THE CRITICAL INVESTOR

After completing their latest 17,792m 2021 summer drill program at their Regnault target, part of their Frotet project in Quebec, Kenorland Minerals (KLD.V)(3WQO.FSE) announced a large batch late December last year with the results of the first 32 holes (9,824m), with assays from the last 25 holes remaining once received back from the labs and interpreted properly. As almost all holes hit mineralization, and highlights were impressive once more, CEO Zach Flood and VP Exploration Francis McDonald were very pleased with the outcomes so far, as the results confirmed their exploration strategy. As trends and gold structures are shaping up now more clearly, it seemed the right moment to do an in-depth interview with Flood about Regnault, whereas progress at their other projects will be discussed as well.

All pictures are company material, unless stated otherwise.

All currencies are in US Dollars, unless stated otherwise.

Let’s have a quick look at the latest results first. The absolute highlight was hole 21RDD056A, drilled along the R1 Trend which intercepted 15.4m @ 17.96g/t Au (276.6g*m, including 7.2m @ 36.29g/t Au). Other strong R1 results were provided by hole 21RDD060 (3m @ 32.21g/t Au) and hole 21RDD074 (3.45m @ 17.53g/t Au incl. 0.5m @ 114.6g/t Au).

Drilling along the R2 Trend more to the south also returned solid results, for example at R2 West, hole 21RDD077 resulted in 2.73m @ 15.34g/t and 7.5m @ 3.06g/t Au. Hole 21RDD082A returned 1.6m @ 28.34g/t Au, 1.23m @13.9 g/t Au, 1.19m @14.12 g/t Au and 2.81m @ 5.81g/t Au. At R2 East, hole 21RDD054 generated 1m @ 26.33g/t Au, and hole 21RDD063 returned 22m @ 0.73g/t Au. These are nice highlights, as the dip of most holes is about -45 degrees, so most intercepts would have to be divided at most by 1.4, assuming almost vertical gold structures at least. VP Ex Francis McDonald had this to comment on this assumption: “R1 is dipping approximately 70* to the north and R2 is dipping shallowly to the north at approximately 15* or so.” So likely the intercepts don’t have to be divided by 1.4 but much less, which is positive for potential mineralization of course.

The goal of this program was to not only systematically step-out along strike and down dip of the already identified gold structures R1, R2 West and R2 East, to better understand the controls on mineralization, but also look for potential new structures. As the map above and the section below reveal, they have been successful in finding higher grade intercepts now in areas of R1 where they only hit low graded, short intercepts before (see red vs. yellow dots):

This obviously means the structures, which probably can be described as lenses, of which mineralization starts at surface (in this case the bottom of a shallow lake most of the time) have a tendency to pinch and swell, as vein systems often do. The good news is the average grade increases with these higher grade intercepts, and as most holes hit mineralization anyway, the R1 structure appears to be pretty continuous. In my view most recently reported holes for R1 actually seem to be infill holes as they fill in the blanks between holes already drilled, just a few holes like 065, 074 and 078 look like careful 50m stepouts. Lots of R1 holes which are assayed at the moment (see black dots on the section above) appear to be stepout holes to the west and a few at depth, and R2 drilling saw relatively more stepout drilling along strike and at depth, and more aggressively.

In general, the geologists of Kenorland have concluded so far that gold mineralization for R1 is characterized by shear-hosted, laminated quartz-carbonate-pyrite veins, often haloed by variably deformed extensional stockwork quartz veining. For R2, mineralization is found in stacked, shallow north-dipping extensional type quartz veins  (R2 West) and steeply north-dipping shear hosted quartz-carbonate veins (R2 East). As can be seen in the extensive table of the December 20, 2021 news release with the latest 32 drill results, most holes had at least 2 different intercepts, indicating the laminated character of veins. The table also indicates that R1 is by far the most important mineralized trend for now, but management believes R2 East and R2 West could have the potential to add significant ounces. A few important step out holes to the most eastern and western boundaries of both trends will indicate strike length potential.

This sums up a summary of the latest drill results, so now it is time to discuss things further with CEO Zach Flood.

The Critical Investor (TCI): Thank you for your time. Let’s talk about a few general themes first. As you know, the world isn’t liberated from COVID-19 yet, and the Omicron variant is again increasing numbers of infections, intensive care patients, etc and halting events. Even the VRIC has been cancelled a week ago and moved to May, as too many exhibitors and speakers viewed such a large scale event as too risky, and the organization had no other option but to reschedule unfortunately. At the same time the Fed is becoming wary of the current, multi-decade high inflation, and seems to signal to the markets that series of rate hikes are not out of the question as inflation could be here to stay. Usually inflation is good for gold, and real interest rates will be negative for a long time as inflation outruns rate hikes for a long time as well, which is also good for gold. But markets don’t particularly like the latest actions of the Fed, and a COVID-19 hampered economy could put the brakes on further. What do you think of all this, and more specifically what could be the outcome for gold and junior mining stocks?

