SVH Tracker - July 24, 2017: Has Novo latched onto a blockbuster gold discovery or just a localized geological freak show?
(Initially broadcast as an email Monday night July 24) The main reason for this email is to alert KRO-SVH members to what may be an emerging blockbuster discovery story involving Novo Resources Corp (NVO-V: $2.12) which broke out over $2 today. I have spent the past two weeks researching this story which is way over-priced based on its Beatons Creek project and the stage of the new Purdy's Reward discovery 350 km to the northwest. Novo's Quinton Hennigh has worked hard on proving that the Pilbara Craton in northwestern Australia hosts an equivalent in style and possibly scale to South Africa's Witwatersrand reef system, a high grade 2.6 billion oz gold system no more than 2 metres thick but laterally extensive, rimming a 400 km stretch of the Witwatersrand Basin and 100 km downdip. 1.6 billion oz have been mined since 1886 and another 1 billion are known but too deep to mine. The Pilbara Craton has a similar age and also features the Hamersley Basin which is very similar to the Witwatersrand Basin and even has quartz-pebble conglomerate horizons that have gold in the eastern part where Beatons Creek is located. Looking for Wits 2.0 in Australia is not a new story. A USGS 1985 publication features a lengthy overview of past exploration efforts focused mainly on uranium with disappointing results. Novo got hold of Beatons Creek and other paleoplacer gold projects in this area in 2011 but its efforts to establish a laterally extensive high grade reef system met with disappointment. Since 2015 Novo has been focused on turning the 300,000 oz 2-4 g/t consolation prize into a small scale "cash flow" gold mine.
But in August 2016 something unusual happened 350 km to the northwest, at the other side of the Hamersley Basin, where Johnathan Campbell was using a helicopter to count cattle and while dealing with some problem noticed gold nuggets sitting in the dirt. His group staked the Comet Well claims and started running around with metal detectors. Gold nuggets are nothing new in this region and there is a whole "secretive" industry centered on Karratha where people prospect for gold with metal detectors. Whatever bedrock gold was known in this region was usually of a quartz hosted vein nature that has not amounted to any notable deposits. But when Quinton heard about this he had one of those forehead palm slapping moments as he realized that he had spent his efforts on the wrong end of the Hamersley Basin. He also knew about a stratigraphic hole CRA (Rio Tinto) drilled about 60 km southeast of this area which intersected a couple metres of gold-bearing quartz-pebble conglomerate at a depth of 1,765 m. That did not interest CRA which was looking for uranium. The base of the Fortescue sediments where the quartz pebble conglomerate reefs with the same age as the Wits reefs are supposed to be is not clearly exposed in this area, which might explain why nobody has looked too hard in this region. But once Quinton realized that this horizon daylights in this area, he first did a deal on the Comet Well project with the prospectors, staked 750,000 hectares of surrounding open land, and then optioned 50% of the gold rights from ASX-listed Artemis Resources Ltd on its 150,000 ha holdings for a mere $2 million exploration. Artemis was commenting on this unusual gold discovery where watermelon seed shaped nuggets were being found in bedrock last November, stating that the "mafic" host rock represents a new target for the region.
What nobody seemed to realize was that the host rock is a much coarser "conglomerate" of basalts and greenstones such as found in the higher energy areas close to shore. The conventional view is that the Wits gold reefs consist of alluvial gold from gold deposits eroded from the original land mass about 2.7-2.9 billion years ago. The gold came from the hills and was evenly spread out along the basin edge. Quinton is of the view that the gold formed in the shallow waters of either a continental shelf or inland lake as the result of a precipitation event that lasted only a few thousand years - hence the 2 m or less thickness of the reefs. In other words water saturated with more gold than is possible today underwent a chemical change which enabled the gold to drop out of solution, growing on "seeds" possibly assisted by carbonaceous material in the form of mats of algae that flourished in shallow water. The later "detrital" appearance was created by a lacework of braided rivers that fed the basin and reworked the gold nuggets whose distribution is uniform but does feature higher grade streaks that could have been paleo channels. From Quinton's perspective the extensive lateral distribution and narrow "deposition" time horizon could only have come about where gold literally "rained" out of the water to form nuggets which preferentially attracted the gold just as diamond crystals in the mantle grow by scavenging carbon.
The fact that the bedrock host of the gold nuggets at Comet Well and Purdy's Reward does not look like the Wits quartz-pebble conglomerate is simply due to being closer to shore, a part that has been eroded away from the Wits Basin whose northern edge is an escarpment that exposed the gold reef horizons. There is thus no analogy between what Novo has precisely at Comet Well and what the South Africans have at the Wits, but if Quinton is right about how the Wits reef gold formed and that the Hamersley Basin was subject to the same water chemistry that underwent some sort of shock that caused the precipitation event, then not only does the Pilbara Craton host the super nuggetty nearshore part of that ancient gold event, but also likely the equivalent of the Wits reef style as one moves downdip.
It will take me many, many hours to write up this fascinating story, which I will do over the next couple weeks, provided I do not get distracted by a trip to Australia to see for myself, but for now I want my readers to understand the blockbuster implications of this emerging discovery.
At the current stock price of $2.12 with 160 million fully diluted Novo has an implied value of $320 million to $640 million depending on whether it is the 50% or 100% owned ground that ends up with the goods. That represents poor speculative value even for a scenario of a 5-10 million oz discovery. But in terms of the scenario where Novo has 50%-100% of the big picture, namely a 1 billion oz gold resource with sufficient grade and continuity to be profitable to mine at $1,200 gold, the current stock price offers Good Relative Speculative Value.
The scale of the big picture outcome is absolutely huge, and would create a monster discovery bull market for juniors, especially where out of the box thinking is applied to blind or covered geology. When Dia Met awoke from its $0.60 slumber in early 1992 it was always over-priced on its way to $60, as was Diamond Fields when it hit the Voisey's Bay dyke in late 1994. Even if you cannot bring yourself to buy Novo now, it will be very worth your while to pay close attention because even if you miss this particular boat, it will pull in extraordinary capital into the junior exploration space which will get recycled.
I expect the stock to hit $5-$10 over the next few weeks, then digest the 27 million $0.60 units that come free trading in August or early September. By then we will start getting a better idea of how Novo plans to "measure" the gold content of this super nugget effect and more "theory" will have emerged to feed the debate of whether this is just a localized freak show or the edge of a staggeringly large gold trove.
And if you want to hear a high speed audio attempt by me to compress this story into 15 minutes, check out Friday's Discovery Watch episode. And if that is not enough for now, you can also check out an audio interview I did with Jay Taylor last Thursday which aired on Jay Taylor's Turning Hard Times into Good Times Show on July 25, 2017. Jay started recommending Novo in October 2013 and stuck with the dream even as it gradually became apparent that a Wits scale gold reef system was not present in the Beatons Creek area and Quinton was forced to work on developing a small scale gravity-CIL open pit mine for which a PFS is expected by the end of 2017. I know what that feels like, having suffered something similar with the Nevada gold-in-groundwater story, which by the way is still alive and may yet experience the sort of turnaround happening with Jay's Novo Wits story.