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Junior Exploration Market: About to Get Lit Up, or Burned Down?

In the past 3 months, we've had not one, not two, not three, but at least four supposedly world-class discoveries by junior exploration. What are the odds any of these, or more than one, actually works out, and what are the implications for the rest of the junior exploration market?

The odds are not good. Even questionable "world-class" discoveries are exceedingly rare and many of them are made by the mining companies themselves (not explorers). Junior explorers do make such discoveries sometimes but even more rarely. Think Voisey's Bay, Pierina, Ekati, Fruta del Norte, Cerro Negro, Brucejack, etc. Out of those not every one is even world class although each has achieved valuation in the billion dollar range along the way.

Based on probabilities alone, this current wave of excitement will end with a whimper once drilling and assay results reveal the limited nature of the mineralization found. Perhaps this will scare investors and make the next speculative play less likely to reach such extreme price levels so early in the supposed discovery process. On the other hand, the fact that at least four junior explorers have each rallied by 1000% or more in the space of a few months is an indication that speculators have plenty of money to blow on "prayer and hope" and that they are willing to chase dreams in the current market. As such, we should be looking for the next discovery setup and get on board early (hopefully also getting off the train at a good time), regardless of what transpires with this current batch.

First came GT Gold with its Golden Triangle Saddle discovery in British Columbia. This one has already fallen back but still trades at twice the "pre-discovery" price level. The assay results continue to be impressive but the market has gotten bored with just excellent grades and widths and is looking for gargantuan results to stimulate its fickle fancy. And it hasn't even dawned on the market that the topography and geometry of the gold zones likely limits the upside to "just" a few million ounces of gold at best and maybe only a few hundred thousand.

Then followed Novo Resources with the Pilbara conglomerate gold play in Western Australia that is supposed to be even bigger than Witswatersrand. This one still sports a billion dollar valuation after achieving 10-bagger gains. It may hold on to such lofty levels for a while as the exploration program and assaying will take months (perhaps by design, in order to stretch the speculative time-frame as long as possible). I plan to write more on this in a later analysis.

Next was Garibaldi Resources with its magmatic nickel-copper sulfide discovery at Nickel Mountain, also in the Golden Triangle. This has had the largest outright gain from around the 15 cent level to $4.60 Canadian at the moment (a stupendous gain of 2500% over the course of 3 months). The shares are halted as I write this presumably while the first drill assays are being disseminated for public release. The assays are overdue, which probably means the first few weren't very good and the company has been waiting to accumulate additional assays in order to report something more substantial and thereby avoid disappointing the speculators too badly. It will take something very substantial indeed for the share price to maintain current levels at over US$350 million market cap. Some are claiming this is another Voisey's Bay so I'm guessing the assays will need to look like Voisey's Bay or the stock will drop.

Finally there is New Nadina Explorations with its "Treasure Box" find at the Silver Queen project in north central BC (near the Golden Triangle as well, making the GT seem like a veritable trouvaille of inexhaustible mineral reaches). Assays for this one are still a month away, and the company trades at a more "respectable" valuation of around US$50 million. Of course that could still change as the hype grows and speculators chase the dream nearing the release of assay results. The company has been kind enough to show us some core photos and they are inconclusive. The core over meter length intervals look to be excellently endowed. Longer sections of the supposed 100-200 meters of mineralization claimed to be of "interest" within the alleged "conductor" are, however, less conclusive based on the images of core still in boxes. The company conveniently did not provide closeups or magnified photos of these longer core sections, only a few selective and obviously well-mineralized chunks of core. I've seen enthusiastic claims before of core heavily mineralized by "sooty" or "smeared" sulfides, ruby silver and all sorts of other goodies only for assays to reveal little to no metal endowment. I expect most of the core length in this "Treasure Box" to be similarly devoid. There should be some very nice intervals too. And if the company is honest, they won't try to  smear the high grades into intervening low grade or barren sections to make it appear like a deposit with massive tonnage instead of the short intervals of unknown and likely small tonnage that it probably is. Just the nature of mineral deposits to be so unkind to dream chasers.

So what's the upshot? At the very moment I give Garibaldi the lead in terms of the potential for having made a world-class discovery. The others have certain unresolved "issues" some of which I have pointed out above or elsewhere or will do so later. I doubt Garibaldi's princely status will be confirmed by the pending news release due out today because magmatic intrusion-related Ni-Cu mineralization tends to grade skew in confined channels and odd-shaped contours within a larger, lower grade ore body. Therefore it often takes several attempts to find the meat of the deposit. So more likely what they can show for now is decent intervals of decent grades in nickel and copper that are "suggestive" of a potential major discovery, but it might not quite be what the market demands at a US$350 million market cap having come from US$15 million just 3 months ago.

Either way, we seem to be in a period of speculative free-for-all in junior exploration wherein discovery stories are being amply rewarded. Under such circumstances, we should look to position early in any stories we can uncover before the other speculators start to pile on board. And if one or more of the above juniors do actually prove world class, then that could ignite the entire exploration sector in a good way.

Disclaimer: This is not investment advice, just an opinion. Consult your own expert.

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