Zach Flood (ZF): Regardless of the gold price there is no greater way to create value than making an economic discovery. That said, I’m quite optimistic of future metal prices, gold included, but then again, my time horizons are likely longer than most speculators. At Kenorland we take a similar long-term approach and are committed to finding new mineral deposits for future generations.

TCI: Let’s shift a bit more towards Kenorland now with regard to the pandemic. You told me recently that Sumitomo will decide somewhere in January about the next drill program at Frotet, which could be larger than all programs so far. Could extensive pandemic measures be of influence here? Could Kenorland in other ways feel the impact of such measures, for example at other projects or at assay labs?

ZF: Throughout the pandemic we have taken extraordinary measures to protect our personnel and other stakeholders in the field. This year will be no different. In terms of our operations, we have not yet experienced any major issues other than long delays at analytical labs. I don’t expect the lab issues to be resolved this year either, however, if everyone makes it home safe at the end of the day, then we are satisfied.

TCI: Before we delve into the Regnault project, I would like to ask you a few questions about your exploration strategy in general. I watched a video of Francis McDonald on your website, and I must say I was impressed. It seems as if Francis and yourself are doing things differently, based on your mindsets crafted at Newmont and Ivanhoe. The systematic approach and analysis is fascinating, you guys leave no stone unturned. Among other things, he said in an interview that he believes too much attention goes to outcrops and mineral occurences in Canada, whereas in Australia there are no outcrops etc, so you have to come up with systematic exploration and geological models. It seems logical that most significant near surface deposits have been discovered by now, at least in prospective areas that have seen exploration, so pushing the boundaries and shifting focus on potential mineralization under cover, or till sample large, under-explored but prospective areas seems like a sound strategy in my view. Exploring large properties to increase the odds seems logical too. Why isn’t everybody doing this?

ZF: Great question. Grassroots exploration is viewed as very high risk with long lead times to discovery. Most companies and shareholders do not have the appetite for it. At Kenorland, we founded the company and started building the portfolio in 2016, as well as forming partnerships with other major mining companies to advance these projects. We listed the company in 2021, after we had made one major discovery in Quebec. We have already undertaken many years and multiple campaigns of early-stage exploration and target generation on many of the projects in the exploration pipeline which covers a vast amount of ground, over 500,000 hectares. This is the type of company that you can’t form overnight, it takes time, dedication, lots of exploration to make new discoveries. There are not many juniors out there executing early-stage exploration at the scale which Kenorland is operating, and that is key. The more ground you cover in a diligent manner, the higher your odds of exploration success are, so we scaled up and we keep adding to that portfolio. Eventually we will make more discoveries as long as we keep moving forward in this manner.

TCI: I agree, you have set the bar high. I am also fascinated by the data analysis that is part of your exploration strategy. You and Francis analyzed lots of other projects, drill results and exploration programs, and reached all sorts of conclusions, all apparently tailored to optimize your own exploration programs. For example, the average number of exploration programs to discover greenfields deposits is about 3 including early stage programs.

Other metrics are 5Moz Au deposits are on average discovered after an initial drill program produced an intercept of over 134g*m, or as you call it GT (grade x thickness), with an intercept length of over 10m. For 2Moz Au deposits the numbers are >50 GT and >5m. Another set of metrics: the median drill program on a successful discovery program is 4,218m, and if a company drills less than 4,000m on an intial drill program but still produces an intercept being > 50 GT, this could be very significant. On the upper side, a program larger than 10,000m that doesn’t produce a >100 GT intercept, is likely unsuccessful. I love this type of statistics, and it likely adds to your chances of effectively sampling, drilling and killing projects. Do you also normalize historic drilling/discoveries towards current practices, and do you for example separate quality exploration from lifestyle exploration, filtering out further?

ZF: We completed this internal study to understand how many meters we should put into a grassroots target for an effective ‘test’ to reach a go or no go decision.  That number is somewhere between 4,000 and 10,000 meters which is likely more than most people would guess. There are of-course outliers on both sides but this is the size of program we need to plan for in order to test and confidently walk away from a target if we don’t achieve the results, for example, 100 ‘gram-meters’, or if we do, proceed to the next phase of exploration.

