Visualizing Outcomes - John Kaiser

00:00:09 I'm John Kaiser. This talk is not going to be a list of a picks. If you want my favorite pick, just trust me by Scandium International SCY on the TSX at $0.36. In two weeks three weeks, we know where this company is going. This talk is going to be about visualizing outcomes. I believe we are in the second year of a four to five year discovery exploration bull market similar to 1990 to '97 where we're dealing with projects that are pre-economic study. A big question is, how do you place bets in a market full of these resource juniors that are drilling exploration targets?

00:00:56 one of the problems that I've observed is that there's 2,000 ASX and TSX a Canadian and venture listed juniors. There's 90 of them exhibiting here. One of them is even from Australia. They're so-called 40 trusted expert speakers that the audience here is trying to hear what they have to say. We who are experts in this are trying to figure out which of these companies do we spend a time on and it really isn't working very well.

00:01:35 How does a company get my attention even while sitting out there somebody was pitching me on it? We have finite time. We are a small number of people. What this industry needs are thousands of people like myself visualizing outcomes interacting with these companies, going to the website figuring out what is it that the company is trying to accomplish.

00:02:05 This was a stock I recommended on May 19th at $0.61 respect value hunter by recommendation Arizona Silver Expiration Corp. It's now at $15 today. Assays are pending. The question is, you see a stock like this, how do you decide whether to buy it now at a dollar 15, sell your position hold it, or even go short. This is the basic problem that everybody faces in this junior resource sector.

00:02:42 When you go around out there and talk to the companies, the most important question to ask is the company is what are you trying to accomplish. If you succeed what would it be worth and what is a fair price today to pay for that potential outcome. Now, unfortunately, the companies aren't allowed to tell you any of this except through the framework of a 43-101 resource estimate. We as experts tend not to tell you that because of one, we are guaranteed to be wrong, two, it's actually a lot of hard work using conventional tools to visualize what the outcome could be, and three many of us just don't know how to do it in general or lack knowledge about well what the hell does a navigate greenstone belt mine actually function. What are the assumptions to make?

00:03:39 Now, all the companies engage or are supposed to engage in something called economic geology. An economic geology involves assessing what is the mineral potential of this region. What is there a reason to believe that what is known is not all there is to be found. Are we doing something different from all our predecessors who may have looked at this project? Do we have a model that's an alternative? This is now a very big thing happening with the rethinking of old mineralized systems.

00:04:14 We've had a hundred million dollars raised in the in February for the windfall district led by OCISCO just going into five companies rethinking that this is really a misunderstood Timman system not this ratty little thing that over the last thirty years created a resource of 1.6 million ounces of eight gram gold that still isn't worth developing in a mine at $1200 gold. It's now a huge rethink going on. There's been a massive change in what the street wants. They're tired of the tyranny of the gold price. They want to bet on something the company can control such as delivering a discovery that works at the metal prices that they have.

00:04:59 Now, the thing is um internally, and I was just talking to one of the companies, what is it that you have come up with as a target in terms of tonnage and grade that you're looking for and what are the numbers you would use to mine this sort of stuff? They can't tell me that but this is everything that's going on and this is what you need to do. This is what I am already doing.

00:05:25 Now here's the reason nobody does this because this is a discounted cash flow model which is the basis for valuing any mine. It's the net present value of the future stream of cash flow for the life of the mine. Here's what a financial model looks like. It's on page 640 of Midas's pre feasibility study. It's a nasty looking thing people set this up in spreadsheets. It's a lot of work. Then you run the NPV on it like who on earth is going to do that amongst you. I hate doing it. I have done it on my own spreadsheet system so I can tell you at what price the steep night project actually works up like it needs $1,600. That's $1,600 gold you have a 3 to $3 stock.

00:06:07 If the fantasies come true, we have $2,000 gold. I can see this is at 5 to $8 stock. I can do this but you all should be able to do that. The company can't plug in $2,000 because it can only go up 15 percent from whatever the stock prices. This ability to visualize what this project is worth at different prices should be in your hands.

