithium Triangle with an $800 million acquisition. In September Rio Tinto announced that it was having success at its Sorel-Tracy facility with a pilot plant study aimed at creating a spodumene concentrate with a higher Li2O grade than the 5%-6% range for chemical and technical grade generated by current flow-sheets. If Rio Tinto is successful it could acquire remote projects and develop mines which produce a higher grade concentrate that lowers shipping cost to the hydroxide refineries, which in turn will have lower costs per lithium output unit. By 2035 annual lithium supply would be a $100-$200 billion market, putting it in the same league as copper. And that assumes lithium carbonate prices drop into the $10-$15/lb range.

Jim (0:14:31): Prospect generator farmout juniors have been a staple recommendation for decades by people like Rick Rule. What is the outlook for prospect generators in 2023 and will you include any in your 2023 Favorites?

I have two tentative picks for the 2023 Favorites. One is a traditional follower of the model which religiously farms out the prospects it generates. It is a fairly new junior that is not cheap, is focused on Canada, and has strong financial backing. The other has been around for decades and has delivered several spinout wins for its shareholders but none of them of a spectacular nature. Periodically, however, it bucks the farmout rule and drills a project with its own nickel. This is what made Andre Gaumond famous in 2004 when he annoyed Paul Van Eeden by making Virginia Gold drill Eleonore on a 100% basis. This led to a $750 million buyout at $14 by Goldcorp within a couple years even before publishing a maiden resource estimate. Eleonore, which is located in Quebec's James Bay region, never really lived up to its promise, but Virginia Gold shareholders had quite a payday. In contrast, consider Mirasol Resources which specialized in South American exploration. Over two decades it spent over $80 million generating prospects and farming them out, and yet has nothing to show for it today. I had it as a bottom-fish pick several times and it did flutter into the $2-$3 range during resource sector bull cycles, but nothing ever emerged that qualified as a major discovery. The company was quite successful farming out projects to majors, but even success by one of them would have limited the upside of the stock price and dragged out a liquidity event because the partner is the only buyer of the minority stake.

I think the prospect-generator-farmout model is sound, but I tend to favor juniors whose management knows what a 100% keeper looks like and is willing to test the potential for low hanging discovery fruit. The one I have in mind has a Sullivan 2 Hunt play that appears to be an emerging discovery based on the peripheral results obtained this year. And it also has plans to monetize its royalty portfolio through some sort of spinout. I had a fair number of prospect-generators in my 2022 Bottom-Fish Collection but not many for 2023. Because I am expecting further interest rate hikes an ongoing trouble for the economy and general market I am keeping the 2023 Bottom-Fish Collection small, but will add juniors as I become more familiar with their proposed story paths to success.

Jim (0:20:20): During 2022 you developed the idea of the story path and the emerging discovery. You currently have several emerging discovery stories in your 2023 Bottom-Fish Collection. Will any make it into your 2023 Favorites Collection?

I developed the story path concept at the start of this year precisely because I had flagged so many juniors for the 2022 Bottom-Fish Collection and I needed a system to keep track of their stories. Resource juniors have two basic story paths. One is grassroots exploration for a type of deposit or target metal that would be a brand new discovery for the region. The other type involves rethinking the potential of established regions using new geological models, exploration methods and even processing technologies. It also involves rethinking existing deposits in the context of higher real metal prices or anticipated higher prices, a perennial aspect of gold plays. When 2022 started I was optimistic the resource sector would avoid a general market downturn because a decade long bear market had not pushed much new supply into the development pipeline, the global economy was still growing, geopolitical dislocations were creating security of supply issues, and new usage demand was being created by forces such as the energy transition. But by June the severity of the equity market downturn and Powell's rapid interest rate increases to subdue persistent inflation engulfed the resource sector and the second half of 2022 was a full blown bear market that saw lots of capitulation selling.

One reason I like discovery exploration juniors is that they start with little more than an idea, and launch into S-Curve price action when they deliver evidence of a new discovery that is going to work with the metal prices we already have. This happens in a bear market if the discovery hole is a no-brainer, but not if the drill results simply point to a new discovery that may take only a few more holes to confirm as a big deal. But the bearish mood during the second half of 2022 was so bad that the best juniors did in response to very encouraging results was not go down in price. In normal markets stocks respond on the upside to encouraging results and if you are not already on board you have to chase the stock at higher prices. But this year you had time to assess the results, get your head around the geological context and the implications, and buy the stock at your leisure. Turnaround time for results from followup drilling continued to be bad in 2022 so one had lots of time to accumulate positions in "emerging discoveries" at the same price as before.

I have three Bottom-Fish with emerging discoveries that will become 2023 Favorites, and fourth which may get results next week that pull it out of bottom-fishing territory. One has an emerging uranium discovery in the Athabasca Basin which has a geological context that allows one to dream of a McArthur River scale discovery, the richest in the world.

One has an emerging high grade gold discovery in southwestern British Columbia which the company has the potential to replicate on parallel structures thanks to additional ground acquired in 2022.

While I have mentioned the other two in past Kaiser Watch episodes, the third one I have only talked about to KRO members. It has a large grassroots gold project that is the last major gold exploration frontier in America. It generated this play in 2021 and its exploration has been limited to geophysical surveys, prospecting and trenching because a drill permit requires an environmental assessment. They hope to have drill permits in place by Q2 of 2023 and be drilling 500 m holes in H2 that will test different targets within the carbonate stratigraphy and the Precambrian basement below. It is comparable in size to a next door district that has an endowment of over 90 million gold ounces. And yet it has received almost no historical exploration because the rocks at surface are younger than the host rocks to the east, generally obscured by soil and bush, and where outcropping rather mediocre looking. But when the company put boots on the ground it began to find high grade gold at surface, evidence that the system has been the focus of unrecognized hydrothermal activity 50-65 million years ago, similar to what formed the younger deposits next door.

The fourth potential emerging discovery candidate for the 2023 Favorites is a past Favorite that should have been a homerun but its flagship project ended up in limbo because of First Nation politics. KRO members have been accumulating it since last week when the junior put out a peculiar news release about drilling it had done on a second rate project. It was a bottom-fish pick at $0.10 but is now trading in the $0.15-$0.20 range. This property has a low grade niobium deposit discovered in the seventies whose 25 million tonne deposit will never be worth developing. But this year the company undertook a rethink of the geological context, and thanks to recent clearcut logging, discovered evidence of a softer potential host rock for niobium than the pegmatitic nepheline syenite dyke which is a very hard rock visible at surface. It appears that a couple km to the west a lake was hiding a giant carbonatite system. It has the scale to be another Niobec which is 150 km to the southeast. But we won't know until we have assays.

Jim (0:31:24): How many of your 2022 Favorites will make it into the 2023 Favorites?

During the December 9 KW episode in which I reviewed the 2022 Favorites I indicated that two would for sure survive as 2023 Favorites. Since then I have had a chance to do further research and confirmed that a third will also make it to 2023. The others will be consigned to the 2023 Bottom-Fish Collection from which they may graduate next year if copper and gold develop uptrends, something I do not expect of the Federal Reserve plunges the world into a deep recession. The three keepers all have unusual stories whose outcome does not hinge on macroeconomic trends and metal market sentiment. There is a major risk of a recession in 2023 which is unlikely to boost precious and base metal prices, which make advanced feasibility demonstration projects a hard sell to the market. I think geopolitics and the energy transition will stay topical in 2023 regardless of the economy. In other words critical metals, with an emphasis on battery metals, both of whose supply could be disrupted or which needs to be expanded to feed new usages, will pull investor interest into resource juniors. Advanced copper and gold stories will be for bottom-fishers with a longer time horizon to accumulate.