TCI: I was also impressed by your knowledge of the mechanics of till sampling, and the kind of work that goes into till sampling under cover, looking for very small amounts of mineralization, plus having to determine where it all came from, taking into account glacier movements etc. This has been the central strategy for the Frotet project, are you applying this knowledge for most of the other projects of Kenorland at the moment as well?

ZF: Absolutely, most of our projects are located in areas covered by glacial till. There is widespread glacial cover over vast parts of Canada that are also highly prospective for mineral deposits and this is where we focus. The easiest way to conceal a deposit is to bury it under glacial till and therefore the most likely place to make a new discovery is in areas covered by till, like Regnault for example. All of the projects we operating in Quebec are similar – Chebistuan, Chicobi, O’Sullivan, Hunter, Frotet – we are using very similar techniques on all of these projects to search for new mineral deposits under cover.

TCI: Interesting, to almost intentionally define the next exploration frontier, and turn it into your advantage. Could you explain a bit further for the audience why geochemistry and alteration are the best exploration tools? I assume geochemistry and alteration can only be identified by drilling, and I see drilling as the most advanced exploration method, and geophysics for example as more early stage. Personally I don’t feel these methods can be compared in a sense of one being superior to the other, every method is applied at a different stage with a different purpose, for example till sampling and airborne surveys cover huge areas to select targets, trenching and drilling work these targets to find mineralization. No meaningful drilling without targeting.

ZF: Normally the actual deposit footprint is quite small relative to the geochemical or alteration footprint. So you are really looking for the smoke first that will lead you to the fire. Back to till sampling for example – the gold dispersion plume at Regnault is over five kilometers long. It was much easier to find the plume first and then narrow in on the veins which are orders of magnitude smaller in terms of their own footprints. Alteration is similar around a big hydrothermal system, like a porphyry copper deposit, it can extend kilometers from the actual orebody, so the alteration is the first thing you look for.

TCI: It is probably all semantics. Something else: I noticed you focus on understanding major deposits, does this mean you are exclusively interested in exploring for Tier I deposits with Kenorland? If so, why is this? They are extremely difficult to find and very rare, and become more rare over time. Do you aim at specializing for major deposits, so the majors could see Kenorland as the go to shop for their exploration ideas?

ZF: We do a lot of work analyzing Tier 1 deposits to understand their footprints, so we can recognize what a Tier 1 deposit looks like in terms of the exploration data, for example surface geochemistry, geophysical expression, deposit outline, initial drilling, etc. This allows us to make more informed decisions when analyzing our own exploration data. We prefer to start looking in areas that have real potential to host those types of deposits. We may find deposits of many shapes and sizes by carrying out large scale systematic exploration.

TCI: Let’s talk about the Regnault project now. In my view most reported results on R1 are infill drill results, although in the news release they are described mostly as step-outs? I feel this is only warranted for the upcoming assays. Where do I go wrong here, if so?

ZF: We are reporting on both broad infill and step-out drilling. The terms are bit subjective at this stage because if you have two holes a few hundred meters apart, a hole in between could be considered infill but also could be considered a step-out from one of the other holes, its more exploration than resource definition. Infill drilling should really describe more advanced exploration to resource definition.  At this stage, most of our drilling is still very exploratory in nature, and we are still looking to define the geometry and orientation of higher-grade shoots within the vein system itself, as well as prove up additional veins.

TCI: Good to see the difference between exploration and resource definition drilling terms. Most drilling appears to be done on ice, as most of the R1 structure is located under a shallow lake. Do you plan to step-out aggressively on land with the next program?

ZF: We will continue to step-out along strike but our focus is really more on deeper step-outs down plunge of potential high grade shoots.

TCI: As the nearby Troilus deposit has mineralization that runs much deeper, do you plan on drilling much deeper at Regnault as well?

ZF: Absolutely, the next program will see more aggressive step-outs down dip.

Troilus deposits (Source: Troilus Gold presentation)

TCI: The long section shows mineralization at almost every hole which indicates good continuity, although the GT numbers vary a lot. Could this imply a complex geologic structure, or multiple fault lines, or else? Or just pinching and swelling of gold mineralization?

ZF: Yes, the vein system is quite complex although it is consistently present along strike and at depth. This is typical in orogenic gold systems. The first step for us early last year was to define the orientation of the vein, which we achieved, R1 for instance is oriented roughly East-West. The next program during last summer was to drill along the vein and find the blow-outs, shoots, higher-grade sections, etc. We believe we have defined a few of these areas as well so now the objective going forward will be to extend those at depth. Most high-grade structurally controlled gold systems are complex and they take a lot of drilling and effort to work out.  Suprisingly, Regnault is not as complex as most, the veins are relatively consistent in terms of strike and dip.