00:06:31 Here's the opposite end of the spectrum. This is Arizona silver and it's Ramsey project which I recommended a week and a half ago. What is the company done? The projects in Arizona, a couple hours west of Phoenix, its desert type country. The Ramsey mine was this two meter of wide vein over 30, 40 ounce per ton silver or they hauled about 50,000 ounces out of it in the old days. The company said, well what is this something more to this?

00:06:59 What they did is they ended up doing geophysical survey, realize that there was a big fault here that was a both north east south up in the northeast direction and also down drop and there's this huge anomaly which based on their model allows them to think that there's a huge extension to this old smallish thing that's not very interesting by itself. Then they put forth a model and analog the reality Angeles project in Mexico that used to be a little skinny high-grade silver mined. They turn it into a big to two to three ounce per ton, 80 million ton open-pit mine. They said, we think this is present in this area. Now they have a to drill rigs on here. They started to identify. This is what it looks like at depth under 100 meters of garbage gravel rock. They've even got something way off to the west.

00:07:57 They have no idea what this is. It's a sulphide anomaly, maybe it's just pyrite. That's something for later two to three months. Right now, they know they've got the geology. The model has been confirmed. They are awaiting assays. It could come this afternoon. It could come later this week. It all becomes a question of do the results support the model?

00:08:17 Now what I have done is I said, okay what's the best-case scenario that I can extract from this? Okay, let's say a four ounce per ton silver, 125 grams of what the recovery is likely to be. I do a 500 meter by 500 meter by 100 meter by 2.5 specific gravity and come up with a 60 million ton footprint.

00:08:38 Now this is what could be there it's not what is there. What if it is there? Then I say, okay something like this based on other economic studies that I've seen published for these up open pitiable deposits, $150 million CAPEX, 90 million sustaining capital is going to be a high strip ratio on that because we got all this garbage to take off the top. Ended up with like $9 a ton to mine, $15 a ton to a process at couple bucks for GNA. We have a $26 per ton apex.

00:09:13 With that, you can then oh and one more step I look at the risk factors, 9 risk factors then the discount of cash flow model you need to know the discount rate. Now in this industry they used as bogus 5 percent discount rate which is like total Lala land fantasy that requires that's really is implying that Gold's going to go to $2,000 an ounce. You should have a proper risk adjusted discount rate. In this case, I rate each of these factors from very low to very high and it's a simple arithmetic added up and in this case I come up with 8.5 percent. You can see and in my on my actual website, you'll see my notes as to why I think this is very low, this is very high.

00:09:54 This is a way of thinking about a project risk factors and coming up with that critical number that allows you to generate an NPV. Here is the average life of mine or annual average of financial statement that you get. This is the life of mine. Then you plug it into that nasty formula and you come up at the spot price a $468 million value as to what that would be worth and this is how mining companies, this is how everybody values these things.

00:10:28 If that were reality, the stock would be $19 but all we have is a box of car with no assays. How does that $19 value help you right now when you are still at a very early stage? Now just keep this in mind here for later reference if you plug in $50 like David Morgan things silver might end up that eventually, you get an extraordinary number of $100 per share. Just keep in mind the idea that when people think about this, what is the metal price they think will be the future metal price.

00:11:09 Now this is the uncertainty ladder. This is the key. The key to placing bets on early-stage exploration projects. Because for this project to be worth $19 a share, you need to have all that information, feasibility study, permit in place, to sell where you have everything discovered about what the deposit is and what it costs to mine. You have to work your way all the way through these stages. This project still at this stage where the certainty is like only 1 to 1.5 percent that I'm right.

00:11:43 Now as the project moves through these stages, the uncertainty declines. There's a simple formula for valuing in uncertain expected outcome the uncertainty times the value of that future outcome. Daniel Kahneman and Amos Tversky talked about that and the work they did and they realized that most human beings are not yet intuitively coded to do this basic math. That's why games like Deal or No Deal are so popular because the public just doesn't know how to do the basic math for valuing an uncertain outcome.

