Thursday 1st October 2020

Resource Clips

End times or new age?

John Kaiser discusses a worst-case scenario and an innovation that could “freak out” regulators

by Greg Klein

This is the second of a two-part interview with following John Kaiser’s December 9 speech to the Association for Mineral Exploration British Columbia. Read Part I here.

On big banks and the Toronto exchange

“The TMX Group is a for-profit organization owned by a consortium of banks and their agenda is different from junior exploration. In fact the juniors are anathema to their agenda,” Kaiser says. “They give you their managed return, which is the random walk of the market less their take, and that’ll be some mediocre yield on your portfolio. Then some 10-cent stock takes off and an individual makes a thousand percent. The big guys cannot possibly deliver that kind of return.”

“It’s really in their interests to have the resource sector disappear as something that can generate these discovery booms and the optimism that always comes with a discovery.”

Worst-case scenario: On the “extinction” of the Canadian junior sector

John Kaiser discusses a worst-case scenario and an innovation that could “freak out” regulators

John Kaiser strikes an optimistic pose at the
2014 Vancouver Resource Investment Conference.

“Unless capital flow into corporate treasuries resumes, the resource juniors as a group will wither away, some pursuing some other business such as medical marijuana, others clinging on as zombie shell companies and a few remaining as ‘exotics,’ possibly sponsored by a mining company or a foreign state-owned enterprise which serves as the primary source of funding and thus turns the junior into a semi-private company.”

Should worst come to worst, Canada’s demise wouldn’t deprive the world of metals, Kaiser maintains. China and Australia would fill the void.

“No extinction is sudden, it just looks that way from the perspective of the distant future.”

On unsuccessful exploration

Apart from commodity prices, major discoveries spur investment. But without adequate investment, “we lack the critical mass of drill programs to find another Voisey’s Bay,” Kaiser argues. “One thing that regulators don’t seem to understand is that if only one in a hundred companies ends up being successful, it is a statistical game. So long as those 100 companies are trying to find something to create new wealth, one of them is going to be successful. If only one company is out there, it probably won’t.”

Another oft-forgotten point concerns “all the money supposedly wasted on exploration that doesn’t produce a result. All those so-called bad results go into the information pool. It helps future explorers know where not to look but sometimes it gives them clues on how to look at the property from a different perspective. They might decide the geophysics didn’t go deep enough, the geochemical analysis might not have been as sophisticated back then. So all the failures are actually still valuable.”

On stirring up a whole new buzz through innovative technology

Having slammed regulators regularly during the interview, Kaiser evidently wasn’t worried about alarming them with a bold new suggestion.

“In the old days when brokers would be calling their clients, Murray Pezim’s phone room would be working hard, the traders would be goosing the stock and so on, you had feedback that showed the benefit of promotional activity, ideally linked to fundamentals that were changing in a positive way.”

How to get that back? Kaiser talks of an online innovation for multiple users, drawing on aspects of social media and games like SimCity and FarmVille. With actual projects in mind, participants would help build online simulations based on their impression of a project’s potential.

The mining exploration sector is difficult to understand but not nearly as difficult as biotech. With the resource sector there’s a fairly straightforward concept as to how you value something.—John Kaiser

“The mining exploration sector is difficult to understand but not nearly as difficult as biotech,” he says. “With the resource sector there’s a fairly straightforward concept as to how you value something. The value is the present value of the future cash flow. All this can be quantified through about 30 or 40 variables in the discounted cash flow model. You can get a sense of what this might be worth if it became reality. But it’s a pain in the ass to do this.”

By representing those variables through 3D graphics and letting participants critique each other’s input, Kaiser believes the resource sector will gain new adherents.

“The game aspect would be a huge educational boon. The audience that has some understanding of how resource speculation works is retiring and becoming more risk-averse, and there has been no transfer of knowledge to younger people.”

But doesn’t the idea imply excessive confidence in the wisdom of crowds? “Whenever I describe this I run into a huge wall of skepticism where critics say people are lazy and stupid and it would never take off. However they’re thinking of how this sector has typically presented itself, which is in tedious columns of numbers, 300-page technical reports and so on. The industry has never really embraced a graphical interface where you use visual methods to help people understand what is going on, that makes a project understandable, accessible and easier to track.”

Kaiser’s already working on a prototype. “It’s trickier for me because the regulators will freak out and say I’m waving my wand and fabricating outcomes. But I’ll just demonstrate the concept. It would have to be built by someone else.” That might entail a group of philanthropists, he suggests. “Or maybe Silicon Valley when they get tired of social media.”

Read Part I of this two-part interview.

Download the PowerPoint presentation that accompanied John Kaiser’s AME BC speech.

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