TCI: Yes the consistency is a good thing to have. You told me the R1 structure is dipping steeply to the north, do you also expect this for the R2 structures, of any other, new structure found on the property, as part of some overall geological concept? What kind of structural controls are defined yet? Are you looking for feeder systems?

ZF: R2 is a different beast than R1. R1 veins are hosted in a shear through the intrusive complex while R2 West veins are very shallow dipping extentional veins sitting between two shears. R2 East is more steeply dipping and controlled by shearing, similar to R1. We have found other shears in the intrusive complex as well, some dipping north, some to the south.  We are just beginning to understand the structural controls on high-grade mineralization but still have a long ways to go. In general we are looking at the intersection between NNE steeply dipping D1 deformation and D2 shearing such as we see along R1.

TCI: I did some very global back-of-the-envelope estimates on the Regnault structures, and arrive for R1 at 1000 x 200 x 5 x 2.75 = 2.75Mt, at an average guesstimated grade of 5g/t Au this would mean a hypothetical 440koz Au. For R2 this could be 400 x 250 x 2 x 2.75 = 550kt, at an average guesstimated grade of 7.5g/t Au is a hypothetical 133koz Au. So the total estimated gold mineralization could be closing in on a hypothetical 600koz Au. Do you feel this is a ball park number in the right direction? I believe you once told me there is considerable low grade disseminated gold in the R1 structure, could this make a difference?

ZF: It’s too early for me to comment on a resource at Regnault unfortunately.

TCI: No problem. As we briefly discussed your preferences for large deposits, do you have a resource target in mind for Regnault?

ZF: In order for most major mining companies to proceed with development, they likely need to see greater than 3-5moz Au potential. I do not actually know what Sumitomo’s threshold is but I could guess it is somewhere within or north of that range. It’s still early days at Regnault but the next few programs should shed more light on what the potential is there. As I said, we are just beginning to understand the controls on mineralization.

TCI: Are you looking at targets further away from the direct vicinity of Regnault?

ZF: Yes, we have multiple targets we will be following up on within the Frotet Project, some of these will see drilling next winter.

TCI: Your staff is building a Leapfrog 3D model now of Regnault, it will be very interesting to see the mineralized envelope and sections of geology and mineralization. When will this be finished you think?

Z: We will likely begin to see the geologic model once all of the data from the last program is taken into account. Stay tuned.

TCI: You told me earlier the upcoming 10,000m drill program for Regnault will consist of 60% focus on R1, 25% on R2 and 15% on new targets, so heavily geared towards R1.

Update: A news release came out today (January 12, 2022) confirming this and announcing the commencing of drilling as well, with additional info here:

“Approximately 60% of the proposed drilling will be allocated to step-outs along the R1 structure, targeting down plunge extensions of higher-grade mineralisation along the vein corridor. Twelve drill holes are planned to significantly expand the R1 vein system at depth to approximately 500m below surface beyond the current known extent of approximately 275m vertical depth. Along the R2 Trend, up to 25% of the proposed program will be allocated towards broad-spaced infill drilling to determine the structural framework linking R2 West and R2 East. The remaining 15% of the proposed drill program is designed to expand on known mineralisation and test additional gold-bearing structures north of the R1 corridor.”

You are planning to drill much deeper down dip at R1, could you tell us how much deeper?

Z: We are looking to approximately double the vertical extend of the R1 vein system from ~250m to ~500m.

The map of the planned drilling of this program can be seen below:

The Q1 2022 program follows the recently completed 17,792 meter drill program, of which 9,824m have been reported. The company expects assays for the remaining 7,968m to be announced in the coming weeks, but this is all depending on the assay labs of course which have seen lots of delays.

TCI: I believe that concludes Regnault for now. A different subject that might be frustrating for you and shareholders is the share price of Kenorland. After lots of exploration success, a solid treasury, top notch exploration management and with a gold price still hovering around US$1800/oz, the stock is sideranging close to its lows since listing. Do you have an explanation for this, and what is your plan to get things moving again? What could be a catalyst?

Share price 1 year period; Source: tmxmoney.com

ZF: 2021 was a difficult year for gold equities in general. Kenorland actually held up surprisingly well, although I do understand we are far below our all-time highs as well as the last two financings which were both completed at C$1/share. I see a huge amount of upside in the stock, we are in a much stronger position today than we were last year at higher prices. We are entering 2022 with over C$9 million in working capital, projects which are more advanced, and a number of deals we completed last year that have significantly added to our bottom line on the financial statements. We also have an incredible amount of exploration which we will undertake this year, the results from which will be the real driving catalyst in the shareprice.

