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KMW Blog Aug 22, 2016: Teresa Matich interviews John Kaiser at Sprott 2016 Conference

Posted: Aug 22, 2016JK: Teresa Matitch interviews John Kaiser at Sprott 2016 Conference
Published: Aug 14, 2016INN: 4 Mining Exploration Stocks With John Kaiser
Teresa Matich interviewed me on July 28, 2016 at the 2016 Sprott Natural Resource Symposium held in Vancouver from July 26-29, 2016. The 11 minute interview is audio only and the link includes a transcript. I first contrast the differing optionality play styles of Keith Neumeyer's First Mining Finance Corp and Ron Netolitzky's Skeena Resources Ltd, both of which can be called "mineral banks". First Mining has adopted the strategy of acquiring gold and silver resources that need a substantially higher metal price to be worth developing, usually at distressed valuations always paid for with First Mining Finance paper that is valued as if the dream of higher gold and silver prices has already been fulfilled. First Mining relies on mass marketing programs to peddle various theories about why gold and silver are going to the moon, and why the most leveraged way to participate is by owning First Mining Finance. It does not spend any money advancing the projects in its portfolio. Skeena is also building a gold and silver optionality portfolio but with a somewhat different twist in that Ron Netolitzky is targeting high grade systems located in British Columbia that either never became a mine or were once mines before supposedly running out of ore. As such the deposits Skeena acquires generally do not have current resource estimates whose ounces in the ground can be tabulated and assigned a dollar per ounce value. Unlikely Neumeyer whose value-add strategy consists of praying for a higher metal price, Netolitzky puts his noggin to work rethinking the geology underlying the gold and silver systems of Skeena's acquisitions. He also mobilizes exploration programs to test his theories, which is a no-no in certain quarters where the optionality value of a worthless resource is best preserved by spending as little money as possible. Skeena thus offers a somewhat less quantifiable optionality on higher metal prices, but does expose its shareholders to a discovery surprise should the exploration work deliver high grade mineralization that would be profitable to mine at prevailing metal prices. Both companies have a lot of paper issued, because they use paper as currency to acquire assets. But on the plus side both stocks are liquid trader, which means that when a tsunami of risk capital floods the junior sector it can secure meaningful stakes in these juniors. First Mining Finance has achieved a much higher valuation than Skeena because a lot more investors can pass a "first mining finance for dummies" class where all you have to see is what there is to see, versus an "outcome visualization" class which requires one to understand what a competent geologist imagines is present but not obviously visible. The First Mining Finance strategy is more effective at this stage of the market cycle where after 5 brutal bear market years and terrible wrongness about "fiat currency debasement" and "hyper-inflation" the market has been reluctant to assign optionality value to individual deposits. But that is changing as mineral banks scoop up worthless deposits. It will get more difficult to acquire such deposits when gold breaches $1,500 and some of these deposits gain intrinsic value. The First Mining Finance hare will become long in tooth when there is no longer anything substantial to gnaw on. The Skeena tortoise, in contrast, will start to accelerate as historic ounces are teased into 43-101 form and exploration drilling opens expansion potential. If gold stalls at $1,600 the market will gravitate toward the Skeena tortoise.

In the rest of the interview I talk about Defiance Silver Corp as an example of a junior which is doing a single project version of Skeena's strategy with its San Acacio silver project in Mexico, and InZinc Mining Ltd which at the moment has a zinc optionality play in Utah but which management is considering turning into an exploration play.


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