SVH Tracker - August 2, 2017: Australians begin to embrace Wits 2.0 scenario
Novo Resources Corp was up sharply on Wednesday morning August 2, 2017 following an overnight announcement by ASX-listed Artemis Resources Ltd (ARV-ASX) that it had recovered 100% of a 11,780 ha claim package (E47/1217) it now calls the Mt OscarWits project. Artemis states that it has identified a quartz rich conglomerate horizon up to 75 metres thick which in one location yielded a grade of 10.93 g/t gold. The conglomerate horizon in this area has been folded and faulted more extensively than in the Comet Well-Purdy's Reward area. The single gold value is meaningless, but the Artemis press release effectively suggests that it has identified a Witwatersrand style quartz conglomerate horizon over a significant strike. In addition Artemis asserted that Mt OscarWits is not part of the MOU with Novo whereby Novo can earn 50% of the conglomerate hosted gold on all of the Artemis property holdings in the Pilbara region by spending AUD $2 million over 2 years. Quinton Hennigh has confirmed that this claim block was excluded. Artemis stock gained $0.06 to AUD $0.185 on volume of 40,463,365 shares. The Novo market reacted on the upside on Wednesday morning for two reasons: 1) the growing perception that previously unrecognized Witwatersrand style gold bearing conglomerate horizons have an extensive presence at the northwestern edge of the Hamersley Basin which is part of the Pilbara Craton believed to have been part of the Kaapvaal Basin on which the Witwatersrand Basin sits in South Africa, and, 2) the belief that Novo is entitled to 50% of the gold potential of the Mt OscarWits property. The first is correct, the second is not.
The first reaction reason reflects the current battle between proponents of the Wits 2.0 and the Local Freak Show scenarios. The Wits 2.0 camp believes Quinton Hennigh's hypothesis that a laterally extensive gold-bearing conglomerate horizon contemporaneous with that of the 2.6 billion ounce Witwatersrand Basin is present within the northwestern part of the Hamersley Basin. Novo has staked 763,800 hectares covering the northern margin of the Hamersley Basin that is open based on the Wits 2.0 hypothesis. A key rationale behind this aggressive staking strategy is Hennigh's argument that the gold within the Witwatersrand reef was formed through a precipitation process when some global system shock changed the solubility of gold in the water during the 2.9-2.72 Ga period when the quartz-pebble conglomerate horizons formed.
The two competing theories for the past century have been the "modified placer" and "hydrothermal" theories. The "modified placer" theory argues that gold formed through conventional fluid driven processes within greenstone rocks (ie the Abitibi greenstone belt) whose uplift facilitated rapid erosion and water-borne transport of physical gold into a marine basin where the "placer" gold was reworked into the quartz-pebble conglomerate reefs. Metamorphic forces as the Witwatersrand Basin thickened and buried the paleoplacer reefs served to remobilize the gold into its current form within the South African reefs. The "hydrothermal" theory argues that the gold was introduced into pre-existing quartz-pebble conglomerate beds by gold bearing hydrothermally driven fluids that dropped their payload within the chemically receptive conglomerate beds. The Witwatersrand Gold Deposits episode in Andrew Jackson's excellent series Ore Deposits 101 does a good job of articulating the controversy and providing a crash course on Wits 1.0. Both theories butt up against implausibility when you take into consideration that fluid always flows along the path of least resistance and that such physical paths draining the uplands or feeding the beds from below are unlikely to have had a distribution that supports the formation of the laterally extensive Wits 1.0 reefs.
In recent decades a third theory has emerged which argues that the gold formed by precipitating out of the water which covered the Wits Basin in a manner similar to how iron deposits formed when oxygen levels rose, except that the nugget nature of the gold suggests underwater crystallization rather than precipitation as a fine sediment. The keys to this theory are 1) that the chemistry of the earth's water 2.7 billion years ago and older was very different than today, resulting in a lot of dissolved iron and other metals such as gold which does not easily dissolve and wants to drop out of solution as fast as it can, and, 2) that early microbial life played important roles in altering the chemistry of both water and the atmosphere (see Nick Lane's fascinating book Oxygen: the molecule that made the world). An intriguing paper by Quinton Hennigh and other academics, Witwatersrand-Metallogenesis: the Case for (Modified) Syngenesis, makes the case that the gold dropped out of solution within a water environment which explains the very narrow time horizon of gold reefs within the Wits Basin and the laterally extensive nature of the reefs.