Disclosure: JK owns some of the candidates for the 2023 Favorites Collection

Posted: Dec 16, 2022JK: Kaiser Watch December 16, 2022 with Jim Goddard and John Kaiser
Published: Dec 16, 2022KRO: Kaiser Watch December 16, 2022: Implications of Fusion & LIFE Breakthroughs
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 December 16, 2022: Implications of Fusion & LIFE Breakthroughs
Jim (0:00:00): Does the fusion breakthrough announced this week have any implications for the mining sector?

The breakthrough announced on Tuesday by the National Ignition Facility at the Lawrence Livermore Laboratory which is located about 30 minutes form my office has no immediate practical implications for anything but it represents an important beacon of hope for the younger generations when they inherit the planet after the sun has set on most Boomers. The NIF was conceived in 1997 and finally finished in 2009 at a cost of $3.5 billion. Its footprint is equivalent to several football fields. Its primary purpose is to allow the United States to test nuclear weapons on a tiny scale so that it no longer has to test bombs underground or in the air. While other fusion research labs have worked with a tokamak, a magnetic bottle within which the hydrogen fuel is super-heated, NIF is based on laser technology which involves super-heating a pencil eraserhead sized pellet of deuterium and tritium encased in diamond.

Nuclear fusion creates clean energy because in simple terms the fusing of hydrogen atoms in plasma form at millions of degrees to create helium results in a loss of mass that is released as energy. The promise of nuclear fusion is that once you can get a fusion reactor going, it becomes something of a perpetual motion machine which could result in a 90% or more drop in the cost of energy production. This would be a revolution akin to discovering and harnessing oil as a transportation fuel. Nuclear fission reactors using uranium cannot achieve such a cost revolution because they generate dangerous radioactive by-products that have to be contained. The problem with fusion is the extraordinary inner-sun equivalent temperature required to get it going. The goal of fusion research is to achieve an energy output greater than the energy input required to achieve ignition. But until Tuesday this has not been achieved and the promise of fusion energy has been permanently several decades down the road.

Since 2009 the NIF has not made much progress with fusion research but it finally started making progress in 2021. On December 5, 2022 they turned on 192 lasers to blast a pellet with 2.05 megajoules of energy - apparently the equivalent to a pound of TNT - which generated a flood of neutrons measured as representing 3 megajoules for a 1.5 factor of energy gain. This is a major first time accomplishment, but it is not a solution for tomorrow. Commercial scale nuclear fusion is still two decades down the road, but the really exciting thing is that we can now believe that nuclear fusion will become reality in the 2040-2050 decade by when we have the goal of limiting global warming to 1.5 degrees by achieving a zero net carbon economy. Fusion research is no longer this glib promise by researchers eager to keep their well paid jobs alive until retirement.

The reason it will take another couple decades for nuclear fusion to become reality is that it will be a huge engineering challenge to commercialize nuclear fusion. For example, although they converted 2 megagoules into 3 megajopules, they had to pull 300 megajoules from the energy grid to prime the lasers. The energy pulse lasted only one hundred trillionth of a second. In order to generate electricity the fusion has to become a sustained process. One insider affiliated with the Livermore lab told me that the ceramics in the lasers take six hours of cooling before they can be used again. Clearly there are huge materials science research challenges. A NYT article suggests energy gains in the order of 30-100 times are needed. In other words the stadium size footprint of NIF has to shrink massively.

These are engineering challenges which can be solved if enough effort and capital gets committed, as happened when the Manhattan Project was launched in 1942 to develop the nuclear bomb. Nuclear fusion, however, is a weapon for mass destruction, so secrecy is not required. Already there are privately funded startups working on technologies other than the tokamak. Nuclear fusion will have many components that can be worked on in parallel with public and private funding. The NIF announcement provides the basis for launching a Manhattan Fusion Project. For an idea of what would be involved, check out the publication Bringing Fusion to the U.S. Grid the Department of Energy asked the National Academies of Engineering, Science and Medicine to produce in 2021.

The true significance of the NIF breakthrough is that it gives hope to the post-boomer generations, Gen-Z and the Millennials, who will inherit what the Boomers left of the planet in 2040 and beyond. Biden did manage to get the Inflation Reduction Act passed which provides support for the energy transition, but the problem with climate change policies is that they do not promise to make things better, just slow down how bad they get and likely hand out lots of sacrifices along the way. We are merely shifting the energy supply foundation from fossil fuels to other foundations such as renewables and nuclear fission which do not imply a future reduction in energy costs. For the younger generations to begin rebuilding a prosperous future in the 2040s we need an energy revolution, both to undo the consequences of creeping climate change and secure the raw materials the world will need to keep growing or at a minimum improve overall standards of living.

Fusion energy would obviously provide electricity, so the electrification of the transportation sector continues to make sense. So does beefing up the electricity grid. If fusion delivers a huge reduction in the cost of energy per unit consumed, it will help solve a looming problem which is the future disruption of freshwater supply, essential for agriculture and feeding the planet. Three forces are threatening our future water supply. One is the rising consumption that comes with a growing global population which recently hit 8 billion. A second is the salination of cropland through irrigation that drains aquifers and allows seawater ingress, a big problem facing southern California as an example. The third is changing weather patterns as a result of global warming which could deprive some regions of rainfall driven water supply, and others of water storage from mountain snowpacks. The nightmare scenario is that fertile cropland ends up mismatched with freshwater supply. Banning water intensive usage is one policy that can be applied, but that might mean no more almonds for the world, a major water sucking crop in the Central Valley. A much larger scale solution is desalination of seawater as is currently done by Saudi Arabia which burns surplus oil. Desalination is energy intensive. But if much cheaper fusion energy emerges, desalination will be a large scale solution to the water problem.

In terms of implications for the mining sector, the immediate question that comes to mind is, what is the uranium equivalent input for nuclear fusion and should we start exploring for it? Nuclear fusion energy will put nuclear fission energy out of business, except perhaps in the form of small modular reactors in remote locations during the early decades when large scale fusion power plants get developed. But that is 20 years down the road. The negative implication for the uranium sector is that given the long permitting and development cycles for nuclear power plants, how much political will to do so will remain if the promise of fusion power plants is taken seriously?

The key inputs for nuclear fusion are two hydrogen isotopes, deuterium and tritium. These are necessary because human designed nuclear fusion will not be the same as the fusion that takes place inside the sun. Hydrogen is unusual among elements in that it has one proton and one electron but no neutrons. Within the sun where the temperature is over 15 million degrees the electrons are stripped from the hydrogen atom to create a fourth form of matter called plasma. Gas, liquid and solid are the other three. While an element is defined by the number of protons, each element can have different numbers of neutrons as part of the nucleus. Neutrons are slightly heavier than protons because they represent the neutralized charges of a proton and electron. These are called isotopes. Hydrogen has two isotopes: deuterium which has one neutron, and tritium which has 2 neutrons.

Nuclear fusion in the sun is a complex series of chain reactions but the simplest has 3 steps and requires 4 protons. The first step of nuclear fusion in the sun is when 2 protons collide to create deuterium, the hydrogen isotope which has one proton and one neutron. Since a neutron is slightly heavier than a proton this involves a mass gain, a consumption of energy. The second step involves a collision between the deuterium isotope and another proton. The result is a helium atom with 2 protons and 1 neutron which is unstable. The third step is the combination of two of these helium isotopes which spits out 2 protons and results in a stable helium atom with 2 protons and 2 neutrons. Somehow the mass of the resulting helium is less than that of the inputs which under E=mc2 means energy has been created. This energy allows the sun to operate as a giant furnace, gradually burning up its hydrogen stock.

