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Summary
• Opawica represents a new type of exploration company using more data and better analytics (tech savvy, agile and capital disciplined).
• The traditional mineral discovery lifecycle (“Lassonde Curve”) is not directly applicable to this new big data-driven mineral exploration business strategy: a modified curve is proposed.
• Evidence that Opawica is applying this new strategy is outlined with applications to the Modified Lassonde Curve (financials and project details, strategic redirection effort, lowering risk through diversification).
• Near-term catalysts are discussed (Drill results on one property; planning work for other properties; Gold spot price ending a long-term bull pennant pattern).
While Opawica’s chart is in a holding pattern pending drill results, with bulls and bears each tugging since the company raised $5.28M in June, this hides the impressive exploration and development work done since then. Raising capital on favorable conditions, obtaining exploration permits, surveying properties, determined targets using the latest tech, drilling, and are awaiting results in the span of one year is a herculean effort for the best exploration team. Opawica simply made it look easy.
However, what is most impressive is the combination of strategy and execution. The company is an exemplar of the new mineral exploration company: capital disciplined, using tech to reduce exploration risk (also reducing capital raises and dilution), with a keen understanding of the new social and environmental realities of mining.
Opawica is currently trending lower highs and higher lows, indicating a holding pattern. Recently approaching its 52-week moving average, we anticipate a continuation of this holding pattern until one of our catalysts mentioned below materializes.
The End of the Zombie Nation
The decimation of many in junior mineral exploration companies (JEC’s) in the early 2010s soured investors to the industry for the better part of a decade. When the last bull run ended in 2011, many TSX Venture listed JECs became known as zombies – companies with negative working capital, and no way of raising new funding.
Capital only started to slowly return in 2018-2019. Having been burned by overly optimistic JEC executives with decades of experience but little drive to innovate or rock the boat, those holding the capital lost trust in their heuristics and rules of thumb. All the while, mineral discoveries were taking longer, costing more, and returning lower yielding assets. The easy stuff was found; the industry needed a better microscope, and more budgetary discipline, to start seriously attracting capital again.
The TSX venture market for their part, listened to the JECs plea for lower listing overhead costs, and overhauled their rules and regulations to help this struggling segment. Listing and disclosure requirements were re-written and simplified; governance and ESG conventions were developed, and other services to build up its listed companies were offered. Despite the changes, most zombies were doomed, killed off, their assets sold off. The nimblest were able to adapt, adjusting their business strategy to the new environment.
Beating the Lassonde Curve
The historical business model of mineral exploration has been well described with the Lassonde curve of the mining asset lifecycle.
Figure 1: A Typical Lassonde Curve Adapted with Resource Delineation
JECs used heuristics, manual analogous mineralization, and drilling history research to find prospective properties. Prospecting rights are acquired, capital is raised, and Geo work is commenced (geophysics, geochemistry, geology, etc.). Using analogous patterns across multiple layers of data, geologists find prospective sites and raise capital to complete an initial drilling campaign. This can be the riskiest part of the JEC lifecycle: if cores come back with poor results, more pattern comparison work, possibly more Geo work, and more drilling is required. This all requires capital. JECs needed to find a better way to do early exploration work, or risk becoming zombies, and ultimately end in de-listing. With the gold slump and lower quality of deposits found over time, JECs needed to become more sophisticated.
Enter artificial intelligence (AI), and advanced aerial geo surveying techniques.
Earlier, JECs struggled to raise enough capital to develop a PEA, spending considerable effort in marketing to bring the necessary capital. A balance between dilution and raising capital drilling, and consultants’ studies was exacerbated by considerable earlier dilution. Many of these companies saw some growth during the effort to develop a PEA or PFS, often sold off assets at discounts, as little news flow followed the initial study. With reduced exploration budgets the necessity for innovation became acute. New market players started adapting cutting edge technology to exploration:
Pattern recognition AI programs were used in other industries (e.g. medical radiology) with higher accuracy than humans. Applications to mineral exploration (also a pattern recognition problem) was a natural progression.
While aerial surveying had been used for some time, new technology allowed for more granular data, with deeper penetration into the ground.
Geographic Information Systems, combined with geology, geophysics, and geochemistry could be used to determine targets faster, and with more accuracy.
Smart companies that adopted to the new model freed up some human capital during early stage development, as there was higher confidence that initial drill results would yield. This allowed for a quicker transition from searching for the deposit to determining how big the deposit is. Some of the smarter companies even started to consider the Lassonde curve, and how a JEC could hack the curve to its benefit.
