SVH Tracker - August 14, 2017: Novo's Wits 2.0 story is shaping up as the Bre-X Redemption
Novo Resources Corp jumped sharply during the past two trading days amid rumblings that the 50% joint venture with ASX-listed Artemis Resources Ltd was close to being formalized, but the real reason is the widening market realization that Novo's Wits 2.0 story in the Karratha region has extraordinary potential despite the challenges posed for the evaluation of a nugget enriched gold system. I am in the midst of returning from a two day site visit with Quinton Hennigh during which we looked at both the "local freak show" and broader Wits 2.0 scenarios. There is not anything new of a material nature that I learned during this trip, but what I gained was an appreciation of the scale of this story and a concrete flavor of the region. This update does not communicate anything new to KRO/SVH members, but what I hope it does accomplish is to give a more tangible sense of this story which is shaping up as the Bre-X Redemption. My Australian friends warned me, "please don't write that, you will jinx the story and will have to eat your words". By coincidence I got to watch during my flight to Australia the movie Gold, the 2016 Hollywood version of the Bre-X Fraud which conveniently leaves out the individual between the deceased David Walsh and the maybe deceased Michael de Guzman who survived an OSC prosecution by packaging himself as the dumbest geologist in exploration history. The Bre-X Fraud gave birth to the NI 43-101 reporting system for the resource sector, which created a much needed foundation for the Canadian resource juniors. But the Bre-X fraud has lingered as a bad memory that will not go away, like an original sin that requires something very special to wash it away. To do that requires either an eternity that most of us who care about the resource juniors lack, or something so monumental it eclipses the dream that Bre-X represented for so many people. Novo's Wits 2.0 story has the scale to deliver that redemption, but it is still very far from a sure thing. Nothing about how Novo's Wits 2.0 story is unfolding indicates anything remotely suggestive of fraud. The negative outcome scenario is that billions of gold ounces are present in the conglomerate beds of the Pilbara, but the cost of recovering them matches their value. If anything, the Novo Wits 2.0 story is a stress test of NI 43-101. Has it created the framework needed to guide this exploration project scientifically to a conclusion that can be trusted, be it positive or negative? Novo's Wits 2.0 story is all about Australia, but ultimately it is about Canada and the reporting framework it created for the junior resource sector in the aftermath of Bre-X. With Quinton Hennigh and his Novo team I have the complete opposite feeling I got in early 1994 when I met the top two dogs from Bre-X in the boardroom of the brokerage firm where I was research director and nearly suffocated in alcohol fumes. As a result I stayed on the dock when the Bre-X boat left and never tried to scramble aboard. At the end of the day I was right to do so, but ultimately that was just because of my luck with the bad experience that morning which could have been a pure coincidence (OK, I confess, I am being sarcastic). The Novo story fascinates me because it is such a multi-layered narrative whose threads have many big picture shaping outcomes.
When I arrived in Karratha on August 12 considerably less lofty themes occupied my attention (yes, there is at least one good thing about jet lag). Independently released news by Novo and Artemis was creating alarm. The lack of coordination between Artemis and Novo with regard to the Purdy's Reward project, both in terms of work programs and news releases, had created a market suspicion that Artemis chairman Brian Lenigas was trying to weasel out of the deal now that the Australian junior has started to grasp the magnitude of the conglomerate hosted gold story. It also made it prudent for us not to visit the Purdy's Reward "diggings" which are now protected by an Artemis security guard. But I indirectly picked up a sense that the two sides are finding common ground in closing the deal before the August 23 deadline. Removing this cloud of uncertainty will open the market floodgates for Novo and Artemis with regard to fast-track outlining of a high grade open-pittable resource at Purdy's Reward.
