This is an unconventional mining investment story and one which is difficult to understand using conventional measures.
Founded in 2009, Novo Resources is an Australian Gold Explorer with 3 projects: main focus is the Karratha Gold project; followed Beatons Creek Gold project and 70% interest in a number of tenements in the Marble Bar region of Western Australia. Novo Resources does not have a producing gold asset yet. But has a market cap of CAD$559M with 178M shares outstanding.
After being taken through an introduction of the geology, we were keen to get to the crux of the matter. The company presentation is very technical so not easily accessible or understood by Retail investors, nor us. The company has been in existence since 2009, we want to know what the business plan is and how they have attained a large market cap with only a 1Moz Resource. And what are the known economics or numbers that have driven such a large valuation? What does the drill data look like? Hennigh says Beaton's Creek is close to a 1Moz Resource (with additional Exploration upside) at 2.5g/t, and is fully permitted but has not indicated an AISC for the project. So could it be profitable? We don't know.
Hennigh also says there is "considerable Exploration potential." Hennigh then points towards coarse Gold and promising mineralogy at Karratha. Again no specifics, just macro at this stage. In terms of its Marble Bar Gold assets, Hennigh claims it is at a very early stage. This is a vast land package, which relies on a macro thesis about what they have in the ground? So as we said, it is an unconventional story and a little vague. Read our article on the website to get our view on their business.
When pushed, Hennigh is adamant that unusual mineralisation is what sets Novo Resources apart, and it seems some of his earlier stage investors like Newmont agreed with him back in 2013 when they invested the bulk of their money. Since 2009, Novo Resources has raised Novo Resources currently has c. CAD$35M in cash. The burn rate is less than CAD$1M per month. So they are under no financial pressure.
Novo's plan is to put its projects into production. When will Beaton's Creek get into production? Novo is currently looking at acquiring a mill in the area around the mine. Novo expects to fund the mill through equity, keeping the cash for Exploration purposes. Hennigh hopes to lead a step-out programme to expand the gold resource and unlock value. Novo is looking at JVs with some companies.
There are far more question marks against Novo than there should be against a company of its size. What did you make of Quinton Hennigh? Comment below and we will ask your questions.
And a FREE 'Not A Mug' Crux Investor mug to the first person to guess the song name and artist featured in the title of this video! (One mug per person).
1:46 - Overview of the Business
6:06 - What Have They Got: A Brief Look at the Projects
10:25, 39:32 - $600M Market Cap: Where are Investors Seeing Value?
12:29, 35:09 - Numbers: Cash Raised, Current Position and Burn Rate
14:06 - Business Plan and Growth of Novo Resources
16:17 - Beatons Creek: How Long Until its Producing and What Will it Cost?
21:05 - Possibilities to Raise Money
22:43 - Karratha Gold Project: a Different Kind of Ore Sorting
37:28 - Delivering the Promised and Timings
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