00:12:23 These three numbers on the left are the hard numbers that you need to come up with. The three on the right are the easy numbers you just look up on the internet and on the company's website. Those three calculations in the bottom, the future stock target like the of everything absolutely worked out and we knew it tomorrow, net present value time net interest divided by fully diluted. Always use fully diluted. Never issued because when you're early on in the exploration stage, you can guarantee if the thing is any good, they will need a lot of money and all the warrants and options will get exercised.

00:12:59 Now the implied market value is how the markets pricing the project which is simply fully diluted times stock price divided by net interest and when you have 100 percent net interest is one. If it's a half percent of the implied project value at 100 percent is basically double the fully diluted market cap. The fair speculative stock price, the one that you're after as to what you think is a good price to pay that is the project stage uncertainty times that NPVs or the visualized outcome times the net interest divided by fully diluted.

00:13:36 Here is what it looks like both in a sort of total math terms like monetary terms and this is converted into Canadian dollars. At these various stages this project with this type of outcome should be priced like this. That says fair values $0.19 to $0.48 so the stocks like at a box so you should probably sell the stock and head for the hills.

00:14:01 In fact when Preston who was on the site visit with me and had to go to Mongolia and had recommended that $0.50 and was looking at like a you know almost a double already and wasn't going to be around to comment on the assay results just said sell half, get me out of here. She wasn't going to wait.

00:14:19 However, that table is not very easy to digest. This is a graphical version of that table where the blue is the fair value Channel but what is this strange yellow thing. The markets pricing the project at $33 million, it means it's not fair speculative value. It's poor speculative value. This is the s-curve. This is the reason you like to come to these conferences and look for juniors that are going to make a discovery. Because when you enter the discovery phase, the market goes into extreme uncertainty. It goes into a manic mode and it behaves like this table right. You get pricing almost what it is, at the end of the day, during the early stages when we have a fraction of the information needed to support that eventual outcome. That's where you can then sell your stock.

00:15:16 It's important to understand this even if you are say okay this is not fair value, understanding the S-curve dynamics of the market helps you to be in there and judge when this is getting out of hand. Now I mentioned earlier that there's all kinds of reasons for S-curve behavior. One reason is people think the grades not going to be 4 ounces. There's crazy people out there saying oh it's going to be 30 ounces and they don't quite understand that at 30 ounces it's only going to be a 2 meter wide thing and like a 2 million ton deposit it has to be underground mine with completely different costs. There's a lot of confusion in the market out there.

00:15:55 There's also people who think that tomorrow, Silver's going to rock it and are plugging in much higher metal price into their visualization and coming up with crazy targets. During s-curve behavior and when the assay results come out and say there's a really good sort of supporting my visualization, then people will say Kaiser, you're way too conservative. You're such a party pooper and say it's going to be like twice as big. They're going to step out and it's going to be double the grade that you have. That's what happens in a frenzy discovery delineation type market. This project will move over here in that case and which is then this and it could do stupid stuff like go to $5 and all that and that's where you start doing the stuff of being always wrong by selling some too soon and some too late because you never know where the s-curve will actually peak out.

00:16:49 Obvious problems with me doing this are like who cares what John Kaiser says. Maybe he's confused about the geology. How do you know that I actually understand the geology? Who's going to correct me? Yeah, you may correct me back there and quiet but I won't hear about it so I sit there with my crazy outcome and all by myself. Then of course why are the cost assumptions correct.

00:17:13 Even if all his other assumptions are correct is able to launch. Am I putting in way too low a cost to process this stuff? Then the problem for another ones like what Gwen had, she's leaving so all her subscribers are wondering when these results come out. She's a Mongolia. How is she going to send back any comment guiding her people?

00:17:38 Relying on newsletter writers and so on, it's a bit tough. It doesn't work and of course I'm covering this project but there's dozens of other ones potentially out there and this takes a lot of effort for me to do. This needs to be done by everybody. That's where I want to introduce the share collective of which I am a founder which we started building a year and a half ago. It's backed by Andy Greg, Beck Todd's former head of global mining unit. It's got the integral of Brisbane based IT company building it.