Closing the Artemis farm-in deal is important to Novo because the Purdy's Reward property is permitted for exploration work whereas the adjoining Comet Well property in which Novo has 80% is still awaiting the grant of exploration licenses and then work permits, which Quinton Hennigh thinks will be in hand by the end of September. In a fast moving market that is an eternity. On Comet Well the conglomerate bed has been traced for 6,500 metres but on Purdy's Reward only 900 metres though a 3 km strike is plausible. The latter was accomplished by Artemis which reported recovering 547.4 g of gold nuggets along the trace of the conglomerate bed. This was apparently accomplished by walking the area with a metal detector and digging up loose nuggets, which puts the Artemis exploration team in the same technical league as the threesome I encountered this weekend during my Karratha site visit.
Lily's Merry Band of Fossickers had managed to recover about 2 grams during their morning work next door to the Purdy's Reward property boundary in an area that has already seen considerable activity by "amateur" prospectors with metal detectors but which now has a security guard protecting access to the Artemis ground. Nevertheless the morning haul of 2 grams of gold was worth about $100.
Western Australia allows anybody to purchase a $25 Miner's Right which entitles the holder to prospect anywhere on crown land which is not covered by a granted tenement such as an "exploration license". Activity is limited to digging holes to a maximum depth of 2 metres using only hand tools such as a pick and shovel. Prospectors can still run around on the Comet Well property because the exploration license applications are still pending, but they have been granted for the Artemis ground and consequently written permission is required from the tenement holder to prospect. For obvious reason such permission is no longer forthcoming from Artemis.
While Artemis engages in chasing amateurs off its property so that it can find nuggets for its own account, one of Novo's employees, Alan Ronk, has been flying the Comet Well property with a self-built airplane he has equipped with high resolution cameras. Ronk has played a key role in the emergence of the Karratha Wits 2.0 gold discovery. He was initially employed by Novo to work in the Beatons Creek area but when exploration transitioned to developing the modest 300,000 ounce resource there was no more work for him. After Artemis announced in November that it had discovered unusual nugget gold in a mafic bedrock it contracted Ronk to help them sort out the geology. Ronk's work led to the February 20 2017 news release by Artemis which first properly described the host rock as a conglomerate bed similar to Novo's Beatons Creek project in the Nullagine area 350 km away on the eastern edge of the Pilbara craton. It was this news release that caught Quinton Hennigh's attention. Because he was fully immersed in the conglomerate exploration history of the Pilbara craton, he immediately understood the Wits 2.0 implication. He dropped everything, researched the gold nugget prospecting history of the Karratha region, and applied for exploration licenses covering all open ground where he believed Wits 1.0 scale gold bearing conglomerate beds could be present. He then tracked down the owners of the Comet Well special prospecting licenses and exploration license applications, negotiated a deal that eventually resulted in an 80% interest in all the Comet Well tenements, and then approached Artemis with the 50% farm-in deal on its holdings in the region. He also rehired Alan Ronk whose contract work with Artemis had ended.
Alan Ronk flies his airplane at an elevation of 40 metres taking continuous "orthophotos" that can display the ground at a resolution of 2 cm. The aerial photo data is then crunched by software to create a topographical map on which the photos are overlaid. Ronk inspects them manually for tell-tale signs of small pits dug by the detectorists. Through this work he is "mapping" the trace of the gold-bearing conglomerate bed which only rarely outcrops as bedrock, daylighting instead as reddish rubble indistinct from everything else except for an eye trained to recognized the rounded rocks of the conglomerate bed. The rubble, however, contains the gold nuggets once embedded in the conglomerate bedrock and it is these nuggets that start beeping when a metal detector passes over them. Lily's team of prospectors are no different than the artisanal workers that swarm new gold discoveries in Africa and South America in that when their work stops paying off they stop wasting time and energy in that area. In the case of the Karratha region the enemy is the spined spinifex grass clumps which get in the way of the metal detectors. The collective activity of all these prospectors at Comet Well is showing Novo where to start stripping and trenching once the exploration license is granted. Quinton is not smiling because he is about to have pills for breakfast; he is about to show me (John Kaiser) the fruit of his friendly relationship with the region's volunteer mappers.