Because the gold "nuggets" formed in the shallows of a continental shelf or inland sea they would have been subject to reworking by wave action as well as braided river fans that helped organize the high grade pay channel streaks present within the Wits 1.0 reefs. The remobilization of the gold within the reefs would have arisen from metamorphic forces during burial by later sedimentation and basalt flows. The uranium that is part of the gold reefs as uraninite likely formed in a similar manner and also due to water chemistry changes. An abrupt change could have been brought about by a meteor impact which disrupted the photosynthesis of algae. Such a shock could have "drained" the dissolved gold out the water whose chemistry never returned to former levels that supported high saturation levels for gold. This theory would explain the uniqueness of Wits 1.0 and why younger quartz-pebble conglomerate beds elsewhere in the world lack a similar gold payload.
The precipitation theory is relevant to Novo and the Hamersley Basin because the Pilbara Craton has the same age as the Kaapvaal Craton to which it was apparently joined 3.6 billion years ago when Vaalbara, the earth's first supercontinent, emerged. Since then the Pilbara Craton has traveled the globe 9,000 km to its current location in the northwestern corner of Australia. Quinton Hennigh's quest to find Wits 2.0 focused on the Pilbara Craton because the Hamersley Basin was similar to the Witwatersrand Basin and gold-bearing quartz-pebble conglomerate beds were present at the eastern edge within projects such as Beatons Creek. Novo's Wits 2.0 hopes grounded out when it became apparent that the gold grades drop off rapidly as the prospective horizon dips into the basin. This led Hennigh to the conclusion that Beatons Creek and the surrounding area represented the distal limits of what was once Wits 2.0 but which has long ago eroded away.
The significance of the in situ nuggets found at Comet Well and Purdy's Reward 350 km to the northwest is that they occur in a conglomerate horizon within the Hardey Sandstone at the base of the Fortescue Group that makes up the Hamersley Basin, which would be contemporaneous with Wits 1.0. That this prospective horizon daylights at the northwestern edge of the Hamersley Basin was not known because it is narrow and covered with overburden. Amateur prospectors with metal detectors have been finding gold nuggets in the region surrounding Karratha for many years (for example check this 2014 Video, one of numerous metal detector videos on YouTube), but everybody assumed these came from a paleoplacer deposit whose bedrock origin is long gone and which itself has been dispersed by erosional forces. Great for tourists but not miners. Although Artemis has been talking about the in situ nuggets since last November, the Wits 2.0 implication seems to have escaped the imagination of the Aussies, probably because the hunt for Wits 2.0 within the Hamersley Basin is an old one debunked long ago by exploration failure. Consider the following bleak summary in an article prepared by the Geological Survey of Western Australia for a 1987 collection of articles on "Uranium Deposits in Proterozoic Quartz-Pebble Conglomerates" published by the International Atomic Energy Agency:
"Although there has been some minor gold production from the Fortescue Group conglomerates, the known uraniferous pyritic conglomerates are virtually devoid of gold. Despite the evident similarities with the Rand, three geological factors may down-grade the Fortescue as a gold province; firstly the covering of potential source rocks (greenstones) early in the erosion of the basement, and secondly the prolific basalt sheets that may have prevented winnowing and reworking of prograding clastic sequences, and thirdly the absence of mature drainage systems needed to rework gold bearing sediments."
A dozen majors explored the Hamersley Basin for uranium from the mid fifties onward, with the Hardey Sandstone at the base of the Fortescue Group where it daylights at the eastern and western ends of the Hamersley Basin being the main focus for exploration. When Quinton Hennigh checked out the story about in situ gold nuggets 350 km to the northwest of Beatons Creek he realized that this part of the Hamersley Basin should have been where everybody focused their search for Wits 2.0. Because he also subscribes to the precipitation theory none of the supposed obstacles to the formation of Wits 1.0 style gold reefs within the Hamersley Basin are relevant. That is why he staked 763,800 hectares of open land covering the northern margin of the Hamersley Basin where little if any work has ever been done in search of Wits 2.0. That is why he was able to strike several deals for the 5,450 ha Comet Well property that the prospectors had staked which give Novo 80% of 6.5 km of gold bearing conglomerate. How he was able to secure a 50% right to the gold in conglomerate or paleoplacer style mineralization within the 153,600 hectares controlled by Artemis can only be explained by a jaundiced Aussie attitude toward the Wits 2.0 scenario. Artemis management likely viewed the conglomerate bed hosted nuggets at Comet Well and Purdy's Reward as a localized geological freak show with no implications beyond the immediate area. But the way they handled the Mt OscarWits news release it sounds like they have embraced the Wits 2.0 scenario and given Novo the finger by declaring Novo has no piece of it. It looks very much like the Aussies are embracing Wits 2.0!
What really gets people going is Novo's own version of the metal detector video. in its July 12, 2017 news release Novo provided links to two videos. The First Video shows a guy sweeping a pit with a metal detector. It looks like the setup for an old-fashioned con job. I half expected the metal detector guy to declare, dig here. The next step should show him throwing dirt through a sieve until a gold nugget gets caught as the crowd gasps - hook, line and sinker. In the Second Video instead of a shovel out comes a jackhammer that starts blasting away at bedrock. They flip a piece that comes loose and lo and behold there gleam big nuggets. As the Aussies gasp my reaction is, how did you plant that or how many times did you have to do this video until you got lucky?
