Novo’s Nervous Nellies
Sep 3, 2014
I have written at some considerable length about Novo’s Witwatersrand lookalike gold project in Western Australia. Rather than rehash what I have repeated again and again, I suggest interested readers go back and read what I have written before.
Basically Quinton Hennigh believes the gold mineralization in the Witwatersrand and the Pilbara basin is identical. Novo released a press release on the $2 million BLEG survey just completed and proved that indeed much of the gold in the Pilbara is identical to that of the Wits and Quinton’s theory of gold precipitation is correct. The conglomerates in the Wits Basin and the Pilbara are the same in chemical composition, age and similar in grade.
Novo’s recent press release that had Novo shareholders peeing in their pants was one of the most significant in mining history. But it also invoked The Curse of Giant Deposits.
To understand why I believe the press release was so significant, you have to see the area of the Pilbara where the BLEG results came from.
The map shows the Marble Bar JV that was part of the Phase 1 Creasy deal that totaled 1800 square km and Beaton’s Creek that was partially in the Phase 1 Creasy deal and partly the Millennium JV with 421,000 ounces gold in a resource. Those projects are the ones to the west of the map. Novo spent $6 an ounce to delineate those ounces and that number will be important shortly.
The long brown area to the right of the map running north-south is part of the Phase 2 Creasy deal that totaled about 18,000 square km. There is a lot more ground not shown on the map including a lot of ground 400 km to the west where results have not been released.
If you take the northernmost red dot in the Phase 2 Creasy concession and measure the distance from it to the southernmost yellow dot in the brown tenements located to the west of Nullagine or the Phase 2 tenements east of Nullagine, the distance is about 142 km or 88 statute miles.
There are two longstanding theories about how the gold got to the Witwatersrand Basin. One holds that the gold is a paleoplacer. The other theory most popular is that the Wits was some sort of modified epithermal deposit. Let’s look at them one at a time.
The Wits Basin and Pilbara Craton were once joined. The rocks are the same age, about 2.8 billion years old. The Wits Basin has produced about 2.9 billion ounces of gold since 1884.
The word “paleoplacer” means nothing more than old placer. In other words gold was deposited long ago in mountains and hills. Over millions of years erosion caused the gold to become free of the hard rock surrounding it and moved around.
To call the 2.8 billion year old gold in the Wits “paleoplacer” is 100% horseshit. The gold in the Wits could not possibly be old placer, new placer or any other form of free gold. The chemical composition of both salt water and fresh water was so corrosive; it would have dissolved any free gold. Without oxygen, water was nothing more than
a giant leach solution capable of dissolving any free gold. There was no oxygen in the atmosphere until the GOE. By 2.3 billion years ago, the chemistry of water had been changing for 200 million years and gold was coming out of solution.
Even the word placer is a poor use of terminology. An alluvial gold project is a placer. An eluvial gold project is a placer and a colluvial gold project is a placer. But they are all different. Without understanding how the gold came to be there, you simply cannot drill and explore in a correct way.
The 2nd major theory of the gold deposition in the Wits holds that a gold bearing solution found it’s way through cracks in the earth and when the chemistry of the surrounding rocks or the temperature or the pressure decreased sufficiently, the gold precipitated out of solution. But the key is the gold came up through the rocks.
These sorts of deposits form many if not most forms of metal deposits. They are called epithermal or mesothermal deposits depending on the temperature of the fluids. Again, you need to understand what sort of deposit you have to understand how to explore it or mine it.
Quinton’s latest press release, the one that 100% of Novo investors got 100% wrong, just blew the epithermal/mesothermal theory of the Wits right out of the water.
In the most simple of terms, hydrothermal deposits are cracks in the earth and while faults can run hundreds of miles, deposits can’t. You simply will not have an identical epithermal deposit running 88 miles long. The rocks and chemistry will change over that length. You aren’t going to have gold in conglomerates at the same grade, same thickness and similar chemistry. Everything changes in an epithermal system even in a few meters. There are no 88-mile long epithermal systems on earth.
So I hope by now you understand why the press release was so important.
1. The Wits and the Pilbara are not placer deposits even if gold may have been remobilized and there may be some placer gold.
Gold is a lot more mobile than people, even geologists, realize. It can be remobilized either chemically as it does in the Brazil jungle where many eluvial gold deposits are found or bacterially as you can often find in Alaska where alluvial gold nuggets often grow. But the gold in the Wits Basin and the Pilbara Basin came there through precipitation, not as the results of erosion.
2. There are no 88-mile or 142-kilometer long epithermal deposits with identical chemistry, rock type and gold grades found on earth. Therefore the Wits cannot be an epithermal deposit even if there may have been some remobilization or epithermal deposits found in either the Wits or the Pilbara.
So I think the theory of Quinton Hennigh has been conclusively proven and in coming years there will be dozens of papers trying to either prove the theory or disprove the theory. But 50 years from now after production of millions of ounces of gold from the Pilbara, Quinton will be correctly identified as the father of the basin. That’s the good news.