Human designed nuclear fusion cannot create a sun like furnace, but it follows the principle of fusing hydrogen atoms to form helium. Deuterium is a stable isotope of hydrogen, but there exists only 1 deuterium atom for every 6,400 regular hydrogen atoms with no neutron. And all of it was created during the Big Bang. None of the deuterium created inside stars ever escapes without being converted into something else. Water or H2O is the primary source of hydrogen through electrolysis, another energy intensive activity. Distillation is used to concentrate the water molecules whose hydrogen atom is deuterium. This is called heavy water. Tritium is a very rare and unstable hydrogen isotope with two neutrons that is created as a by-product from lithium metal inside nuclear fission reactors. Fusing these two isotopes creates helium with two protons and two neutrons, and a free neutron that represents the energy gain. So the mining industry will never look for deposits of deuterium and tritium.

The main implication for the mining industry from the future reality of fusion energy is the potential collapse in energy costs. Energy is a major input cost in the mineral extraction industry. You need energy to break ore from its surrounding waste rock. You need energy to crush and grind ore small enough so that chemical processes can liberate the target metals from the minerals in which they are tied up. It takes energy to make the chemicals needed by the flowsheet, and sometimes the flow-sheet requires heat, another energy cost.

When they talk about peak copper or peak any metal, this is not the same as talking about peak oil. Oil is an organic compound with origins at the earth's surfaces. It can be depleted, and the only reason nobody talks about peak oil these days is because new technology in the form of fracking allowed the extraction of stickier shale oil whose deposits are much more abundant than regular oil deposits. Most metal deposits, however, are formed through fluids flowing through rock, harvesting metals by dissolving them, and then precipitating them in locations where pressure, temperature and chemical receptivity are just right. Most of the time the conditions are not just right which is why there exist zones of mineralization with a vast range of grades.

Economic ore grade is defined by the cost to extract the metal (including the infrastructure) and what you can sell it for. The prices of metals change over time for a variety of reasons, but the grade of a mineralized system never changes. Over the past 10,000 years the energy unit cost has declined as a result of various energy revolutions. But the cost of energy is not getting cheaper, and the energy transition will at least temporarily increase the unit energy cost. Economic grade will thus remain a function of future metal prices over the next 20 years during which the best deposits will be depleted. This poses a peak metal problem for the Gen Z and Millennial generations that can only be solved by a massive reduction in energy costs such as commercialized nuclear fusion could potentially deliver.

Where an open pit copper deposit needs at least 0.3% copper today to be mineable, or an underground copper deposit at least 0.6% copper, if nuclear fusion becomes reality, those economic grades could drop to 0.1% and 0.2% or lower. There is an awful lot of tonnage with those grades that the juniors have found over the decades. And while exploration over the next two decades will still be focused on what counts as economic grade today, all those not good enough systems discovered will be a bounty to be harvested by future generations if nuclear fusion becomes reality. It will be a variation of the China super-cycle of the 2000's when real metal prices increased several-fold as China's scaling up of production created deflation for the cost of goods that more than offset the rise in metal costs. This created a feasibility demonstration boom for the resource juniors who clawed the failures of past exploration cycles out of the closet. Most mineralized systems that outcrop have already been identified, so near surface exploration is not going to excite investors. But under cover exploration has the potential to deliver discoveries with sufficient grade to be feasible to develop over the next two decades. But even when an under cover discovery doesn't meet current ore grade requirements, if there is any scale to the mineralized system it may be a future mine in a fusion powered world.

The only negative implication is for gold, whose economic ore grade threshold would also drop substantially, exposing huge volumes of gold mineralization to profitable extraction. Gold is unique in that most of the above ground stock sits in vaults doing nothing useful, whereas all other metals are fabricated into something that supports the prosperity of the world. While the real price of most metals will not decline in the long run as lower grade deposits get mined thanks to a reduction of energy costs, the real price of gold may decline as the above ground gold stock expands substantially.

Jim (0:15:04): What are the implications of the new Listed Issuer Financing Exemption? Does it promise LIFE for juniors?

The Listed Issuer Financing Exemption or LIFE for short is embedded in National Instrument 45-106 for Prospectus Exemptions which the Canadian Securities Administrators amended to become effective on November 21, 2022. It is an extremely important and timely development for the resource juniors. An OSC Notice September 8, 2022 provides a detailed description of this policy change.

What it does is allow a listed company which is up to date with its regulatory filings and has been a reporting issuer for at least 12 months to conduct a private placement of up to $5 million, or 10% of the market capitalization to a maximum of $10 million, that is immediately free trading. I'm not convinced eliminating the 4 month hold is a good idea for market integrity, though it will eliminate the time bomb effect of stock crushing the market 4 months after the financing was completed. This usually happens when the private placement includes a warrant and placees are eager to flip the stock and clip the warrant as a free ride on the junior's future success.

Previously a financing could only be free trading right away if done under a short form offering prospectus, which is handled by full service brokerage firms. As we know only high net worth investors have an account with a full service broker these days because brokers are asset gatherers not generators of commissions through trading; all the rest do their investing through a discount broker where they never talk to a human for ideas or advice. During the 1980s brokerage firms like Continental and Canaccord which specialized in the resource junior sector would do statement of material fact financings which were immediately free trading and were sold to an army of retail investors. Structural changes, however, have created a situation where short form offering based financings are from a practical perspective not available to retail investors even though they were eligible to participate.

The huge implication of LIFE is that it does away with the accredited investor requirement for participating in a private placement which evolved as the primary financing mechanism in the 1990s. I have been complaining about this requirement for years and have even done technical presentations at PDAC calling for elimination of this requirement.

To be an accredited investor you need to have a net worth of at least $1 million not including your net equity in your residential real estate. Or have household income in excess of $200,000 for the past 2 years. That meant the vast majority of the potential investing capital pool was ineligible to give their money directly to a company so it can fund its projects. Instead, retail investors were limited to buying in the open market paper being dumped by millionaire placees clipping their free lunch warrant.

The reasoning behind this restriction was that if you weren't a millionaire you didn't have the smarts to assess the risks of investing in a private placement with a 4 month hold restriction. Never mind that you are wealthy because you are a highly paid doctor but know nothing about exploration and mining. Or a successful real estate developer. Or even a trust fund baby snorting coke and pretending to be useful by working for an NGO. If you were not worth at least $1 million you are not smart enough to understand the risks of a private placement. In addition to the implicit contempt about the intelligence of non-millionaires, it has had a paternalistic dimension. If you aren't a millionaire you should not be allowed to expose yourself to the risk of loss. Only if you were a friend of management or a member of the financial sector were you eligible to participate in a private placement.

The stupidity and hypocrisy of this stance was that it was perfectly OK for non-millionaires to use a discount broker to blow their brains out buying some pump and dump stock read about on reddit.

The closest the regulators came to reform was a listed shareholder exemption for non-millionaires which was cynically designed to be useless as a fund-raising mechanism. It limited one to a maximum of $15,000 per year per company, and created all sorts of verification obstacles. But worst of all, once a company announced such a financing, anybody who heard about it and liked the company's story, but didn't already own stock, was ineligible. This exemption was dead on arrival.

Most of the LIFE financings announced so far have been done as brokered financings where the attraction is the commissions and the immediate free trading nature of the financing. But some companies have announced non-brokered versions and are working their way through the kinks in this process. The first step is to file a document on SEDAR describing the terms of the financing.

The harder step is to collect the documentation and money from subscribers who contact the company, and sort out the delivery of the share and warrant certificates. This is a work in progress but I am very pleased the regulators created the LIFE exemption and are allowing non-brokered LIFE financings.

What motivated the regulators to change their mind? I think there were two factors at work.

One is that Canada's resource junior eco-system is rivaled only by that of Australia, but the accredited investor restriction was starving the Canadian juniors of access to risk capital, especially the earlier stage juniors not backed by financial sector principals. The limited number of accredited investors actually interested in the junior resource sector was also pretty much "owned" by a small group of well-organized management teams. This harmed the diversity of the resource junior eco-system because a small elite captured the risk capital inflow while the majority toiled in a wilderness devoid of accredited investors.