00:18:15 It has become a partner. This thing will have all 2,000 companies in there with their 4,000 projects all as nodes that you can check out. This is what I call the John Kaiser cloning machine because anybody when this goes commercial will be able to become a member and start doing this stuff. I'm going to quickly flash through and just show you that once as you're in there, how you will be able to do what I do on your own.

00:18:44 Here's the Ramsey project. You can scale in and zoom on that. Each node can attract its own community of followers. Every one of the 90 companies here could have a note here and after the end of the conference, people go home the one that they like best, they go there. They check out what's being done by others. They take their notes and go in there and do their own type of thing in there and also perhaps share it with the public. This is creating contextualized knowledge, expectations that are based on fundamentals but that involve your extrapolation and the underlying mathematical machinery does all the heavy lifting that you normally have to do by constructing a complicated spreadsheet.

00:19:26 You can go in there and search. You're into silver stocks, you search for silver stocks. You want the early stage or late stage projects, you can go do that. You can just go through the alphabetical listing and do all that. There're other categories that I haven't yet shown here in the search engine.

00:19:40 If you're looking for something specific, say you're crazy about Cobalt you can go in there track down all the cobalt projects. You pick a company and you can choose to follow it. You can even just indicate to everybody else whether you are bullish or bearish or neutral on it. You can add it to your portfolio. You can actually run a portfolio in which you can choose to share or just keep private.

00:20:06 What you want to do is a make an outcome visualization itself. There're four stages. You can go in there and write an explanation as to what your reasoning is by what you're choosing. You can go in there and you pick your tonnage and put your mining rate, select your metals. By the way, notice that I even have the rare earths in there. Do you know how hard it is to model a rare earth deposit? Now this is simplified, you can just put in the grades and the expected recoveries and whatever the prices is either choose your own or use the ones that you can see on some list somewhere, and boom you have your rock value which is the basis for any VCF calculation. You can reveal your confidence.

00:20:50 Part of the key thing here is like if I'm not sure about a number, I want a signal to my audience that I'm not sure. This is the one where I am hazy as dawn. This thing is not about showing how smart I am, it's part of collaborative exercise for me sharing to the others and looking for feedback, looking for criticism. Because what people can do is they can go in there and post comments on any one of those assumptions and say I think you're misguided here. I can take my outcome, redo it and reshare it into this public space.

00:21:23 Of course you can pick your metal price which is normally spot when it's shared but you can also privately look at what it does when silver is $50 and see how that changes the outcome and of all of sudden, silver is gapping up for whatever reason. You have a tool there where you can figure out how this impacts the value of this junior in which you probably have a position. Then here's all the cost assumption. Figuring out the costs is tough. This is where you can argue with others about whether the processing cost is going to be way up or much lower.

00:21:56 The company can't share any of that with you even though they have their internal numbers until they publish a 43-101 resource estimate. We're all flying in the dark until that economic study is published which could be $510 million in several years after they start. That's too long to wait. This allows the crowd to start seeing and over time as more information ends up on the table, it ends up converging on something that will be very close to what the experts eventually publish as reality.

00:22:29 Again here, all those risk factors, you cannot set your risk. You can show your uneasiness. You can also add a comment. This becomes a gateway to the enormous discussions about social licence issues or infrastructure issues. Instead of once they stock outs or hot copper where you're just bashing each other and saying, you're stupid, no you're stupid then you don't even bother eating. Here you actually have an intelligent discussion.

00:22:56 For the company, this is going to be huge. They're going to go here and it's going to be all these armchair experts our anonymous giving free advice to them about how to think about their project even alerting them to problems. With Arizona mining and it's promotes a Taylor, the manganese problem would have been picked up long before that short syndicate published the fake news attacks with a global mining observer. Then you can see that this is shared. Now here another person super mining dude beta testers come up with 123 million a much smaller outcome that only works out to 5 bucks. You can also see what happens as you move through the stages how the value improves. The key thing is after you put all these numbers, you just hit calculate and you keep fiddling with it until you're happy with the number.