The Karratha region has been a destination for metal detector wielding prospectors for decades, though mainly north of the Comet Well and Purdy's Reward area. This turned out to be a very intriguing part of my visit, for nuggets have been found in a broad area stretching 30 km to the coast. The bedrock in most places is basement rock more than 3 billion years old, a metamorphosed greenstone that stretches for another 300 km under water to the north, doubling the size of the Pilbara Craton. Where the bedrock is not basement greenstone it consists of "islands" of Kylena basalt which erupted after the conglomerate beds were laid down. This Kylena basalt is important because it flooded over the conglomerate beds, in effect preserving them. But in this area north of Comet Well the basalt flood came too late because the conglomerate beds had already been peeled away and locally dispersed, though not so badly that their nugget payload disappeared. The Kylena basalt "islands", remnants of a lava flood that once covered everything, to this day hide gold bearing rubble the flood protected 2.7 billion years ago. Since then rising and falling ocean has reworked the surrounding rubble into sorted terraces where prospectors seek the "patches" of remaining nuggets. At the same time the protective Kylena islands erode, gradually exposing their trove of gold.
This area has little economic potential because the original conglomerate beds are gone and what remains cannot be quantified and likely lacks the concentration needed to support commercial mining. But for Quinton Hennigh this teaser plain of gold nuggets serves as support for the thesis that gold bearing conglomerate reefs were once spread of over a much vaster region than where they today daylight at Comet Well and Purdy's Reward. This part of my trip offered the greatest support for the Wits 2.0 scenario. There will come a day when thousands of Australians show up with their RVs and systematically "probe" for remnant nuggets every square inch of this region. Lily and her Merry Band of Fossickers have no clue about what is about to happen to their playground.
Quinton also showed me some rocks he has bought from prospectors which have sharp-edged crystalline gold nuggets embedded in them, unlike the pitted watermelon seed shaped nuggets coming out of the conglomerate beds which indicate alluvial reworking. The "detrital" appearance of most of the Wits 1.0 gold underpins the theory that the gold was eroded from traditional hydrothermally formed gold deposits in the basement greenstone rocks in the highlands and water transported into the basins where they were reworked into the alluvial style conglomerate beds. This theory has problems because there is little remnant evidence of hydrothermally formed gold structures in the rocks beyond the Witwatersrand reefs. We know greenstone hosted gold deposits such as the mesothermal veins in the Abitibi have a vertical extent for many kilometres; how such deposits with huge vertical extent got entirely eroded so as to transport and deposit their alluvial payload laterally over a vast area stretching for hundreds of kilometres and downdip as much as 80 km all within a 1-2 metre thick stratigraphic time horizon is a real head scratcher.
There is another theory which says these conglomerate beds were laid down without gold which entered later via low temperature flows of pregnant fluids which accessed the beds via thrust faults and then channeled along the conglomerate horizons, but that does not explain the detrital appearance of the Wits 1.0 gold. Hennigh is a proponent of an alternative theory which argues that the gold developed through precipitation from sea water saturated with 4 ppb gold (compared to 12 ppt today) during a period of rapidly changing seawater chemistry, and that these initially irregular shaped crystalline gold nuggets later got reworked by alluvial processes into their current detrital form. I discuss this controversy in greater detail in my August 2, 2017 SVH Tracker.
The nuggets in the above photo are hosted by a fine grained tuffaceous sediment that is unaltered, which raises the question, how did a clearly non-detrital gold nugget end up embedded in this undisturbed bed of volcanic ash on the sea floor? Quinton is cautious about this interpretation because he bought the specimen from a prospector who did not disclose the origin. But if it was local, it offers support for the idea that gold nuggets can form by precipitating out of a large body of water, not just a chemically super-charged hydrothermal fluid squeezing through tiny rock fissures. It is not proof yet but if such gold could be found in situ in bedrock closely associated with the conglomerate beds where they eventually ended up, it would be strong supporting evidence. The plausibility of the biogenesis of the Wits 1.0 theory has big implications that the conglomerate bed hosted gold at Comet Well-Purdy's Reward is part of a grander Wits 2.0 system, not just a local freak show that maybe supports an eventual $5-$10 stock price for Novo. The sky, defined as $50-$100 per share, is the limit for Novo owning most of the Wits 2.0 scenario.
