Understanding Novo Drill Results
Novo Resources puts an interesting saying on their home page that goes, “A New Paradigm in Gold Exploration and Investing.” It may sound a little hokie but actually it’s quite true.
Novo Resources has a Vaalbara Precipitate Gold Deposit. (VPGD) It’s the only one in the world thought of as being the product of the precipitation of gold from highly acidic water some 2.74 billion years ago. The theory has been around for at least 130 years but it took the brilliance of Quinton Hennigh to apply it to a known deposit.
On Novo’s website, they call the Pilbara deposits paleoplacer. I love Quinton like a brother but he’s being a wuss. This gold didn’t come from a surface deposit that eroded, it precipitated out of extremely acidic water as the oxygen content increased as the result of algae growing and producing oxygen. All paleoplacer means is an ancient placer deposit and this isn’t an old placer deposit.
You have to think differently, it is a new paradigm in gold exploration. Here’s what we know so far. Novo Resources just released the drill results from the last of a 43-hole 5,000-meter drill program. There were significant results from 42 of the holes. That’s significant. Since this is a conglomerate bed or gold reef some 15 to 35 meters thick that has a 12 to 15 degree dip, the best way to drill is with vertical holes. The holes varied from 50 to 250 meters deep.
Minerals found in sedimentary deposits such as coal or potash will show a lot more consistency of grade and thickness than vertical epithermal or mesothermal vein style deposits. In many gold deposits, you may need drill spacing as little as 12.5-meter centers. With a coal or potash project, you may get into the measured category with holes 500 meters apart. Learning the consistency of a particular deposit is very important to understanding the deposit.
This is a new paradigm of gold exploration. Novo is still learning. No one has ever drilled a single hole into what they thought of as a Vaalbara Precipitate Gold project before. What Novo is coming up with is interesting.
The rock is a quartz conglomerate and contains free gold, not oxide gold, as you may tend to think. Sulfide gold is some variation of a gold mineral in combination with sulfur. When it is exposed to water and oxygen near or at the surface, the sulfur breaks down and you are left with oxide gold. This is not oxide gold, this is free gold. About 30% is called coarse gold, larger than 150 mesh; the other 70% is about 60 microns or smaller than 200 mesh.
That’s important to know right from the gitgo because you can start to plan on how you would mill it and drill results can be very confusing. We all know cyanide dissolves gold. That’s true but we also need to know the size of the gold. If all of your gold is 150 mesh or larger, cyanide isn’t going to work well. It takes far too long. Cyanide likes fine gold such as 200 mesh or smaller.
When Quinton sent his samples off for assay, he wanted two different types of assay, one more suitable for each type of gold. The assay results released were from a Leachwell technique designed to leach fine gold. The Leachwell assay will not measure the coarse gold. So in all cases, a metallic screen assay will show more gold as it reflects the coarse gold that the Leachwell ignores. So as good as the Leachwell assays were, the metallic screen assays from the same 43 holes scheduled for release in late September are probably going to be better.
Another sampling issue that is going to be important is the location of the gold within the gold reef. The more or less 25 meter thick conglomerate reef is a composite of several high-grade horizons. It is a true conglomerate made up of cobbles up to large boulders. The gold is in the matrix or glue holding the rocks together. So if Quinton drills through a large bolder, the gold grade is low but if he drills 1 meter away, he may hit a 60 g/t gold assay. So he will be twinning a lot of holes to find the representative grade that reflects just how much gold is really there.
Between now and late December Novo Resources is drilling another 6000 meters. The program begins this week, first drill results will come out in Mid-October and as summer hits in December, the crew will pull out for a few months and Novo will put together a 43-101 resource by March of 2013.
Here’s where the numbers get really interesting. Quinton wants to punch out a 1 to 1.5 square km grid with the 120 holes planned. If the best he could do for results would be a 1 square km block of 25-meter thick gold reef at an average grade of .3 g/t, he would have a resource of just over 600,000 ounces. It’s pretty easy to see that .3 g/t is the lowest he got on 42 holes of 43 drilled. That means we could know by March the potential of the entire basin. With over 1800 square km, there could be a lot of gold in the Pilbara for Novo Resources.
This is a bulk tonnage target of free gold near surface that can be mined with an open pit, the ore being run through an inexpensive gravity circuit to recover the coarse gold and the fine gold going through a CIP or CIL circuit. It’s very doable. Part of his late 2012 plan is to conduct an infill drill program on the Grant’s Hill project already drilled to define a 200,000 to 300,000 ounce gold resource that he could shop to a nearby existing mill for toll milling. Quinton is working on permitting a small mine as I write.
There are about 18 million warrants outstanding at an average price of about $.58. Naturally as the price of the stock goes up there will be investors interested in selling their shares and reestablishing a position by exercising warrants. So there is an 18 million-share overhang. But that’s also a good thing. This is a new company and for all practical purposes, there was no float. Insiders and those who participated in the original private placements owned all of the shares.
For new investors to take a position, someone had to sell. So the rise from $.42 to a high of $1.17 in the last two weeks was wonderful because it pried some shares out of the hands of existing shareholders and created a lot of liquidity. With any stock, it’s important to be able to buy a decent sized position and just as important to sell a decent sized position.
Novo Resources understands the importance of a steady flow of information to interested shareholders and potential shareholders. This week I expect them to formally announce the drill program. I expect results to start coming out Mid-Oct. We can expect results from the metallic screen assays of the first 43 holes in September. We can look for a 43-101 resource in March or so of next year and I fully expect new drill programs to be announced when it’s cooled enough to drill.
In my opinion this is the stock that is going to ignite the gold market for those investors who don’t yet understand how dangerous the economic climate is today. This is the stock that is going to drag in the masses. It has sizzle, it has steak, it has Quinton Hennigh running it and it has me telling the story. It will take at least 6 months for the rest of the industry to get it but get it they will.
Novo is an advertiser. I participated in each of the private placements and I have bought a boatload of shares in the open market. I cannot be any more biased than I am. I don’t share your losses and you don’t share in my gains, I only share my knowledge. Do your own due diligence.