Update on Novo
The gold market in general is in a mild correction. It’s no big thing and will be over soon and gold/silver and the shares of junior mining stocks are going to go a lot higher. QE to Infinity is here and at the end of the day, gold is going to be a sole refuge from the stupidity of governments.
My body has barely begun to recover from the 50 hours of flying to get to and from Newman Australia to view the status of Novo Resources’ Pilbara gold project but every minute of the trip was worth it. The trip was two weeks ago and I still feel it.
I’ve written before about Novo. Those pieces can be located here and here. Nothing has changed in my view except Quinton Hennigh is proving his Vaalbara Precipitate Gold Deposit theory. (VPGD) I like that name, it sort of rolls off your tongue. Besides, you have to call it something.
I’ve explained before. As with Banded Iron Formations, gold can precipitate out of water, both salt and fresh. The environment 2.74 billion years ago, when both the Witwatersrand and the Pilbara basins were formed, was far more acidic. Salt water could contain between 4 ppb and 40 ppb compared to 4 ppt today.
Since then the Novo team has started a lot of new drilling and released the final drill results from the Phase 1 43-hole drill program. The stock has gone up 115% since I wrote my first piece, in spite of a normal correction in gold that began a month ago. But the market still doesn’t get it. Gold investors are conditioned to think in terms of gold coming from below the ground and with a VPGD, it came from the water above the ground and is found in sediments or conglomerates in basins. Drilling for a VPGD is far more like drilling for coal or potash, you drill straight down and count the layers.
We had representatives on the short 1-day tour from both Richmond Partners Master Limited and Sheldon Inwentash of Pinetree Capital fame. Between the two, they control about 60% of the shares of Novo Resources.
Just for the record, I believe Novo is the most tightly held stock I have ever owned or covered. I think over 85% is owned by insiders and management. If so, any move higher could prove explosive in a hurry. There isn’t much of a float and trying to establish a large position is going to be near impossible unless at far higher prices.
After I wrote my pieces, I complained to Quinton that he needed to add more material to the website to explain what he was doing and why. Leo Karabelas was brought on as VP of Corporate Communications in April and he’s done a good job.
Leo posted a company presentation in late September and it does a wonderful job of explaining where Novo Resources is now and where it is going. Read the presentation and you will have a far better understanding of the company.
Basically, the company has drilled 43 RC holes and released the results. The company has begun a Phase 2 7500-meter drill program and will be releasing results between now and Q1 of next year. They will be commencing a Phase 3 2000-meter program at Golden Crown Hill and eventually later this year another 2000-meter drill program onto the Creasy ground. Expect all drilling to stop in December for a few months due to the extreme temperatures in Western Australia in the summer.
Money is going to be the only issue Novo faces. Quinton wants to drill as much as possible as fast as possible and it all costs money. I don’t want to see them doing any private placements at these prices but I don’t run the company, I just get to bitch. As of the time of our visit, the company had about $800,000 in the bank and needs $2.5 million to complete the full four phases of drilling.
There are about 2.8 million warrants at $.50 that expire in January and you can expect them to be exercised as they are solidly in the money. There are another 14 million warrants at $.60 and we can reasonably expect them to be exercised over time. They don’t expire until November of 2013. In addition, Novo holds investment positions in Euromax, Prosperity Goldfields and Evolving Gold that can be sold for cash.
As I said before and I don’t think the market gets it; the project is unique because it’s a totally new theory of gold mobilization. While the drill results have been spectacular, the market doesn’t yet get it. They have a $29 million dollar market cap and about a $25 million dollar enterprise value if you subtract the cash and liquid stocks on hand. That’s not much.
On the tour Quinton outlined a meter square on the ground and then dropped 12 British Sovereigns on it. Each Sovereign weighs right at ¼ ounce of gold. That’s 3 ounces of gold.
He explained that the drilling to date was showing about 30 gram meters. That’s like having one meter of 30 g/t or thirty meters of 1 g/t or fifteen meters of 2 g/t. If that holds and he can drill off a square km of the 1800 square km they have agreements on, the square kilometer will contain 3 million ounces of gold. That’s a lot and I think you can see why I want him drilling night and day.
The conglomerates come in layers and so far are near surface. Quinton wants to plan on doing open pit mining and then will run through a CIL plant for recovery.
If everything goes well and nothing in life ever does, it’s possible the company could have a 43-101 resource by March or April of next year. They can’t drill after December until March or so and Quinton can get the technical team hot on crunching numbers for the resource estimate and planning on next year’s drill program.
I believe that Quinton has already proved his theory of gold precipitation but geologists and markets move slowly. More drilling and drilling way out in the basin hundreds of kilometers away will prove or disprove the theory. In short, this is a great story with the potential for being a world-class story and you need to pay attention.
Novo Resources is an advertiser. We own a lot of shares, we have participated in all the PPs to date and intend to continue to participate in any PPs in the future. We are biased but I’ve been there twice, I buy into Quinton’s theory and I think this is the NBT. (Next Big Thing)
You on the other hand have not been on the project or talked to Quinton at length about the theory and the Wits and Australia so you need to do your own due diligence.