Pilbara and The Ghost of Bre-X

I thought I would take a moment and discuss a bit about the different factors that I believe go into Novo’s decision making which has many people polarized as to what course of action they should or should not take. The theme of this post is “Every action/decision is done for a reason“.

There are two firmly polarized camps, which seem to be the “just mine it camp” and the “let’s find out as much as we can first cap”.

“Just mine it camp”:

Since quite a few industry veterans are sure that 1) We will need trial mining to really figure out how rich it is and 2) This is an ultra low cost operation that will be like printing money, we can all probably see the merits of going this route. I mean in the end, it is cash flow from mining the actual gold that is the price and what makes a gold deposit valuable. We could have all the gold in the world (in the ground), but in order for it to be valuable, it must be mined economically.

“Let’s find out as much as we can first camp” aka “The hard way camp”:

This is the route that we (officially) are taking at the moment. Arguments for this is that we get to understand the geology and gold distribution in details; 1) what exact layers on a say 0.5m scale are gold bearing, 2) what the gold distribution (and characteristics are), 3) What the gold might correlate to (like the newly identified tuff fragments) and 4) What the gold grades are in a reputable SGS lab setting.

Setting the scene

Before we go further into discussion I would like to take the time to paint a picture as two why Novo might feel “forced” to go with the slower route to start with. Do you remember all the heat Novo got for their Purdy’s trench video? They got a lot of flak and ridicule coming from all kinds of people in the industry.

One example was an interview done with the well respected fund manager Warren Irwin:

“Warren: That’s the issue with Novo also, yeah. So again Novo super-hyped stock. I was down there in Colorado when they did the infamous video. They chipped up all the little nuggets and all that sort of stuff, which was just…and then, of course, they had a perfectly timed where they did the video and then they had a big buyer just jump into the market right after that to ramp the stock up. So I don’t really like that kind of nonsense. “

… The interview was titled “Warren Irwin | Discerning Mining Stock Scams from Bre-X until Today: Top Hedge Fund Manager Shares Insights” 

This is a good example of just how much skepticism and eye rolling that Novo was getting since there was already talk about “a new Wits” from the bulls. Warren was absolutely not the only one who was skeptical. I remember talking about Novo at the Zurich Precious Metal Forum last November and received a few smirks. With that said it is noteworthy to mention that some of the CEOs who knew Quinton had nothing but great things to say about the guy and they were far less skeptical.

Discussion

So, now I would like you to put yourself in Novo’s shoes for a moment…

You know that 1) There has only been one ultra-district scale archean conglomerate system found in the world (the Wits) 2) There was already talk about Novo having cherry picked the first bulk samples and analogies had been made to the 100% big time scam that was the Bre-X fiasco. 3) Much of the industry thought another “Wits” scale system was impossible and that the Wits is a one off event. 4) No one without a big position in Novo wants them to succeed, and thus cognitive dissonance is at all time high (fueled by the previous points).

Now, what was Novo’s first response when realizing how far out of the box the sector considers this potentially ultra-district gold system to be…?

It should be obvious when you listen to this snippet from a Proven & Probable interview with Quinton:

“Everything’s scrutinized, or scrutineered, I should say. As you know, we have scrutineers onsite who are watching over the whole sample-taking exercise. Plus, we have scrutineers at the laboratory where the samples are being processed, so very good coverage in that regard.“

… Paranoia level scrutinizing. Novo is well aware that the prevailing sentiment is that “it’s too good to be true”.

Now, what other course of action (that we currently see) is aligned with the fact that Novo feels the need to go the extra mile in terms of trying to convince the market that the ultra-scale gold system which Novo believes they have found and what the continuous news of new gold bearing Mt Roe conglomerates suggests?

… The (so far) painfully slow and expensive bulk sampling done by SGS Minerals Perth:

“As discussed in its news release dated February 6, 2018, Novo has secured a test plant from SGS Minerals, Perth, capable of processing 5-15 tonne samples containing coarse, nuggety gold like that found at Karratha. Bulk samples are being sealed in crates and shipped to the test plant facility over the coming weeks. All work conducted at Comet Well and at the SGS plant is fully scrutinized by third party technicians.” SOURCE

“Samples are scrutineered by independent consultants from RSC Mining and Mineral Exploration, Perth, whilst each sample is collected and each sample is treated at the laboratory.” SOURCE

… This kind of bulk sampling isn’t fun or cheap to do. I think the avg cost is something like $30,000 to $40,000 per bulk sample.

Conclusions

So why are we currently doing it the really hard and expensive way?

Well for data collecting reasons of course, but perhaps more importantly because Novo feels the need to go the extra mile to show the market and all the doubters just how rich this gold system looks to be, and this time there will be no excuses. No one will be able to say that the samples were “salted” or that they were cherry picking the spots for maximum impact. I don’t think they are not doing this because it is fun or the fastest way to unlock value, but rather because they want to start off by showing the world what kind of grades they get in a FULLY SCRUTINEERED sampling environment before they start using a bit more “loose”, less costly and more efficient ways of proving up the system.

Bottom Line

I think Novo feels forced to do it the hard and expensive way NOW in order to show the market how rich this system is at Comet Well and Purdy’s Reward really is, with no one being able to make excuses. After that, the doubters shouldn’t have a leg to stand on if/when the trial mining and/or some other form of bulk sampling starts confirming these kinds of grades all over the place. Novo and Kirkland are probably pretty sure what they got already at Comet Well/Purdy’s, but given that Kirkland doubled down three weeks ago at $5 and we are now trading below that, the market (outsiders) is obviously not as convinced as the insiders. I personally think the insiders are more right than the outsiders.

Best regards,

The Hedgeless Horseman

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