In addition Ottawa has woken up to Canada's potential role in supplying the critical minerals needed to make the world's energy transition possible. As an example, the nature of Lithium Mania 2.0 is quite unique in that we have a deposit style that has never been of economic interest to mining companies until recently, and resource juniors are well suited to finding and delineating pegmatite deposits. The big companies do not have the flexibility to mount a Great Canadian Pegmatite Hunt. They will be in the wings to pounce when a big discovery is made. Rio Tinto is developing new processing technology to create spodumene concentrates with a higher lithium content than the 5%-6% ranges for chemical and technical grades. When major mining companies like Rio Tinto move into the pegmatite mining space by taking out the more advanced former juniors, there will be a scramble by juniors to find more deposits because what is visible is still insufficient to fulfill the projected ten-fold supply expansion needed to make EV replacement if ICE cars a reality by 2035. But if you only allow millionaires to feed the juniors, most of the eligible juniors, especially the toiling geologist type, will be starved of cash and accomplish little.

The other factor may have been the realization that the younger Gen Z and Millennial generations were putting their money into spurious gambling ventures like crypto currencies and getting blown up. Buying Bitcoin at $65,000 only enriches the libertarian ideologue braying about the freedom of superior individuals, criminals laundering their profits, and cyber-thieves from places like North Korea and Iran. Losing money on Bitcoin does not make the world a better place. Losing money on a legitimate exploration junior does make the world a better place because new mineral wealth is created by the collective action of legitimate resource juniors. Cryptocurrency is just a wealth transfer mechanism.

Why would younger retail investors gamble on Bitcoin? Because they saw how stacked the system is against them making money through more legitimate means and saw the momentum trend as a fast path to wealth. That, of course, has reversed and will have a hard time re-establishing an uptrend. Betting on Bitcoin requires no thinking at all, just an impulse. Buying resource juniors requires a fair bit of research, but retail investors do have time to research the resource juniors and make intelligent decisions. They can form social media clubs to collaborate in the research process. Why not let them buy private placements with warrants and be in a position to clip the warrant and flip the stock as they rove from one junior to another? Instead of the risk capital coming from a handful of millionaires and being funneled into deals where the funnelers have vested interest that may not have been created through much wisdom, why not allow a large and diverse market of thinking people to give money directly to juniors?

There will be teething problems for non-brokered LIFE financings. Collecting ten $5,000 checks from retail investors rather than a $50,000 check from an accredited investor will be ten times as much work for the junior. Probably more because retail investors have no experience navigating the maze of paperwork where a half dozen boxes that need to be checked are buried inside 50-100 hundred pages of boilerplate. It is possible that LIFE will not mean new life for resource juniors if the logistics are not simplified. But this decision to drop the accredited investor requirement creates a will to streamline the process.

Ideally somebody will set up a central clearing system where individuals register and establish their jurisdiction and where they want their digital certificates deposited. Then there needs to be a system of online documents supplied by the company where the retail investor checks the boxes. If you live in Saskatchewan which tends to unduly restrict its residents, and the financing is not cleared for that jurisdiction, you never see the option. So eligibility to participate in a financing is automatically determined.

It becomes a first come first serve process with a key part being the payment system. Wiring small amounts makes no sense. The problem with LIFE and retail investors is the logistics of dealing with a hundred $5,000 subscriptions. This needs to be streamlined. If this happens I think the Canadian resource junior system will flourish. I wish to thank the Canadian regulators for creating this exemption for retail investors, who now have incentive to learn how the resource junior sector works.

Monthly History of TSXV Resource Financing Activity by Type

Breakdown of TSXV Resource Financing Activity

Breakdown of TSXV Private Placement Activity by Sector
Jim (0:27:03): What did you think of the Sequoia micro diamond results reported by Arctic Star?

Arctic Star reported micro diamond results on December 5 for 6 holes drilled into the Sequoia kimberlite complex discovered last year. The drill program was done in May and finished in early June. The company published the micro diamond results as a composite which results in a distribution curve that is slightly lower than last year's results, but maintains the slope which is key to expecting bigger macro diamonds. When you combine the two data sets the curve suggests a macro grade potential in the 20-30 cpht range. That is low for what has been developed in the Arctic, but it is encouraging that the micro diamonds in general continued to be clear and white. While I was pleased to see the original macro grade potential largely confirmed, the market, however, wanted bigger and better, not just confirmation of what it already knew, so it hit the bid and the stock is languishing at $0.02.

The 2022 holes were drilled from 2 pads centered 100 m apart in the middle of a north-south oriented gravity anomaly about 500 m long and 100-150 m wide. Two holes were vertical and two holes were drilled east and west from each pad. The Jack Pine kimberlite drilled in the early 2000s is located at the southern end of this sinuous elongated complex of what appear to be multiple eruptive phases.

Arctic Star has not yet disclosed a breakdown of the micro diamond results per hole and the geologists are still sorting out the internal geology of the intersections. But Pat Power has told me that some of the intersections had lower counts on a normalized basis than others. Exploration VP Buddy Doyle believes that Sequoia is a series of kimberlites, some of which may be higher grade than others and have different quality diamond populations.

For example, the Jack Pine kimberlite explored by Majescor in the early 2000s, which extends the Sequoia structure another 300 m to the south, yielded micro diamond results from a 786 kg sample that indicates zero macro grade potential. It is not uncommon for a structural zone of weakness to be invaded by different kimberlite emplacements, kimberlite magmas that sampled different parts of the lithosphere before finding the common gateway at surface. One eruptive phase can be very high grade while the one next to it near barren.

If you assume an area 500 m long by 150 m wide by 300 m deep and apply a specific gravity of 2.6 you will get a tonnage footprint of 58,500,000 tonnes. That is larger than the reality will prove to be because the kimberlites will taper at depth. So it is reasonable to knock the tonnage footprint into the 20-30 million tonne range which is substantial compared to the individual Diavik pipes. Buddy Doyle believes that Sequoia requires another round of delineation drilling in order to define the internal kimberlite geology of this complex before proceeding to the next step of mini bulk sampling for grade. The market probably didn't like this implicit deferral of macro grade confirmation into 2024 either, but that is why diamond exploration is so much more difficult that exploring for gold or lithium.

Arctic Star is also considering delineation drilling of the Finlay kimberlite which received the most attention from De Beers when it explored the Hardy Lake block during the 1990s. Arctic Star tested a magnetic lobe this year that juts to the southeast of a magnetic anomaly representing the Finlay pipe. The Arbutus sample was only 143 kg and its micro diamond distribution curve suggests a 10-20 cpht grade potential. But its diamonds were described as aggregates and fragments. Aggregate diamonds are not gem quality, and the fragments imply crushing during extraction and processing of the sample. A couple weeks after the Arbutus results were reported in mid September Chuck Fipke produced a report gushing about the chemistry of Arbutus core he examined, but at this stage it is not clear how representative that sample's indicator mineral chemistry is of what Arctic Star submitted for caustic fusion. Finlay's magnetic anomaly has a much smaller footprint than the gravity anomaly associated with Sequoia. Combined with Arbutus it has a tonnage footprint limit to a depth of 300 m in the 10-20 million tonne range. De Beers has never revealed micro diamond data or indicator mineral chemistry related to Finlay which may have been the most promising of the couple dozen kimberlites it found in the 1990s testing magnetic anomalies. If all De Beers observed in the micro diamonds were aggregates it is unlikely it would have drilled 7 holes into Finlay. The reason De Beers never did anything was that the size was insufficient to support a standalone mine operated by De Beers.

