The best returns among Canadian mining companies are earned by building conviction when market sentiment is low, such as the present moment.
With widespread expectations of a Canadian recession in 2024, the average investor has relegated long-term, high-reward opportunities to the background in exchange for the safety of cash, which is now yielding 4-5 per cent, as well as bonds, which are yielding between 3.5 to almost 5 per cent.
This dynamic has created attractive entry points in small and micro-cap mining stocks, whose higher volatility and pre-revenue operations simply wouldn’t let most investors sleep well at night, effectively making it open season for seasoned allocators well adept at identifying prospective metal and mineral projects.
K9 Gold (TSXV:KNC), a Canadian mining company focused on lithium, gold, uranium and vanadium, stands out among these out-of-favour stocks because of quality exploration results combined with minimal market recognition.
A strategic location with no systematic exploration
K9 recently completed a summer field program on its 6,692-ha JB Lithium Project in James Bay, Quebec, with clear cause for investor excitement.
After collecting 3,524 soil samples and 136 rock samples, the Canadian mining company’s geological team identified at least three substantial pegmatite outcrops along ridges over 500 m in length on the underexplored project. Each outcrop contains spodumene, tourmaline and garnet, with all three holding promise as future revenue sources:
- Spodumene is an important ore associated with lithium-rich pegmatites, making it a key component of the US$22.2 billion lithium market and US$561.3 billion EV market, both of which are slated to benefit from massive macro tailwinds
- Tourmaline is a popular gemstone that can fetch thousands of dollars per carat
- Garnet is a silicate mineral with numerous industrial applications across a global market set to surpass US$1 billion by 2030
The pegmatite outcrops are present on JB’s Rivière Salomon unit, where Quebec government geological mapping yielded one outcrop sample returning 65 ppm lithium in 2013.
Outcrops on JB’s Lac Joubert-Tilly unit are related to occurrences of Tilly Pegmatites, a large pegmatite swarm and lithium host in the James Bay region backed by extensive historical and government mapping.
Joubert-Tilly features at least five zones of Tilly Pegmatites composed of pegmatitic granite with biotite-muscovite-tourmaline-magnetite-garnet assemblages. These pegmatites are a top lithium target in the area and reside near the Joubert Suite tonalites, the likely source of lithium in regional discoveries. A 2015 Quebec government geological mapping program found six outcrops of pegmatitic granite consistent with the Tilly Pegmatites. Additionally, one outcrop of an ultramafic intrusive returned 77 ppm lithium, 0.10% nickel and 0.30% chromium.
JB’s resource potential is further substantiated by the project’s close proximity to world-class operations, including:
- Patriot Battery Metals’ Corvette Project, only 50 km to the west, where the CV5 spodumene pegmatite, one of the largest lithium pegmatites in the world, offers a maiden mineral resource of 109.2 million tonnes at 1.42% Li2O inferred
- Winsome Resources’ Adina Project, only 5 km to the east, where drilling has delivered 1.34% Li2O over 107.6 m from 2.3 m to 109.9 m, grades as high as 1.92% Li2O over 30 m, and a strike length of over 3 km. The Trieste Formation, which hosts lithium mineralization on Adina, transects Rivière Salomon
- Allkem’s James Bay Lithium Project, whose mineral resource estimate delineates 110.2 million tonnes at 1.30 per cent lithium oxide, including 54.3 million tonnes at 1.30 per cent lithium oxide indicated and 55.9 million tonnes at 1.29 per cent lithium oxide inferred. The Federal Ministry of Environment and Climate Change approved the development of the project in January 2023
With analytical results forthcoming for the JB field program – in addition to a LiDAR and photogrammetry survey once wildfire conditions improve, as well as management’s interpretation of a completed magnetometer and VLF survey – K9 is positioned for considerable share-price momentum from positive news flow as it delineates a potentially transformative lithium resource.
A deep discount to intrinsic value
While K9 offers an option on outsized returns through the JB Project alone, especially when we consider its high-profile neighbours, data-driven resource thesis, and KNC shares’ irrational 96 per cent drop from their 2020 high, the Canadian mining company’s value proposition vastly expands when we mention that JB isn’t even its flagship asset.
That moniker belongs to the 13,025-ha Stony Lake Project, which is in the Central Newfoundland Gold Belt between Sokoman’s high-grade Moosehead Project and Marathon’s multi-million ounce Valentine Lake deposit, the latter estimated to yield average gold production of 195,000 ounces per year for the first 12 years.
Stony Lake’s 2022 diamond drilling program on the highly prospective Jumper’s Pond Zone followed up 2021 drill hole JP21-022 – which yielded 127.4 m averaging 0.61 g/t gold – with multiple intersections of significant intervals of continuous gold mineralization along strike and down dip. Highlights include 31.75 m averaging 1.52 g/t gold and 27.35 m averaging 1.88 g/t gold. Ongoing 3D modelling at Jumper’s Pond will determine future drilling as gold tempts all-time-highs because of stagflation and recessionary fears.
K9 is also in possession of the 811-ha Desert Eagle Project in Utah, a property prospective for uranium, copper and carnotite-vanoxite vanadium from surface to an estimated depth of 180 feet. The project, located close to Anfield Energy’s sizeable Shootaring Canyon Mill, backs up its potential with:
- A 2.8 km trend of high-grade vanadium
- A completed 43-101 technical report
- Historic vanadium and uranium production beginning in the early 1900s
- A presence on the Morrison Formation, the principle domestic source for vanadium for the United States
- Seven channel samples, each measuring 1.5 m, with weighted average grades of 1.307% V2O5 and 0.245% U3O8 mainly from underground workings
Given the tremendous upside implied by exploration to date on K9’s portfolio, the Canadian mining company represents a real-time counterexample to the efficient market hypothesis, where retail and institutional fear, as well as unawareness, have underpriced JB, Stony Lake and Desert Eagle to free-lunch levels.
Investors unfazed by volatility over a long time horizon can purchase shares at only 0.3x book value – providing exposure to 70 per cent of K9’s assets for free – setting the stage for upside surprises as JB’s prospective sampling guides the next phase of work.
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