00:23:47 Super mining dudes that has come up with a much more risks to the project so you get a discount rate. The discount rate can go up to 25 percent. That can actually totally kill a project NPV. If the risks are all very high for every factor, well yeah it doesn't deserve to have a high visualized outcome. He said great a little lower but really John, I think you're not going to get 100 meters. You're going to get 50 meter thickness, 25 meters on each side so you have only a 30 million ton deposit. Then he's used all my other assumptions and he comes up with a $5 end of the day price. The argument that discussion has done when as they start coming out I may have to go yep, the widths aren't quite what we hoped for but it's an interactive iterative process.

00:24:33 You can create your own by copying mine and working with it and sharing it. You can simply post comments on it in general. You can choose to follow one of us visualizes and this becomes important because the rest of the crowd will be able to see who is followed the most. It's a way of it's a popularity contest. Then of course everybody can see who's following this project and what is their nature and the thing is going to be a subscription-based model, companies can't advertise on it because obviously this is something the regulator is not going to be thrilled about. This will enable the public to see all this stuff that's going on. Key thing is anybody who shares anything here is assumed to have a conflict of interest neither your long or short or whatever and have a goal of influencing the market and the behavior of the rest of the crowd. That's not what you're supposed to be doing but that actually is the reality of how this world works except here it's explicit and you have to stay anonymous. You can't be the great John Kaiser whom everybody thinks is a genius and all that and being there.

00:25:44 If I show up in there right now, I'm in there as myself because I'm the tour guide. When this goes commercial, I disappear. I start as a zero reputation as everybody else. You ask yourself, if they are anonymous and have really no accountability won't this just turn into a big pile of garbage of pampers and bashers and nonsense. The key here is everybody who shares does want to influence because when you buy the stock, you front-run your recommendation you want people to believe you and buy the stock and make it higher. Why are they going to believe you? Because you develop a reputation in the system.

00:26:23 If you want to behave badly and stupidly, you're never going to influence. You go share something crazy on somewhere. People will just ignore your or the guardians of the system and ones that have developed high reputation will flock over and dump all over you and put little sticky notes like some professor correcting a very poorly written paper. The systems also omniscient, it tracks everything. They want me to shut down soon so we're going to just go through this quickly.

00:26:50 The system will actually, the untrusted crowd will be able to almost outperform the experts. What it does its contextualized dialogue? It's not the old linear thing. It's multi-dimensional discussion of what is going on. It's going to make it easier for brokers to advise their clients on suitability because they can refer to the Boomtown and say this is crazy. You shouldn't be here.

00:27:23 For people like myself, I'll actually study the system to have the crowd narrow the field to where I should put my expert activity and come up with commentaries. Of course retail investors don't need to worry about the fact that brokerage firms cover a tiny fraction of the universe and even the newsletters themselves. The regulator's can now look at this and see why is a stock all over the map? Yeah, these people have changing perceptions and that explains to. We don't need to halt the stock and make the company put out some dumb news release that nothing's going on.

00:27:58 Most importantly, the lost generation of young people who know nothing about geology, nothing about mining, know everything about gaming online, this is their gateway to learning how this space works where they can become superstars and we bring back an audience of investors and speculators to this space that is shrinking because the boomers are getting older and we are not being replaced by the young people. This will replenish the audience for this space. What next?

00:28:29 If you want to be a beta tester, contact me. Especially companies, I think it's important for you to understand how this works. Give me your card. We'll set you up. This is going to revolutionize the future and there's a shot of Andy Greg who had the guts to say this we need to build. This is going to change the way Capital is a located. Even the lifestyle companies will be back because the prospect generators will have these projects all dressed up with the outcomes somebody will have shown what it could be like and the guys who are pure promotion can now promote a project which actually has an outcome that makes sense.

00:29:06 Thank you.