It may be worthwhile for Arctic Star to revisit Finlay with several holes in order to understand the macro grade potential. Arctic Star's goal is not to establish a new cluster of kimberlites that can be developed on a standalone basis like Diavik's 4 high grade pipes. The purpose at Diagras is to find diamondiferous kimberlite tonnage with decent value carats that could be mined and trucked to the nearby Ekati and Diavik facilities which are approaching depletion and the onset of reclamation liabilities. Buddy Doyle has suggested to me that properly delineating Sequoia and testing Finlay in H1 of 2023 would cost about $3 million. Arctic Star has about 212 million issued and 358 million fully diluted. The dilution comes from 115 million warrants, mostly at $0.10, of which 39.6 million expire Mar 31, 2023. This warrant overhang represents a lid at $0.10. But that lid is 5 times higher than the current price. Pat Power does not want to roll back the stock again. He's done 3 since 2011 totaling 240:1 and his exploration VP Buddy Doyle is quite fed up having to rebuild his share position from scratch.

One option for Arctic Star is to pursue a LIFE financing aimed at a younger retail audience. For example, what if Arctic Star tried to do 150 million units at $0.02 with a full warrant at $0.05? What if this attracted hundreds of retail investors who are actually funding the next work program rather than just eating paper dumped by the millionaire warrant clippers who hold the overhanging lid of warrants? Sure the dilution will limit the price upside, but if Arctic Star gets taken out at $0.20 for $100 million that will be a ten-bagger from the initial bet, and a 4 bagger from the $0.05 warrant bet. The new LIFE exemption could be a godsend for resource juniors like Arctic Star which have been abandoned by accredited investors and are willing to cultivate an audience of younger retail investors.

Arctic Star Exploration Corp (ADD-V)

Bottom-Fish Spec Value
Diagras Canada - Northwest Territories 2-Target Drilling D

Map showing location of Sequoia relative to Ekati and Diavik

Diagras location map for kimberlites found by De Beers and Arctic Star

EM, Magnetic and Gavity Anomalies for Sequoia Complex

Finlay-Arbutus Magnetic Map & Arbutus Core Photo

Sequoia Micro Diamond Results Table

Micro Diamond Distribution Curves for Diagras Pipes compared to others

Table of Existing Arctic Star Warrants
Disclosure: JK does not own any companies mentioned; Arctic Star is Bottom-Fish Spec Value rated

Posted: Dec 9, 2022JK: Kaiser Watch December 9, 2022 with Jim Goddard and John Kaiser
Published: Dec 9, 2022KRO: Kaiser Watch December 9, 2022: Favorite & Bottom-Fish Plans for 2023
Kaiser Watch is a weekly 15-30 minute audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.

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Kaiser Watch December 9, 2022: Favorites and Bottom-Fish Plans for 2023
Jim (0:00:00): How is the end of the year shaping up for the resource juniors?

The resource juniors are in the final throes of tax-loss selling season after a very bad year that started out quite promising in Q1 for some juniors though by mid year all of them got dragged down by the general equity bear market. At the start of the year 27% of TSX and TSXV resource companies were trading below $0.10, but that had climbed to 42% by December 9. That is slightly less than the percentage at the end of November, so the worst of it may be over.

What is really interesting is the divergence of traded value between TSXV listed resource and non-resource listings. Since 2012 non-resource TSXV listings have represented 60%-80% of traded value with a couple short-lived exceptions in 2016 and late 2017, plus the second half of 2020 when $2,000 gold helped the resource juniors to command more than 50% of the traded value. But since December last year the traded value ratio has reversed and in Q4 it has been above 60% with a spike to 79% in recent days. Some of that is due to an ongoing decline in non-resource listing traded value, but in Q4 TSXV resource listings have seen a steady increase in traded value.

You can also see this in the daily average traded price for resource and non-resource TSXV listings. Since 2012 it has ranged $0.40 to $1.40 for non-resource listings and is now below $0.40 per share, a level reached briefly in H1 of 2020 when we had the covid meltdown but before the H1 2021 melt-up. Since 2012 the resource listings have averaged below $0.40 except for the gold related spike in H2 of 2020, and the spike in Q4 2021 through Q1 2022 which led me to believe that thanks to a decade long resource bear market during which producers slowed down new mine development, coming supply disruptions due to geopolitical fracturing of the global economy, and new usage demand from the energy transition, I felt that metal prices and by extension both resource majors and juniors, would buck the general equity market downtrend as interest rates rise to subdue inflation. The Russian invasion of Ukraine caught me by surprise, and while it should have helped metal prices because of sanctions, the severity of China's zero-covid policy sapped raw material demand and by H2 all metal prices except lithium were in decline, with copper, a symbol of macro-economic strength, the biggest disappointment.

But the average traded price, while still below $0.40 has been climbing in Q4 and I think we may see this trend continue in 2023 because China is biting the bullet on its zero-covid policy, preparing to sacrifice over 1 million elderly Chinese in order to turn around its faltering economy and rising anger of its eternally locked down citizens. What makes me cautious is concern that Powell's interest hikes have set in motion the forces that create a global recession as real estate prices succumb to high interest rates. And there is also the risk that if jammed hospitals and rampant covid infections make the Chinese even angrier with XI Jinping's autocratic policies, he may create a patriotic diversion by annexing or blockading Taiwan. That could result in massive supply chain disruptions for non-autocratic economies which are still to a very large degree dependent on importing goods from China. At the same time Russia is very unpredictable with Putin also having boxed himself into a corner. Now we have Ukraine's Zelensky using a slingshot to snap drone pebbles off Putin's ass which could lead to a dangerous escalation of the sort of weapons Putin deploys against Ukraine. The China-Russia axis remains problematic and could crash the economy next year.

But I do think resource juniors will continue to dominate traded TSXV value in 2022 and to understand why, just look at the charts for Hive Blockchain and Canopy Growth. HIVE is down 93% from its 2021 peak of $36 while WEED is down 94% from its $72 peak in 2021. The crypto and cannabis bubbles, key drivers of TSXV non-resource listing traded value, are finished. Bitcoin itself is down 73% from its $65,000 peak in 2021. In light of the FTX fiasco, how stupid do you have to be to continue to hold bitcoin, or even, worse, buy more of it? It is a ponzi scheme pumped by libertarian ideologues to take your money away. If gold had declined from its $2,039 peak this year it would be at $550 per oz. Instead, after dipping into the $1,600-$1,700 range it is around $1,800 today. I have no idea where gold is headed in 2023, but I can't imagine it going to zero like bitcoin could because it is invisible and not useful for anything beyond facilitating criminal payments and funding regimes like North Korea and Iran through cyber-theft. The old gold is the real gold.

Price Range Distribution for TSX & TSXV Resource Listings

Long Term Chart of Relative Traded Value for TSXV Resource and Non-Resource Listings

Short Term Chart of Relative Traded Value for TSXV Resource and Non-Resource Listings

Long Term Chart of Average Daily Traded Price for TSXV Resource and Non-Resource Listings

Long term charts for copper, nickel, gold and silver

Long term charts for iron, aluminum, zinc, potash, phosphate rock & vanadium

Long term charts for tin, cobalt, lithium carbonate, oil, thermal coal & uranium

Crash charts for crypto miners, cannabis and bitcoin
Jim (0:08:22): How have things worked out for your 2022 Favorites? Will any of them make it to the 2023 Favorites Collection?

