Novo: “Welcome to The Markets”

First of all the market can at times be brain dead. Absolutely brain dead like we see across the board right now in especially junior miners. Their valuations don’t reflect the reality of gold mining at all;

• That producers are making cash hand over fist right now (Very profitable business at today’s gold price)
• That real discoveries and good deposits are incredibly rare
• That the gold mining sector takes up a lot more ounces than it can replace every year

Now, in a brain dead sector you will of course find the worst investors of all time. I mean it goes without saying. How else can this sector be so inefficiently priced for so long otherwise?

What is The Value of a Company?

A company ought to reflect the intrinsic, risk-adjusted, time-adjusted value of all possible future scenarios and respective cash flows.

What is The Price of a Company?

Not to be mistaken with the “Value” of the company the “Price” of the company is whatever average Joe is willing to pay on any given day.

The worse the macro/micro sentiment is, the more complicated the story it is, the more complex the story it is and the more

Why Do I own Novo?

Because the company has the largest land package of pretty much any junior with conglomerate and lag gravel potential all around.

What is priced in? Almost nothing at all.

Because the company has more conglomerate, lag gravel, orogenic, epizonal and intrusion related targets across its huge land package than I can count.

What is priced in? I would say nothing at all.

Because the company is in the forefront when it comes to understanding and trying to unlock nuggety gold with the help of state of the art ore sorting and Chrysos tech etc (Ps. Not just in Pilbara but potentially in more conventional deposits around the world.)

What is the current focus when you read chatrooms and twitter?

What Beaton’s Creek and Beaton’s Creek only will show each month while the company is ramping up and how it affects the cash balance next month.

Constant Tree Huggery

One of the most common mistakes unsuccessful long term investors make is to focus on the short term. Furthermore said people tend to focus on one or two trees and not the forest. I repeat, the value of a company should reflect ALL avenues of risk and reward potential.

Am I surprised that in the most brain dead sector there is I see 95% of people focusing on the short term? No

Am I surprised that in the most brain dead sector there is I see 95% of people focusing on a tree or two? No

Trivia: Why do you think the Lundins (or any company really) tend to do (successful) spin outs when a Lundin exploration company has more than ONE good asset?

… Because market participants have a big problem pricing a company efficiently beyond its flagship project.

Reality

Meanwhile Novo will be testing more targets than multiple juniors put together and the company’s shares of New Found Gold have appreciated at a pace that a junior company could only dream of.

So what if, during ramp up, Beaton’s Creek throws off C$2 M (or loses C$2 M for that matter) in any given month if  our equity position alone has gone up to almost C$200 M. Mines tend to get better, especially unconventional ones, as know how and experience goes up etc. Novo is priced like there is a fair shot of it going bankrupt which is quite funny given Novo’s very large equity positions. Again, the market has no friggin clue about anything really.

(Ps. After just having watched Quinton’s presentation on New Found Gold I find it to be a real possibility that Novo’s NFG holding might cover the entire current Market Cap of Novo one day)

Furthermore, I don’t own Novo for Beaton’s Creek even though I think that Beaton’s Creek will end up covering the current Enterprise Value alone via improving operations, rising gold price and exploration. The value of the mill complex itself should also reflect all the possible avenues for additional feed; Be it from Millennium Mineral’s orogenic type gold, Virgin Creek, Contact Creek, Blue Spec and/or Talga Talga etc. During the recent presentation the company spent a lot of time talking about how the company’s mill could process ore from a whole suite of potential deposits around Pilbara. Should that be taken into account? Of course

Where we Are and Future Scenarios

• Right now Novo has a Market Cap of around C$490 M.
• If we subtract the equity position of say C$180 M there is C$310 M left.
• Lets say that cash and debt cancel each out of for simplicity’s sake.

C$310 M is the Price (value) put on ALL of this:

1. Beaton’s Creek (operating gold mine)
2. Greater Beaton’s Creek
3. 14,000 km2 that is prospective for:
   1. Mt Roe conglomerates
   2. Hardey Formation conglomerates
   3. Egina type lag gravels
4. All of Millennium Minerals lode gold deposits/targets which include:
   1. Sayshell
   2. Parnell
   3. Cutlass
   4. Genne
   5. Au81
   6. Margies
5. The “hemi” style intrusive targets
6. Malmsbury the “Fosterville” type target
7. Virgin Creek
8. Contact Creek
9. Comet Well
10. Virgin Creek
11. Blue Spec
12. 47K
13. Talga Talga
14.  Egina
15. Ore Sorting
16. Elementum 3D
17. Strattons
18. Salvation Well
19. Elsie

Then add:

• That many of these projects are potentially within trucking distance of an operating mill
• That ore sorting success would probably hike up the implied value of most of the projects across 14,000 km2

Show me someone who understands all of the above and calls Novo overvalued and I will show you one of the 95% who have no clue what value investing is. I don’t own Novo because I think it’s a 100% guaranteed multi-bagger even from these low levels. I own Novo because the Risk/Reward is so good thanks to the market being completely clueless. The cheaper it gets the better the Risk/Reward gets. On the flipside it also means that the cheaper it gets, all else equal, the 95% will have a harder time owning it.

If the market had somewhat of a grip on what the R/R for Novo is then I would not be as bullish since it would mean that the valuation would be a lot higher. Right now I am not paying for any of the 10+ targets that will be drilled. Nor 98% of the list of targets/projects/prospects/tech I put out earlier.

In the meantime shareholders will have to suffer all the brain dead commentary that focuses on one or two trees and of course the focus will be on the risks (not upside scenarios or the most important thing; What is actually priced in). There are a LOT of people who have staked their reputation on Novo failing and I already see a big increase in trolling (wonder why). Pssst. Even though the SP is low Novo has never been more solid.

Truths

The best investors I am aware of on MinTwit never, or almost never, bother to bash other companies or people. They are winners who focus on winning. They are not losers whos time is so worthless that they see no opportunity cost in chasing ambulances. They are not losing investors who are miserable and want to spread their misery (misery LOVES company FYI). They tend to be composed, happy and have no time for shit slinging. I’s always easy to tell whos portfolios are doing the worst simply be the amount of bitter garbage people put out (It’s easier to try and tear other people down than to build something successful yourself).

Can You Spot the Profitable Buy Levels in This Chart?

… Can you guess at what price levels the trolling was going bananas?

Note: this is not investing advice. I own shares of Novo Resources and the company is a banner sponsor. Consider me very biased and make up your own mind! Junior miners can be very risky and volatile.

Best regards,

The Hedgeless Horseman