The "local freak show" scenario divides into two camps, one which argues that when the average grade is eventually figured out it will be too low to support a profitable mining operation, or at least none with a value supporting the current Novo market price (in other words, what we might expect a PFS to reveal about Beatons Creek later this year), and the other that argues the grade and size will be enough to support a very profitable open pit mine justifying an eventual stock price range of $5-$10, but nothing much will be found beyond this geological curiosity. The pessimistic local freak show camp is represented by the likes of Brent Cook, Rick Rule and Inca Kola's "Otto" (July 18, 2017 - Speculators having fun) who would rather pay a higher price when technical validation of the Wits 2.0 scenario has been delivered. This is the crowd that will start buying when Novo hits $10 on its way to $100 in a validated Wits 2.0 scenario.
Brent Cook of Exploration Insights is currently participating in a site visit to Karratha which probably will not change his mind because the statistical data gathering about gold distribution within the conglomerate will take at least two months to deliver any meaningful results. The 700 kg sample from the 2 m by 2 m pit is just a start; if it has a high grade the skeptics will dismiss it as a fluke, just as they quite justifiably do whenever a big diamond shows up in a kimberlite mini bulk sample. They will say, wait until you have several dozen grid based pits covering the target horizon before you draw any conclusions. If the sample delivers a low grade the optimists will say the same thing. Also on the site visit is Greg Gibson who joined the board on July 19 when Eric Sprott became alarmed that he might be the biggest stakeholder in Wits 2.0. Gibson, who was at the Sprott conference in Vancouver last week where I had a chance to chat with him, showed me some stunning nugget photos that are coming in from the Karratha region. His job is to make sure a proper exploration protocol is developed that can support the optimistic local freak show scenario and put himself in a position to advise Sprott when the Wits 2.0 scenario is getting traction. Also on the site visit is Bob Moriarty of 321Gold who is representing the second incarnation of Wits 2.0 after the original Novo version petered out at Beatons Creek. He represents the crowd that believes in the Wits 2.0 scenario and sees the current stock price as cheap in a scenario where the optimistic local freak show scenario gets replicated a dozen times within Novo's 1 million hectare land package. The Good Relative Spec Value Buy I issued at $2.12 on July 24 is a bet on the Wits 2.0 scenario.
The declaration by Artemis that Novo does not have any interest in Mt OscarWits caught Novo by surprise because on its map of the Karratha region it includes the Mt OscarWits claim as part of the Artemis Farm-In JV. According to Novo the deal allows Novo to "farm-in to 50% of the Gold Rights (as defined below) in Artemis's current and future tenements within 100km of Karratha (including at Purdy's Reward, Weerianna, Carlow Castle, Nickol River) by expending AUD $2 million on exploration within two years of satisfying conditions precedent in the Farmin and JV Agreement". The gold rights are defined as: "gold (and other minerals usually mined with gold) in conglomerate and/or paleoplacer style mineralisation. Novo cannot earn any rights to (i) Artemis's existing JORC compliant Resources and Reserves or (ii) future JORC compliant Resources and Reserves announced by Artemis which are not within conglomerate and/or paleoplacer style mineralization".
The Mt OscarWits property was originally owned by a junior called Fox Resources Ltd which was delisted from the ASX on August 29, 2016 after it ran into financial difficulties. Fox has been busy selling assets to pay back creditors and on March 2, 2017 Artemis struck a deal to acquire all of Fox's Western Australia assets which closed on April 28, 2017 with the issue of 28 million Artemis shares and assumption of AUD $920,000 in liabilities. This project was subject to a Feb 2011 farm-in by a private company called Magnetic South Pty Ltd which could earn 60% by spending $20 million over 5 years. The focus was a magnetite deposit with an inferred resource of 72 million tonnes of 34% iron. Apparently Magnetic defaulted, giving Fox back 100% and ultimately 100% to Artemis. When I talked to Novo's IR representative Leo Karabelas this morning he indicated that the company was talking to its lawyers to sort this out, but when I communicated with Quinton Hennigh in Australia this afternoon he indicated that Novo had previously agreed to Artemis' request to exclude the Mt OscarWits claim block from the deal. So far Artemis has offered only scant evidence that its 14 km segment of a more traditional quartz conglomerate bed has gold in it. But the Australian market reaction is telling us that the Wits 2.0 scenario is starting to overcome the wall of skepticism in Australia. And, to be frank, if the optimistic local freak show scenario proves to be the reality confined to the Comet Well and Purdy's Reward claims, Artemis currently offers better relative speculative value than Novo. It is good to see the Australian junior get with the program.