The 2022 KRO Favorites as a group had a very disappointing year. The Favorites index is down 39.2%, very close to the 39.4% level reached several times since August. At the moment it is slightly worse than the TSXV Index which is sown 38.4%. Gold in contrast is only down 1.3%. At the moment only 2 of the 2022 KRO Favorites are for sure going to be continued as part of the 2023 Favorites Collection. FPX Nickel Corp, which is only down 10%, just did an important $12 million financing which will fund the junior into 2024. Verde Agritech Ltd, which is still up 76%, now has 3 million tpa K Forte production capacity in place to serve the 2023 growing season. Both stocks have substantial upside from current levels, with $2-$3 my target for FPX by Q4 next year when it releases its PFS, and $10-$20 for NPK premised on a higher profile through a NASDAQ listing and evidence by Q2 that its guidance for sales of 2 million tonnes in 2023 is on track. If potash prices hold up in 2023 so that NPK can continue to sell K Forte at $100/tonne or higher, achieving its guidance would make it a $200 million revenue company.

The biggest potential extra drag on the Favorites Index for the remainder of the year is Eskay Mining Corp which still has not reported any assays for its 2022 summer work program. That is worrisome because the junior will need to refinance for next summer's work in the Golden Triangle. I have low expectations that much will have changed for the TV-Jeff area as a result of this year's work whose visual descriptions suggest the zones have not grown beyond a couple high grade pods. My greatest hope lies with the Scarlet Ridge drilling, but based on the company's news releases and the fading stock price, I think the results will simply portray a very juicy geological context, not the hole 109 equivalent the Eskay Project needs to confirm an Eskay Creek BZone repeat discovery. Unless we get a Christmas miracle news release Eskay Mining, which is already down 65% and vulnerable to last minute tax lossing, is headed for the 2023 Bottom-Fish collection.

Galway Metals Inc has turned into a negative drag on the 2022 Favorites Index. On Wednesday the company suspended drilling to conserve cash and allow assays to catch up. The market does not care about the 2 million ounce resource at Clarence Stream, nor does it believe my Outcome Visualization based on Marathon's Valentine project even after I increased CapEx to reflect the higher construction cost for Valentine. My OV projects a future after-tax NPV of CAD $500 million at 8% which translates into a future price target of $2.29 based on 219 million FD. That's about 10 times higher than the current price. So Galway will become part of my 2023 BF Collection.

Northwest Copper Corp is the biggest disappointment so far this year, down 73%, even though it had the busiest year in its history. It was my emerging advanced copper junior with a gold kicker that has suffered from copper's retreat from $4.50/lb to $3.50 and gold's softness in the face of sharply higher interest rates. It has probably also suffered collateral damage from being a member of Mark O'Dea's Oxygen Capital group whose Pure Gold Mining imploded this year. But the biggest drag on the stock price has been news flow. We are still waiting for assays from the 8 holes drilled at East Niv which is an emerging copper-gold porphyry discovery, though at this stage the market no longer cares about the results. The big event promised by the end of the year is a PEA describing how the Stardust underground and Kwanika open pit mining plan will work. If we get the PEA before year end and it is positive I may keep Northwest Copper as part of the 2023 Favorites; otherwise it will join the 2023 Bottom-Fish Collection.

Perpetua Gold Corp, down 58%, is now in a new comment period for its Stibnite permitting cycle but I now believe that its 2020 FS is stale. When I reran the DCF model with a 20% CapEx and OpEx escalation the project needed $2,000 gold to justify construction. Given the uncertainty about the permitting cycle and what an updated FS will look like, I will not continue Perpetua as a 2023 Favorite but will make it part of the 2023 Bottom-Fish Collection. If they move to the next stage in the permitting cycle and gold breaches $2,000 on the upside, I would turn it back into Favorite in 2023.

P2 Gold Inc, which is down 63% and has probably bottomed, will be moved to 2023 Bottom-Fish Collection. The BAM drilling in the Golden Triangle has delivered positive results for a low grade open-pittable system which management thinks can support a 2-4 million ounce resource it plans to deliver in Q2 of 2023. The disappointment at BAM is that the company could not get a key geophysical survey underway early enough to deliver the deeper feeder target which P2 Gold believes will have much higher gold grades. The survey was completed but the data is still being crunched. The junior plans a similar 14,000 m drill program starting in June 2023 with 70% of the drilling earmarked for testing the deep feeder target. Like Northwest Copper the stock is suffering from weak copper and gold prices and the PEA for the Gabbs project in Nevada planned by year end has not yet been delivered. The simplified OV I created does not deliver a positive economic outcome at current prices because it uses life-of-mine averages. The key for Gabbs to be economic at current prices is an optimized ore schedule and staged development that starts with heap leaching the oxide gold cap and defers the mill CapEx down the road for the copper rich sulphides. The PEA has been postponed to Q1 of 2023, but the big cloud hanging over the market is a USD $5 million payment due to Waterton Global in May 2023. They are seeking an extension but Waterton has been distracted by a restructuring which will wind down Waterton while key people launch a new fund called Kinterra Capital for which they apparently trying to raise $500 million. Kinterra will have an energy transition focus which means metals key to the EV sector which includes copper, the primary metal at Gabbs. P2 Gold is struggling to complete a $1 million financing at $0.27 per unit which the street has already forced management to turn into a full warrant. We probably won't see the PEA until P2 Gold secures an extension for the Waterton payment deadline. With all this uncertainty I cannot keep P2 Gold as a 2023 Favorite but it will be a great member fo the 2023 Bottom-Fish Collection.

I do not yet know if I will keep Aurion Resources Ltd as a 2023 Favorite. Aurion, which is down 55%, decided to participate in the 70:30 JV with B2Gold on on the Kutuvoma project that adjoins Aurion's 100% owned Risti project to the west and south of Rupert's Ikkari project. B2Gold has been delineating the Helmi discovery but the results are not as good as the Ikkari deposit which Rupert discovered by grid drilling an overburden covered area that yielded gold in till values. At Risti Aurion conducted target development work in 2022 on the over-burden covered part which may set the stage for a discovery in 2023. Most of the past drilling has been in the outcropping northern part where Aurion has encountered high grade but erratic gold mineralization. Last week Rupert published a PEA for the 4.2 million ounce Ikkari deposit which envisions a 10,000 tpd milling operation that will have 11 years of open pit mining and another 12 years of underground mining. The after-tax NPV at 5% came in at USD $1.6 billion using $1,650 gold as a base price. CapEx was only $404 million. If Aurion can discover a similar open-pittable resource at Risti the exit strategy would be future acquisition by Rupert if it develops Ikkari on its own, or by whomever acquires Rupert, which could be B2Gold. At a minimum Aurion will be part of the 2023 BF collection.

I already have a number of new candidates for the 2023 Favorites which will be revealed on January 3. At the moment I am very busy compiling my 2023 BF Collection.

KRO Favorites 2022 Index Chart

KRO 2022 Favorites Performance Table

Charts for Verde Agritech, FPX Nickel, Eskay Mining and Galway Metals

Charts for Northwest Copper, Perpetua, P2 Gold and Aurion
Jim (0:22:37): What criteria are driving your choices for the 2023 Bottom-Fish collection?

During the last quarter of 2021 I was very optimistic that the resource sector would flourish in 2022 despite a general equity bear market as interest rates rise to subdue inflation. The key reason was that the resource juniors had been in a bear market for a decade while metal prices tracked sideways and the majors, after over-building in response to the prior decade's China super cycle, were reluctant to build new mines. So if the global economy continues to grow there will emerge future supply deficits that will lead to higher real prices that in turn will encourage M&A and funding for exploration and feasibility demonstration work by the resource juniors. This does not apply to gold which is not required for anything. An additional driver for higher prices is new usage demand related to the energy transition. Copper and nickel stand to benefit from the EV replacement of ICE car sales, and, of course lithium, which is an essential metal for all the battery configurations being adopted by the car makers, has the potential to grow into a $100-$200 billion annual market, a hundred times what it was in 2005 when lithium demand consisted of the stable glassware-ceramics market and small rechargeable batteries for cell phones and laptops. And yet another factor is the risk of supply disruption arising from the geopolitical fragmentation of the world into autocracies and democracies. Geopolitical tensions did accelerate in 2022 when Xi Jinping and Vladimir Putin created an axis whereby China approved of Russia's invasion of Ukraine and benefited from cheaper energy prices. As a result of my optimism I flagged about 160 resource juniors for my 2022 Bottom-Fish Collection, the biggest number ever.