Now for the bad news. Remember above when I talked about The Curse of Giant Deposits? Well, that’s the bad news. It costs money to explore and prove up deposits. Novo has a resource of 421,000 ounces of gold at Beaton’s Creek in a resource. Obviously there is more gold at Marble Bar but Novo has yet to do a 43-101 resource there. I asked Quinton to tell me what it cost per ounce to define gold at Beaton’s Creek and the number he came up with was $6 an ounce.
theory for just a moment. Pretend you are an investor in a company that just announced a billion ounce potential gold deposit. For certain, that’s one of those good news, bad news issues. If it costs $6 an ounce to define an ounce of gold to 43-101 standards, the company now needs to raise $6 billion dollars. That’s BILLION, with a capital B. Your pitiful 100,000 shares just became 1/10th of 1/10th of 1% of the total capitalization.
Now I think it’s wonderful that Quinton has proven his theory and I have supported that for years since I first saw the project. But I’m beginning to question the wisdom of holding so much land.
I don’t give a damn myself if there is a billion ounces of gold in the Pilbara or 100 million ounces or 50 million ounces or 5 million. I just want my shares to go up, not down.
There are things that happen in every junior mining company that investors never find out about. Many times they don’t need to. I happen to be aware that Quinton wants to find some way of funding the company without diluting shareholders down to nothing. He has been looking for a production project for years, not months. And in current press releases, Quinton even talks about production. If Novo can make money through the production of gold, they can do a lot more drilling and exploration without further dilution of shareholders.
Well, something came up in the spring and it looked like Novo might be able to pick up a production project. Novo could have been bringing in $10 to $20 million a year in profit. But as happens all the time, the deal didn’t work out so there were no announcements about what might have been but what wasn’t.
And no doubt Novo is still thinking about other alternatives, all companies do. My basic point is that big projects can be company killers. Certainly as major shareholders, both Newmont and the Creasy Group would have welcomed the $1-$2 a share jump a production announcement might have meant. I would have loved to see it. That would have paid for a world of exploration without dilution. Instead, we had brilliant results from the BLEG survey and the stock went down.
It was natural for the shares to decrease after Quinton announced acceleration of the warrants that were due to expire in December. Some shareholders were dumping shares in anticipation of the warrants and Quinton wisely or not forced their hands. But once the warrants were out of the way, there really wasn’t any overhang so I feel certain that he was just as surprised as I was when the shares tumbled after warrant expiration.
The BLEG results from the western part of the Phase 2 Creasy deal have yet to be announced. I don’t care what they are, the theory has been proven to my satisfaction. What I really like about the results that were announced is that they showed that Quinton seems to have already plucked the low hanging fruit in the Phase 1 deal with Creasy. I’ll put the same map in again so you can look at it while I talk about it.
If you look at the upper left quadrant of the map titled Marble Bar, it shows two red dots meaning gold with conglomerates and two yellow dots meaning gold possibly associated with conglomerates. I’m going to suggest that for planning purposes, you think they are the same. If you move down to the Beaton’s Creek portion left of center, it shows five red dots and three yellow. So in the ground already covered in the Phase 1 agreement with Mark Creasy, there are 12 new discoveries of gold in conglomerates. If you look at the phase 2 ground of Mark Creasy running up and down in the right side of the map, there are only three red dots and two yellow dots.
For arguments sake, let’s pretend we think each dot represents the potential for 500,000 ounces of gold. I’m not saying there is that potential but I want you to use that number so you can follow me. So we have 12 conglomerates in the Phase 1 JV with Creasy and 5 in the Phase 2 JV with Creasy.
I’m going to backtrack for a moment. All of the deals with Creasy called for a 70/30 JV with Creasy getting shares and repayment of all his prior expenses for land payments and exploration. If both Phase 1 and Phase 2 go through, he would own 30% of the projects and around 24 million shares of Novo. That’s rich, that’s really really rich.
If you accept a potential for each red dot and each yellow dot as being 500,000 ounces of gold and you can add ounces for $6 an ounce, you would need $36 million to explore the Phase 1 ground and another $15 million to explore the already announced BLEG results from the Phase 2 Nullagine Creasy ground.
Novo has $12.8 million in the bank after the money came in from the warrants. I’d really like to see production before taking on a giant exposure to exploration and land payments that frankly I don’t think the company can afford without production. When gold was discovered in the Witwatersrand, they didn’t drill, they mined.
The press release was one of the most important ever announced in mining and it will take years for it to sink in but it also waved a giant red flag. The question has to be just how much Novo is really prepared to give away. I personally think we have all the ground we need already.
Novo is an advertiser and I am obviously as biased as I can be. Novo is my biggest share position and I’ve participated in every placement they have done. I did sell some shares to be able to exercise warrants.
Do your own thinking and your own due diligence.
NVO-C $.95 (Sep 02, 2014)
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Novo Resources website