It is only during the past year that the detectorists converged in the area of Comet Well and Purdy's Reward, plucking loose nuggets from the dirt and smashing open cobbles that "beep" with gold (there is no other metallic material in these rocks, so a beep is always diagnostic of gold). They traverse an area until their detectors stop beeping, digging up the dirt wherever it beeps, leaving behind small (sometimes rather large) holes that heavy rain eventually refills with dirt. Sometimes they sneak in at night and use implements attached to cars to "scrape" away the surface rock in areas already beeped and dug to death so that the metal detectors can detect deeper buried gold. Mysterious fires break out that burn away the spinifex grass; the following day prospectors with some sort of sixth sense swarm these fire cleared areas with their detectors.
The detectorists are motivated and not insane; when their effort stops paying out they do not repeat it in the same place. If this were in Africa the place would be crawling with artisanal workers. But this is not Africa and the detectorists do not talk about their "spots" until they are hopelessly depleted. They behave like dumb tourist schmucks while quietly cleaning up, not so grandly they feel compelled to blow it ostentatiosly, but enough to make it a well kept secret, which may explain why this explosive story has been under the Aussie noses for so long. The absence of gold bearing structures such as a vein or shear zone also is an obstacle to a localized swarm. Novo has indirectly turned their prospecting effort into an exploration mapping tool; when the Comet Well exploration license and work permits are granted Novo will know exactly where to dig its trenches and begin channel sampling.
Last week's results for the 542.3 kg sample which I analyzed in my August 8, 2017 SVH Tracker make Novo eager to begin work on Purdy's Reward. The next step will be to expose the conglomerate beds and cut wide channel samples across the bed for processing with the Steinert sorting machine. For now we only know the grade of a 2 metre portion of the 11 metre wide bed at surface whose true width will depend on the dip (2 m true width if 10%, 1 m if 5% - the conglomerate bed has been observed up to 40 m wide at surface on Comet Well which would be a true width of 7 m and 3.5 m at 10% and 5% dip). As expected Novo's news last week has been greeted with skepticism that the results are little more than a fluke. While Hennigh believes that the high grades will prove not to be a fluke, he agrees with me that the real significance of the bulk sample results was the 9.1 g/t gold grade for the "tailings" which the Steinert sorting machine had rejected as containing no gold.
Novo has considerable experience evaluating conglomerate hosted gold deposits, experience that Artemis cannot just hire off the shelf (Alan Ronk is once again working for Novo). Artemis thus has good reasons to close the deal and hand off to Novo the challenge of establishing that a very valuable conglomerate hosted gold deposit is present at Purdy's Reward and possibly on the other properties included in the deal. On Tuesday August 15 (Australia time where I still am as I write this) after Artemis stock jumped $0.055 to $0.215 on 25.9 million share volume the stock was halted at the request of the company for news; trading is expected to resume August 17 or whenever the release is made. Normally Artemis just cranks out a news release as it sees fit; this time it may be a truly significant one that aligns its interest with that of Novo, namely that a definitive deal has been done which puts Novo's technical team in charge of demonstrating that the Artemis farm-in properties in the Pilbara have a chunk of Wits 2.0, not just a local freak show at Purdy's Reward. If the Man of Many Names and ghe Man from Monaco have come to the senses Artemis will have some pricing catchup to do, though it will never catch up to Novo because Novo controls a much bigger chunk of the Wits 2.0 secenario. This story is heading into breakout mode and Spec Value Hunters are advised to hold their Novo positions.