At the start of 2022 the resource juniors did reasonably well but by the middle of the year when the scale and pace of interest rate hikes shocked the market, metal prices started to decline, recession fears spooked the market out of producers, and during H2 investors abandoned the resource juniors along with everything else that had risk. Market sentiment became so negative that I coined the idea of an "emerging discovery" to describe a situation where a junior drills a hole that doesn't quite qualify as a no-brainer discovery hole that sends the stock into S-Curve territory, but yields enough geological context that it is clear additional drilling will deliver confirmation intersections. In normal markets such juniors experience anticipatory speculation, but in the current bear market the junior is lucky if it tracks sideways. This situation allows market observers to identify and accumulate juniors an terms that offer much better reward potential than failure punishment risk. But to recognize such bottom-fish one has to understand the underlying story, which takes a lot more work. So for 2023 my Bottom-Fish Collection will be half the size of the 2022 Collection and will consist of juniors whose stories I have become familiar with.

Normally I make heavy use of the KRO Search Engine to identify juniors with good financial positions and insider incentive structure in place, but 2022 was a very weak financing year for resource juniors. About two-thirds of the juniors have a December 31 year end; the key 9 month September 30 financials were due only at the end of November, and the updating cycle will not be complete until the third week of December. This does not stop me from adding juniors to the Bottom-Fish Collection in 2023, but what is available between now and the end of December will be only 50-80 bottom-fish.

At the moment I am putting my research effort into identifying juniors involved in lithium exploration, in particular pegmatites. I have historically ignored lithium juniors which proved quite justified when Lithium Mania 1.0 collapsed in 2018-2021 when lithium carbonate prices dropped below $3/lb. But starting in H2 of 2021 the EV demand surpassed the available supply and lithium carbonate prices soared ten-fold to the current level, from which they may yet spike higher. However, these levels are not sustainable for two reasons: 1) the ten-fold demand growth projected for 2035 will not happen if electric vehicles are not affordable to the masses, and, 2) current price levels will lead to over-supply that crash the lithium carbonate price just as happened when the Australians proved highly efficient at developing Pilbara hosted LCT type pegmatites during Lithium Mania 1.0. A future price range of $10-$15/lb lithium carbonate is needed to achieve the supply expansion, and it will limit feasibility demonstration work to the better discoveries. I expect that in 2023 Lithium Mania 2.0, which is focused on finding and developing LCT pegmatite deposits and which is not yet appreciated by the retail market, will explode on the upside. The juniors themselves already get the concept and a couple hundred have already picked up lithium prospects, often by just staking in the vicinity of earlier juniors with management teams that understood what one is supposed to be looking for. Since I only came to appreciate the concept of Lithium Mania 2.0 in Q2 of 2022, I have a lot of research catch up to do.

I cannot be confident the resource sector overall will do well in 2023 as we navigate a possible recession and geopolitically related problems, but I do know that the car industry is committed to the energy transition and is starting to appreciate the nature and scale of the upstream lithium supply problem. Because it takes 5-10 years to find a deposit, delineate it, conduct economic studies, and complete the permitting cycle so that a mine can be constructed, if the car industry wants EV sales to go exponential by 2030, the resource juniors will need a massive capital inflow over the next 3 years to secure the future supply for 2030-2040. My timing for the eruption in Q2 of 2023 may prove early, but I am absolutely confident it will happen over the next two years.

TSXV Resource Junior Working Capital Range Distribution

TSXV Positive and Negative Working Capital Distribution by Price Range
Disclosure: JK owns shares of FPX Nickel and Verde Agritech

Posted: Dec 2, 2022JK: Kaiser Watch December 2, 2022 with Jim Goddard and John Kaiser
Published: Dec 2, 2022KRO: Kaiser Watch December 2, 2022: MIT shines light on lithium dendrite problem
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 December 2, 2022: MIT shines a light on lithium dendrite problem
Jim (0:00:00): What do you think about the $12 million FPX Nickel just raised from a secret strategic investor?
FPX Nickel Corp announced a $12 million financing with a "strategic investor" on November 29, 2022 consisting of 24 million shares at $0.50, a significant premium above recent price levels. The placee's identity is confidential at its request, it is subject to a two year standstill with regard to purchasing additional shares, but it is entitled to maintain its 9.95% stake by participating in any additional financings. This financing, which promptly closed, gives FPX $18.5 million working capital which CEO Martin Turenne says will carry FPX into 2024. The completion of the ferro-nickel pilot plant study which is expected to generate 18 kg of concentrate is now projected for early January, but the bench scale study for the hydrometallurgical flow-sheet that will produce nickel and cobalt sulphate is still on schedule for late Q1 of 2023 because it is being fed with ferro-nickel concentrate already produced by the pilot plant study. This pilot plant study will be a significant milestone because it scales up technical detail for a flow-sheet that has never been deployed on a commercial scale, namely magnetic separation of awaruite, which produces a 12% nickel concentrate consisting of awaruite and magnetite, followed by flotation which removes the magnetite to yield a 60%-65% nickel concentrate with the remainder mainly iron. There has been much speculation about the nature and identity of the strategic investor. For clues I recommend watching the excellent Martin Turenne interview conducted by Bill Powers of Mining Stock Education. Martin distinguishes between mining companies and "strategic counter-parties" and breaks them down into 4 groups: mining, chemical, battery and car makers. When Bill Powers asks if this strategic investor will be able to help FPX with advice, Martin's response strongly suggests that the investor is not a mining company but an entity interested in Decar's future output. My guess the party is either a chemical company or a battery maker, though it is important to note that no offtake agreement accompanied the deal which emerged from a competitive process in which a dozen or so parties conducted NDA based due diligence. On November 18 FPX also published an updated resource estimate for Baptiste which included a 7% nickel grade increase and grades for cobalt and iron. The cobalt and iron grades are Davis Tube Recoverable grades, which means it includes only the iron and cobalt that ends up in the initial concentrate after grinding and magnetic separation. These numbers are important because it will allow FPX to include revenue streams in the PFS for the 5% (cobalt) and 7% (iron) rock value. The cobalt will only be payable for ferro-nickel concentrate processed into battery grade sulphates, and the iron will only be payable if FPX can find a market for the magnetite pulled out by flotation, which is the bulk of the 2.4% iron grade. The iron in the nickel-iron awaruite, a natural stainless steel, will not be payable when the concentrate is headed for the stainless steel market. The PFS is now expected in Q4 of 2022, with the subsequent permitting and feasibility study stage expected to cost another $40-$50 million. The importance of this financing is that FPX does not need to worry about additional financing until it has delivered its PFS, which will have substantially greater credibility for the market. I've updated my DCF nickel price model for both the original PEA assumptions and one where I have escalated CapEx and OpEx by 20%. The stock is substantially under-valued, even below the lower limit of the value trough portion of the S-Curve. Over the next year, with the dilution risk due to financing needs deferred until 2024, I expect FPX Nickel to be trading at a minimum within the $2-$3 range by this time next year after the PFS is delivered.
FPX Nickel Corp (FPX-V)

Good Spec Value
Decar Canada - British Columbia 6-Prefeasibility Ni

Updated Resource Estimate for Baptiste

Decar DCF Nickel Price Sensitivity Model for AT NPV based on Sept 2020 PEA

Decar DCF Nickel Price Sensitivity Model for AT NPV/Share based on Sept 2020 PEA

Decar DCF Nickel Price Sensitivity Model for AT NPV based on Sept 2020 PEA Costs escalated 20%

