Novo Increases Grade by 55%?
Novo Resources (NVO-V) just sent out a press release last week that caught my eye because of the implications. I did the math on the results and it appears to me that these tests show the grade of the Beaton’s Creek deposit has increased by 55% over what the company originally believed.
Let me give you a little background on my relationship with Novo and with Quinton Hennigh who in my view is the best geologist in the world. And it doesn’t matter if he is the best in the world, he’s the best of the thousand or so I have crossed paths with. I met Quinton in October of 2008 when we drove up to Wyoming to view the Rattlesnake gold project. Since then I’ve gone on a bunch of trips with Quinton and each time I get more impressed not only with his knowledge but his ability to share it even with a dunce.
We talked about Australia and that first trip and what he wanted to do there. A year later I made my first visit to Beaton’s Creek and the projects that would be the foundation of Novo Resources eventually. I have great confidence in the prowess of Quinton. He’s secure enough in his knowledge that you can disagree with him and he will show you all the different issues and ways of looking at the problem and eventually you will understand that he was right all along.
Except for the grade of the gold at Beaton’s Creek. I went there with him in 2009 and have been back twice. The entire basin is a Wit’s look-alike except it’s flat and the Wits got upended. The material that contains the gold is very friable. You can crush it with a hammer or in your hand and pan it. I was in the midst of setting up a placer operation in Tanzania and have panned a lot of gold. If you know what you are doing, you can guess grade with fair accuracy just using a gold pan and the good old Mark-1 eyeball. It worked for the Egyptians, it worked for the Romans and it worked for the Spanish so it’s a proven method.
Geologists have to be conservative. Guys who run gold websites and run placer operations don’t. The tests that Novo ran at Beaton’s Creek always pretty much showed 1-2 g/t gold. They have a resource at Beaton’s Creek of 292,000 ounces in the M&I categories at a grade of 2.7 g/t and 203,000 ounces in the Inferred category at a grade of 2.4 g/t. But when Novo did their 9,680 tonne bulk sample this last year it was based on an expected block model grade of 1.65 g/t.
Doing samples of gold when you have a lot of free gold or visible gold is always a problem because of the issue of what you actually sample. If you sample a piece of drill core where you have a piece of VG you will almost always show higher grade than a sample taken inches away without VG. Free gold always is hard to measure. Literally, like diamond mining, the only accurate test is to mine it.
So when Novo showed a total grade between adding the numbers from the recovered material and numbers from the tailings of 1.88 g/t gold, Quinton was ok with the results. I didn’t believe it for a moment because what I saw in my gold pan was higher than 1.88 g/t. That’s as unscientific and unprofessional as you can get but I have always believed their real total grade was higher than either the 43-101 or the bulk sample tests.
Quinton wanted more verification as well. When he did the bulk sample months ago they took buckets and captured the tailings material coming out of the flume three times a day. When those tailings were sampled they showed an average grade of 1.12 g/t. If you add the 1.12 g/t for the tailings to the .76 g/t they actually recovered, you come up with the figure of a head grade of 1.88 g/t overall. Better than the predicted grade from the block model but not nearly as high as what I thought they should get.
The machine that Quinton was using for the bulk sample had two Falcon concentrators that would capture the free gold. On a regular basis, the Falcon will pause for a minute or two to empty the captured gold. When both Falcons shut down at the same time, the gold simply passed right through the machine into the tailings but it didn’t show up in the samples tested three times a day.
The latest series of samples that caught my eye were taken from the tailings pile. Both Quinton and I understood that there would be a lot of gold in the tailings and the material was stockpiled with the intent to run it through a real mill one day down the road. Novo took six samples and reported them on Thursday. What Quinton really wanted to know was how suitable the material would be to process with cyanide through a mill. The results shocked him and me as well. The grades came up 55% higher than the tests of the tailings during the bulk sample.
It appears that the real grade of at least what they processed at Beaton’s Creek is 77% higher than the 43-101 resource predicted. Instead of the 1.12-g/t grade from the tailings samples, the latest results showed an average grade of 2.16 g/t. If you add that 2.16 grade from the tailing to the recovered grade of .76 g/t, you come up with a real world grade of 2.92 g/t gold instead of 1.88 g/t. That’s actually 55% higher than the tests showed during the bulk sample, 77% higher than the 43-101 prediction and much closer to what I think the grade should be.
There is almost 500,000 ounces of near surface gold at Beaton’s Creek based on the drilling already completed. Millennium Minerals has a mill nearby. Millennium has been running a lot of drilling but hasn’t been wildly successful at coming up with a new resource. Eventually they will run out of gold and their average grade is a fraction of the Beaton’s Creek material.
It seems to me that it would make sense for either Novo to buy the Millennium mill to process their higher grade ore or for Millennium to buy the Beaton’s Creek resource from Novo or for the two companies to do some kind of toll milling were Novo uses Millennium’s mill during quiet periods to process the half million ounces of gold they have near surface. Any of the three would make a lot more sense than Novo building a mill five miles from another perfectly suitable mill.
A 55% increase in grade is always a good thing for any company. I’m not sure that even the company fully understands the implications. I know the average investor wouldn’t notice it. That’s why I write.
I love Novo. They have been an advertiser for years and they are my largest share position. I am as biased as it is possible. Do your own due diligence.