Reality bit hard for Novo shareholders in the form of a blunt press release on Friday, November 24 outlining the frustrations of the Purdy’s Reward tenement, a key tenement within the farm-in and joint venture Novo has with ASX-listed Artemis Resources Limited, in Western Australia. The gist of the release is that it is proving difficult to get useful samples from the property. Which, in turn, pushes any sort of resource estimate off into the New Year.
Novo halted and then dropped over a dollar from $6.65 to $5.43. Trading on November 27 dropped the stock as low as $4.55.
Enter Bob Moriarty with a characteristically pugnacious editorial written before noon Pacific on the 27th.
He starts out by quoting himself in an earlier editorial,
“It’s going to be a real bugger to get accurate grades due to the nugget effect. Given that the nugget found by the metal detector and pried out of the ground on the video is almost an inch in length it is going to skew any assay results if it is left in or if it is left out. The only way to determine true grade of this project is going to be either average a hundred random samples that represent the real distribution or to mine it.”
And Bob keeps swinging through several hundred words before arriving at a striking and deeply contrarian conclusion:
There is no better way to test grade of any deposit than to produce. This is an unconventional deposit. Just because no one has ever run into this style of gold before doesn’t mean you have to measure it to produce. It’s so cheap to produce that that’s exactly what should happen.
Sure, the institutions are going to have to wrap their heads around the concept of a mining company that makes money and the mines department will have to realize that neither JORC nor 43-101 came down the mountain carried by Moses. In California during the gold rush, the prospectors used gold pans to measure gold. When they found it, they went into production. We were lucky enough in the Pilbara to have the prospectors stumbling through the desert waving metal detectors. What is the difference? If a gold pan finds gold and a metal detector finds gold, isn’t that enough?
Bob is not wrong. But he is suggesting that the entire 43-101, PEA, Bankable Feasibility model of mine building be hurled out the window and replaced with a low cost of production “mining” model. It is a radical and attractive suggestion for particular circumstances.
Up in the Yukon there are placer companies which never file 43-101s or have bankable feasibility studies: rather they simply process old stream beds until the gold is all gone. Then they move on. Something on the order of 60 to 100 thousand ounces of gold a year are extracted that way. Almost all of it by private, rather than publically traded, companies.
Like the old Marine aviator he is, Moriarty wants to shoot the enemy he can see through his gunsights; Quinton Henneigh, as the CEO of a publically traded company, has to think strategically. Novo has staked a lot of land and Purdy’s Reward is a tiny fraction of that land. If the geology of the Pilbara region of Western Australia is anything like what Novo thinks it is, this will not be a project for two men and a mule. Instead, if it is economical at all, it will be economical at scale with all of the large expenditures that entails.
If Novo’s only interest was Purdy’s Reward, Moriarty’s idea of sampling by mining might make a lot of sense. But it completely ignores the bigger picture of 12,000 square kilometers of prospective land. Difficult as conditions may make it, Novo’s long run interests lie in figuring out how to sample the conglomerate, adjust for the nugget effect and develop an exploration model which makes sense for the region rather than the tiny section of the region Purdy’s Reward represents.
It is never fun to lose a third of a stock’s value in two days but the real value in the Pilbara will be unlocked by the company which can drill, sample and most of all, understand, the geology of this potentially hugely endowed piece of land. This seems to be what Novo and Henneigh are keeping their eye on.
Upper Date: Bob Moriarty read the above and commented as follows:
“So take this in. You can print it out and take it to the bank and cash it.
The gold under the basalt cover cannot be measured to 43-101 or JORC standard.
So we either think outside the box or throw our hands in the air. But with $72 million in the bank and another $100 million on tap, Novo doesn’t need a BFS or JORC except to satisfy the Dept of Mining. And we need to change those rules because there is no way to measure the gold under the basalt except by production and to not try production is simply absurd because it is so cheap. I am not a David Lenigas fan as you may have figured out but applying for a 20,000-ton bulk sample permit will turn out to be brilliant.
If Quinton wants to mess around for the next year trying to figure out a way to pour money down a hole determining grade under the basalts, one of those Pilbara Sisters is going to wise up and go into production doing exactly what I suggested. If you will go back to what I was writing five years ago, people always disagree with me and throw rocks but I am right a hell of a lot more than I am wrong.
I’m 100% right on this.
Update: Our pal Lesley Stokes has an excellent, balanced and geologically coherent article up at The Northern Miner on NOVO…go take a look.