Decar DCF Nickel Price Sensitivity Model for AT NPV/Share based on Sept 2020 PEA Costs escalated 20%

Aawruite offers a simpler path to battery grade nickel sulphate than sulphide or laterite ore
Jim (0:13:04): What did Scandium International announce that caused it to move up a penny?
Scandium International Mining Corp perked up the market this week with news that it plans an 800 m and 500 m drill program for the Honeybugle and Nyngan projects in New South Wales. The Nyngan drilling will involve 12 holes in the western part of the property where the west pit is located and which is on the half of Nyngan where SCY already holds the surface rights and planned to start mining and locate all infrastructure. The company has also applied for full reinstatement of the mining lease. I suspect that Owen Carter or his kids are still being difficult about the surface rights covering the east pit. The initial scale has a 20 year mine life just mining the limonite. The underlying saprolite is somewhat lower grade but is larger and may have easier processing characteristics. The Nyngan drilling may be designed to ensure that mining the eastern half can be pushed very far out into the future.

The Honeybugle drilling will follow up the Seaford anomaly drilled in 2014 with 6 holes to delineate the limits of that resource. In Tracker June 7, 2021 (KRO members only) I conducted a back of the napkin tonnage estimate for Drill Area 1 which yielded the best results within the Seaford anomaly. I used the resulting 3,740,000 t @ 272 ppm Sc resource as the basis for a speculative DCF model that starts with a 1,000 tpd mining scale rather than the 200 tpd scenario on which Nyngan is based. This operating scale, assuming the same recoveries as Nyngan which is located 28 km to the northeast, would would generate 127 tpa of scandium oxide, about four times the initial 35 tpa output for Nyngan. SCY will also drill 27 holes into the untested Woodlong magnetic anomaly. These targets have magnetic anomalies because they represent blocks of mafic or ultramafic rock that has undergone laterization through tropical weathering, which in New South Wales has managed to enrich scandium to 20-30 times crustal abundance grades. These targets are covered by a very thin veneer of soil which itself has anomalous scandium values above the magnetic anomalies. We should see the Honeybugle results in Q2 of 2023, which, because they will be a grid of shallow holes, will allow us to do back of the napkin tonnage and grade estimates.

One might ask, what is the point of establishing an additional scandium resource when there isn't even demand for the current potential output from Nyngan? The development of the scandium market is now in the hands of Rio Tinto which is recovering scandium at its Sorel-Tracy facility in Quebec as part of upgrading the 80% titanium slag to the 95% rutile equivalent grade required by most pigment makers. The titanium slag is a by-product from smelting iron ore from the Lac Tio Mine and the by-product output limit is in the 30-50 tpa scandium oxide range. If Rio Tinto builds global demand beyond 50 tpa from its current estimated 20-25 tpa range, this will represent a demand tipping point. SCY is presenting itself as the future go to source of primary, scalable scandium supply. At a recent scandium conference CEO Peter Evensen talked about seeking a partner for Nyngan. It is unlikely that such a partner at this stage would be an aluminum producer like Rio Tinto or Alcoa seeking to ramp up supply Al-Sc master alloy. It is more likely to be a producer of specialized materials that require scandium, such as Materion, Bloom Energy or even AMG which might never need more than the proposed Nyngan operating scale which is really equivalent to a large pilot plant study. If SCY goes down this path, it would be extremely helpful to have a substantially bigger and richer nearby resource at Honeybugle which would be of great interest to a Rio Tinto when alloy demand reaches a lift-off point.

SCY now has about USD $2 million working capital but be careful when you check the September 30 none month financials. Current liabilities includes a line item called a "warrant derivative liability" in the amount of $1,519,787. If you do the working capital equation of current assets less current liabilities you get a figure of only $122,339. Historically I have treated all current liabilities as real, but not all current assets like so called "marketable" securities. In the aftermath of the dot-com doom the accounting world introduced a set of fictitious liabilities related to options, warrants and future tax liabilities created by handing off the flow-through benefits to investors. These have been classified as long-term liabilities and at KRO we isolate these fictitious liabilities so we can see the real liabilities that threaten the viability of a junior. This is now the second time I have seen a fake liability stuffed into current liabilities and I suspect this is due to a recent rule change which will be very unhelpful when it comes to assessing the balance sheets of resource juniors.

Scandium Intl Mining Corp (SCY-T)

Bottom-Fish Spec Value
Honeybugle Australia - New South Wales 3-Discovery Delineation Sc

Google Earth Map of relative locations for Nyngan and Honeybugle

Past drill results for the Seaford target at Honeybugle

Speculative Honeybugle DCF Model AT NPV at various scandium prices

Speculative Honeybugle DCF Model AT NPV/Share at various scandium prices

A fake liability included with current liabilities will render working capital figures useless
Jim (0:20:00): MIT published a paper on November 18 which explains how dendrites grow within a lithium ion battery. Is this a significant development?
A group of scientists at the Massachusetts Institute of Technology (MIT) published a paper in the Joule journal called Controlling dendrite propagation in solid-state batteries with engineered stress which offers an explanation about why dendrites propagate within a solid state electrolyte in a lithium ion battery. The flow of lithium ions through a battery will cause filaments to grow within a solid state electrolyte that can puncture the separators and cause a short circuit. To avoid the serious fires this would cause a lithium ion battery uses a fluid as an electrolyte and graphite as the anode in place of the perfect anode material, lithium metal. The Joule article is behind a paywall but on November 23, 2022 Oilprice.com published an article explaining this breakthrough: MIT Reports Breakthrough In Solid-State Lithium Battery Development. Figuring out how to prevent dendrite growth has been a problem because these spires form within an opaque physical solid and thus are difficult to observe in real time. The working assumption has been that the lithium ion flow causes some sort of electrochemical degradation. The MIT group was able to design an experiment which enabled them to observe that it is natural stress fractures within a solid state electrolyte that become the pathway for dendrite propagation. The short circuit problem is created by the random ordering of these stress fractures. Recognizing that the dendrite problem has a mechanical basis rather than an electrochemical basis will allow battery makers to focus on developing solutions that prevent such stress fractures. The MIT group has proposed a solution in the form of imposing stress on the battery materials so that the stress fracture are aligned within the electrolyte. This will not stop dendrite growth, but these tiny spears won't be puncturing the material that separates the electrolyte from the cathode and anode materials. The MIT group has applied for a patent, possibly for a way to manufacture the lithium ion cells so that the stress fractures are all aligned. Now that the cause of the problem is understood, other groups will know how to focus their research efforts to create a solid state electrolyte that also allows them to substitute superior lithium metal for graphite in the anode. If successful, this would have big implications for future lithium demand. Current projections of a ten-fold demand expansion from the 2021 level of 100,000 tonnes of lithium metal assume lithium metal will never be used for the anode because of the dendrite problem. Lithium Mania 2.0, which is the global search for lithium enriched pegmatite deposits so that future demand can be met when EV demand starts going exponential in 2030, will have a 2-3 year boom period, by the end of which the world will know what deposits are headed for production by 2030. But this dendrite understanding breakthrough may set the stage for news in three years that a solid state electrolyte which allows lithium metal to be used as the anode has been achieved and will be commercialized by 2030. That would kick off Lithium Mania 3.0. We don't need this breakthrough to make money betting on juniors exploring for lithium pegmatites, but hang onto your hat if it delivers a safe lithium ion battery with a solid state electrolyte.
Disclosure: JK owns FPX Nickel and Scandium International; FPX is a Good Spec Value rated KRO Favorite; Scandium Intl is Bottom-Fish Spec Value rated


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