Novo Weak Hands Panic
Quinton Hennigh is my best friend in the mining industry and literally I love the guy. But the presentation at the Denver Gold show did not go down well. First of all, it was meaningless. A year ago Novo had an important story to tell and they needed to raise a lot of money. Now they have a ton of money in the bank and a brace of heavy hitters supporting them who buy into the Quinton theory. If Quinton had not presented this year the share price would not have budged.
Alas, he did. The weak hands wanted red meat and were given tofu. So they bailed. But the good news is that the story has gotten consistently better for the last year and a half and the weak hands bailing means the strong hands own more shares.
There were a couple of take-aways from the presentation that everyone missed. But first I need to present an alternative point of view to releasing assay results.
43-101 is total bullshit and JORC is meaningless.
They have nothing to do with either assays or the economics of mining. All they do is give mining companies a set of rules for presenting data that may or may not be meaningful or useful. Think of them as a spreadsheet, in and of itself, perfectly meaningless. Every mining project that failed in the last fifteen years has a JORC or 43-101 and they still failed.
You could have the greatest resource in world history and somewhere there is a village idiot who can screw it up. I have lost the most money on the best projects because you can do a 43-101 on rocks but there is no 43-101 on good sense.
Ask yourself for a moment what is the purpose of drilling and assays. If you think it is to generate grade and tonnage for a project, you may be overthinking things.
With every single project that a prospector ever took a pan from and swirled it in a nearby creek or hammered interesting rock off a ledge or punched a drill into, the purpose was, is and always will be exactly the same.
Is it economic? Or better yet, is it not economic so I can go play somewhere else?
Will it pay me to develop this? Once you understand that, you know everything you need to know. If it will pay, you mine it. If it won’t pay, you move on.
I have never seen or read about or heard of any project so difficult to get a real grasp on and I’ve said so for fourteen months again and again. You have large nuggets spread up and down and across the conglomerate sequence. It is close to impossible to get a grip on grade. The large diameter drill didn’t work, evidently the Steinert machine didn’t work and SGS has taken the best part of this year setting up a small plant.
That has forced Novo’s technical team to literally work blind. They know there is a lot of gold there; they just can’t measure it just as I said before.
In Quinton’s latest presentation in Denver he actually showed the issue very well and I doubt many got it. At 11:37 into the presentation he began to talk about measuring for gold as you do with diamonds. With diamonds you have no choice, you can only do a bulk sample because 2 carats per 100 cubic meters might be economic in gravel. That’s a lot of gravel to process and only a tiny diamond.
At 13:16 Quinton shows the real problem. They blocked out a five-ton chunk measuring 2 meters by 2 meters by half a meter and had “2-3 hits.” And six inches outside that block there were 5 nuggets right next to it. So which is meaningful, the 5-ton sample or the 5 nuggets right next to it? The answer is both are meaningful but neither is representative.
You would have to take a hundred of those blocks and average them to get an accurate number and it would be mandatory that they come from exactly the same horizon in the conglomerate sequence or you risk comparing apples to oranges. Or you could just mine it.
I sense from Quinton’s comments that he feels that not all the 5-ton samples are representative and he doesn’t want to release believing that investors would panic at reading some of the samples didn’t have gold in them. Because the gold is erratic, a lot of the samples might have low grade or none.
What you have to do is do a Delphi poll.
I went through Marine Corps boot camp in 1964 just as Vietnam started getting ultra stupid. They taught us how to use a Delphi poll. Basically when you are measuring something that is objective like the distance from the hill you are on to a hill off aways where you are taking fire from you can determine a very accurate distance just by asking ten or so of the guys with you what the distance is to the far hill. Some will be high, others low.
If your sample number is high enough it’s a great way to measure anything objective. You can do exactly at Karratha. Ignore the individual results but take 30-40 bulk samples, add them up and divide by the number of samples. That will give you a very accurate answer. And it’s important to understand that none of the assays are important by themselves, only taken as a whole. If you have results that understate the grade of the gold, there will be an equal number of samples that overstate the grade of the gold.
But let’s go back to last year’s video/presentation and start at 43:00 into the show. Look at all the pink dots all over the ten-meter by thirty-meter area. There were hundreds of nuggets. That’s all you need to know. When you have hundred of nuggets over a 300 square meter area and going down no more than 10 cm, you have an economic deposit. Measuring it is going to be a bitch titty but the real purpose of exploration is to get to that point where you know you have an economic deposit or not.
For anyone with $10,000 for a good metal detector, a small caravan that you can drag around to cook and sleep in and $500 worth of hand tools, you can find an interesting area around Karratha, apply for a small-scale mining permit and make your fortune. We saw a small pit where the roads department had scooped out a bunch of gravel for work on the roads. A couple of enterprising sports sprung for a metal detector and hit the hole in one weekend. They took out hundreds of ounces of gold. And it was a small pit you could walk across in two minutes.
I started going on site visits seventeen years ago. I have never taken a geology course. I didn’t study chemistry and basically I have no qualifications from a technical point of view other than I have been to a lot of projects.
I figure that when I go to a new project I have fifteen minutes to figure out if it might work or not. This isn’t rocket science or brain surgery. Send a monkey to enough projects and he would be able to do the same.
If you look at the 300 square meters shown in the Denver show last year and realize it is probably no more than 30 cubic meters and there is so much gold you literally can pry out of the ground, you know everything you need to know about the economics.
It’s high grade and it’s at surface. Screw the underground potential; we can worry about that after we can figure out what we have right under our noses. The garimpeiro miners have taken out tens of millions of dollars in gold. You may safely and correctly assume the mines department is anxious for Novo and the rest of the Pilbara sisters to succeed. This is a Vits and there is a shitpot of gold there.
Novo is going to succeed in spite of hiccups. Ten or fifteen of the other Pilbara sisters are going to do well. I like both De Grey and Pacton a lot. I own both and they have a lot of ground around Egina. But a lot of companies are going to make their fortunes in the Pilbara.
Novo and Pacton are advertisers. Novo has been my largest holding for many years so do your own due diligence. But ignore the chatboard cowboys. One out of every five has any sense and the rest have an agenda. They tend to believe that they can make themselves look smart by making everyone else look stupid. All they do is make themselves look stupid.