Developers/Producers
Some of my favorite Advanced explorers/producer/developer stories right now:
- Novo Resources
- Magna Gold
- Gold Mountain
- TriStar Gold
- Maritime Resources
- Rokmaster
- Mayfair Gold
- Defense Metals
- Lion One
- Kuya Silver
- Deep-South Resources
- Golden Tag Resources
- White Rock Minerals
- Doré Copper
- Heatherdale Resources
- White Gold
… All of the above have good to great margin of safety in my opinion.
Note: This is not investment advice.
Could you please give us your take on the recent Novo news yesterday?
Novo shot itself in the foot yesterday with a boneheaded decision that destroyed shareholder value. To summarize:
– Novo broke its promise of not raising outside capital given production cash flow to shareholders after only 8 months, a loss of management credibility.
– Novo raised expensive equity capital, deciding to sell its own company shares over any other
investment or pursuing a flexible credit line or term loan. Novo must think it’s investment in New Found Gold, among others, is more valuable than it’s own company shares.
– Novo choose to raise common equity at a significant discount to market prices, including
additional warrant overhang that hurts all existing shareholders.
– Novo did not make this offering equitable to all shareholders through a rights offering.
– Novo made this decision in haste.
Surprising and of course not something I wanted to see happen. In the end I don’t think it is such a big deal. The real case for Novo is the 99% that is outside of BC and if it takes C$22 M extra and some warrants to get us (hopefully) smoothly sailing then I am more than OK with it. Of course the 2-3 year long consolidation etc meant that this was a frustrating thing on top of a frustrating period. The risk I do NOT want the company to take is the risk of cutting it too close in terms of money and risking all the time, money and effort that went into building the 14,000km2 empire.
Best regards
This is not a thesis-destroying decision by any means. I am, and will remain a larger personal shareholder in Novo. However, decisions like this are not sensible in my opinion. To me, the more important concerns are (1) abruptly changing capital strategies after 8 months of saying they didn’t need external capital; (2) the Board thinking that they should just sell common equity with warrants whenever they feel “uncomfortable” with the cash balance; (3) the decision to tap the highest cost capital; (4) the hasty decision making in a weak gold market.
It may pain some people to hear this, but IF they needed $22M, they should have sold one or two of their investments, including NFG, rather than raising cash from a common share sale. The argument that NFG is “so valuable” to not sell it is non-sensible. If management thinks NFG is so much more valuable than Novo, then stop the mill immediately, stop exploring the Pilbara and go buy a bunch of NFG with the company’s cash.
I thought the goal here was to become a major producing gold miner in Australia – not an investment holding company for other miners. And, as such, if that strategy still has a tremendous value ahead of it, then you should be selling non-core assets and not selling your own company! Point blank – management thinks NFG has better potential/value than Novo and crapped on Novo shareholders at the expense of another investment. Selling a part of NFG would have retained more ownership of Novo (which has an operating mill and a massive land package), which should have been the right capital decision to make if Novo really does have such tremendous upside ahead of it.
Unfortunately, I think the board received bad advice and is not thinking with logic. They are probably too emotionally tied to the NFG shares to even consider that it actually makes more sense to sell those and retain more ownership of what everyone thinks is the biggest gold mining opportunity this decade. Making capital allocation decisions with emotion is not what I want to see, and that’s what concerns me here. A lot of great progress on exploration and operations can easily get wiped up with a few bad capital allocation decisions. It’s critical the board understands their mistake and refrains from repeating this going forward.
One last comment/way to frame this discussion:
If the remaining 99% of Novo holds the most value for the company and you want another $22 million as a buffer/exploration budget, then why would sell/dilute shares of that oh-so-valuable 99%? You realize you just sold that 99% land package at a very high cost. Instead, you should want to retain the most of that 99% that you can!
Proper capital allocation is the most important job of any CEO and board. That’s what they get paid to do, and they should rewarded/applauded when they do it well, and called out when they make bad, value-destroying decisions. Poor capital allocation will destroy even the greatest story and company over time. History proves this again and again. I truly do hope that this mistake was one time in nature.
You articulate your points exceedingly well. I just want to add some of my perspective. If it turns out that the newly refurbished mill is an unprofitable “failure” due to gold grades fed into it being well below plan, then Novo is finished as a company. If you make a big mistake on the feed grade to your recently acquired $100 million mill, and can’t get to break-even, then you are done. Whether it is a slow death or fast death depends on the level of unprofitability.
I would want to know if all the other land holdings and stock holdings (e.g. New Found Gold) of Novo have been pledged as additional collateral for the Sprott loan. I suspect that Novo’s New Found Gold shares did not make sense to sell because it is additional collateral for the Sprott loan. That means the proceeds from their sale would have to be used to pay down the principal balance of the Sprott loan and therefore not be available for funding Novo’s additional rush drilling.
Some posters on other message boards are SPECULATING that Novo’s rush to drill further is because the gold grades at the mill are below expectations. So Novo needed to raise funds immediately, before that news, if true, becomes more definitive. The fact that Sprott lowered the available loan by $5 million makes me suspect something is meaningfully wrong.
I hate stocks like this that I have to figure out like a 10,000 piece jig saw puzzel !! So I will be liquidating when the window presents itself.
Very concerning. There are so many good companies and opportunities out there I’m starting to wonder why I have money tied up in Novo. Agreed that they should have sold NFG stock before diluting their own. It’s time Novo starting producing gold.
Hello Eric. What aubout Condor Resource? Its verry still. Have a good day!