TCI: Large scale exploration remains a high risk/high reward game, but if any team could be successful at it, it seems to be Kenorland Minerals in my view. Talking about large scale, as you optioned out the South Uchi Project to Barrick Gold on September 20, 2021, we contemplated Barrick could do a move for Great Bear. Instead, Kinross stepped in and Barrick doesn’t make a sound. If Barrick doesn’t surpass Kinross with a better bid, could this have implications for the strategy of Barrick, and more specific for South Uchi?

ZF: I do not believe this will change Barrick’s strategy in the Red Lake district. I think the speculation around the potential suitor for GBR was exactly that, speculation. Barrick is committed to this part of the Canadian shield in terms of its exploration strategy for good reason - it’s a highly prospective region and still very underexplored as demonstrated by GBR along the LP Fault. We’re very excited to see what Barrick comes up with after last fall’s large-scale regional till sampling program they carried out at South Uchi.

TCI: It sure would be interesting to see a major like Barrick venturing into substantial drill programs for example. What is the current status of the Healy Project, Alaska (optioned from Newmont Corporation), as a 5,000m maiden diamond drill program has been completed, plus several surveys, all results were expected in January 2022?

ZF: We are still awaiting complete assays from the labs but expect results to be announced in Q1. We are all of course eager to see the results ourselves as we encounter widespread mineralization and alteration in much of the drilling there.

Healy Project; proposed drilling/sampling results

TCI: After Healy, another important project for Kenorland is Tanacross (Alaska). Extensive soil sampling program has been done, a 5km IP and MT survey was completed, and an airborne magnetics survey was flown over several targets.

The assays were expected over a month ago. Analysis, interpretation and targeting were planned for January. As several of the surveys were delayed, previously announced drilling has been put on hold, and the assigned budget was reallocated for additional drilling at Healy. What is the status here?

ZF: Similar to Healy, we are still waiting for complete assays from the geochemical surveys we completed at Tanacross. And again, the team is eager to see the numbers as we have some very compelling targets already that could be prioritized for drilling this year if warranted.

TCI: Kenorland also completed a VTEM survey at the Hunter project in Quebec (fully owned), a LiDAR survey and mapping at South Uchi (optioned to Barrick), completed a soil sampling program at Chebistuan in Quebec (optioned to Newmont), and completed a sonic drill-for-till geochemical program at their Chicobi project, also in Quebec. A map with the sampling results for Chebistuan looks like this:

TCI: What is the status of a magnetic survey, radiometrics and induced polarization (IP) which will all take place at the Deux Orignaux AOI target zone in January, in preparation for drill targeting?

ZF: Till sampling, boulder prospecting, and airborn magnetics has been completed at Deux Orignaux and currently there are crews there line cutting in preparation for the IP survey.

TCI: What is the current state of affairs at Chicobi, as drone magnetics, IP and electromagnetics (EM) have been completed, and diamond drilling was scheduled for Q1, 2022?

ZF: We have now received the geophysics data including IP, Magnetics, and EM and have began the drill targeting exercise. We have also began permitting for a drill program which is expected to commence in March.

TCI: This concludes our Q & A, do you have anything to add for the audience?

ZF: I think we covered a lot here already, thanks for the interesting questions and the opportunity to add more colour to the Kenorland story.

Conclusion

After another batch of strong drill results, Kenorland Minerals is waiting for JV partner Sumitomo to approve their budget for another extensive drill program at Regnault. The remaining batch of the last completed program is expected to be announced in the coming weeks if the labs don’t face too many delays. In the mean time the company commenced an already approved 10,000m program at Regnault, and is exploring at 5 other projects, and expects a stream of results from now on. As all projects are of considerable size, any new discovery or substantial step-out result at Regnault (for example >200GT) could cause the long-awaited re-rating now for this textbook example of a large scale exploration junior, alongside a cooperating price of gold. Stay tuned!

I hope you will find this article interesting and useful, and will have further interest in my upcoming articles on mining. To never miss a thing, please subscribe to my free newsletter, in order to get an email notice of my new articles soon after they are published.

Disclaimer:

The author is not a registered investment advisor, and currently has a long position in this stock. Kenorland Minerals is a sponsoring company. All facts are to be checked by the reader. For more information go to www.kenorlandminerals.com and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.