From early engagement with the AI company GoldSpot Discoveries in June, to engaging multi-parameter airborne surveying across three properties in November, Opawica clearly understands the benefits of this new model.
The New Lassonde Curve
It’s often noted that as soon as a piece of actionable market information (a source of market alpha) is widely known, it loses predictive capacity. In this case, JECs looked to companies like GoldSpot Discoveries to augment their own early exploration effort. By spending more time with assets to increase certainty and bankability, this reduced the orphan period. Some of the freed-up human capital went towards intentionally delaying announcing a defined resource, and the strategic space to manage the value-add process of their asset.
Lowering risk through diversification
On a word of caution, this strategy brings more price volatility to the earlier stages of the exploration cycle, as drill results and other activities are announced in similar time windows. To mitigate some of this volatility risk, the smart JECs are developing larger claims, with a rage of geographies, jurisdictions, and stages of development. This comes with the added benefit of de-risking the company through diversification. Opawica has executed this diversification comprehensively. It has properties across different geographies and jurisdictions (Newfoundland and Quebec), both of which are highly favorable to the mining industry. Its land claims are all on different stages of the Lassonde curve, which will reduce volatility as value is added to each asset through development.
More Time to Work on The Social License to Operate
Previously JECs underestimated the importance of a social license to operate. Now, thanks to greater standardization in the ESG industry and a greater capacity from the JEC, ESG can be considered earlier on. Engagement with indigenous groups and community stakeholders early on has become an indispensable part of the exploration process. From their actions Opawica understands this better than most. In November, a local drilling contractor was chosen not only to gain community buy-in, but to delineate social and infrastructure modifying factors required move mineral resources to mineral reserves. The company also established strong communications with First Nations – fundamental to make a successful project for all stakeholders going forward. Opawica also became a charter member of the Newfoundland Gold Strategic Alliance – a group that requires commitment to ESG principles.
Lowering Early Dilution and Strategic Asset Management
The extra manpower allows JECs to do orphan stage work in the background while still actively exploring. While the biggest news stories are still drilling related, they are also doing environmental studies, permitting, conducting labor analyses, metallurgic testing, and so on. Things like the modifying factors for NI 43-101 standard feasibility studies were considered in tandem with geo considerations.
Soon, a resource is defined with a PEA. The stock pops, and they take advantage with an equity sale at premium prices (maybe even with flow through shares, as was the case with Opawica in December). A couple months later, the JEC announces a full-fledged EA. Here, the market is caught off-guard – how did this happen so soon after the PEA? The stock continues its premium trading for a little longer. A few months go by, and the FS is announced. The market doesn’t understand how this company could have gone from PEA to FS so quickly. The project is ready for financing within 6 months, and those shareholders who held out are handsomely rewarded. By selling claims later in the exploration stage the New Victors capture more of the value generation from their assets.
In 2021, Opawica focused its strategic effort on de-risking activities including diversifying its portfolio and developing its social license to operate. For 2022, the company has announced efforts to “develop geological models and geological targets based on the data acquired to date from drilling” – it understands the need for long term strategic asset management.
Strong Finances, Great Jurisdictions
The team at Opawica has been able to obtain financing on very favorable conditions for its exploration activities. Based on its June presentation, the company’s market capitalization vs cash on was favorable compared to both the Newfoundland and Quebec jurisdictions. Its position has only become more valuable, as its asset size has increased in October, raised over another $2M in December at a significant premium, and spent considerable care to developed its assets.
Figure 6: Opawica compared to its peers
Timing and Technical Analysis
Figure 7: The Long-Term Gold Bull Pennant
Gold is forming a long-term Bull Pennant pattern, with anticipation of breakout in Q1 2022. Bull Pennants are typically continuation patterns, the current case following a six-year bull trend. Some experts believe this pattern was developed as Bitcoin was claiming a portion of the store-of-value market. However, as the world gold council notes, Gold is a better liquidity and volatility hedge, and this pattern may mark the continuation of the bull market.
- Opawica is expecting drill results from Bazooka shortly, with anticipation of significant positive upside from these results.
Evidence that Opawica is applying this strategy is evident in many places. While the stock is currently seeing the chaotic price movement shown at the start of this article, this will be mitigated as more assets are brought forward from the concept stage, drill results come in from its properties, and over the longer term, through its strategic plan.
Now, while the results of last years’ efforts will come in and speak for themselves, the management team is venturing on with its new development strategy. Using today’s best AI and data collection technology, Opawica will minimize the guessing game when determining where exploration should focus.
