Musings on Investing

America will not be the Best Country

Novo Resources

Here is a rather long discussion I had with Mike about a range of issues, including why in my views, despite that the US is still among the best countries on the planet, it will take a miracle for it not to start to degenerate rapidly once Trump is gone:

On investments…

I have just finished a three-day trip to Egina, the heart of the current activities of Novo Resources (NVO; C$2.02). The company is currently upgrading its process plant to conduct 100-tonne per day bulk sampling. Once completed by June, this will allow assessment of resources within the permitted area of Egina. Assuming that the bulk sample NVO did last year proves to be the normal, the current expectation would be to show that there are between 25,000 to 50,000 ounces per square kilometre of ground, at the grade of between 0.5 to 1 g/t.

Within the mining permit area, the process plant might be able to show perhaps 200,000 ounces.

Once the above is accomplished, NVO can then go about systemically testing more than 500 sq. km. of Egina area tenements it holds. Of course, this larger area will require access agreement and mining permit. The hundreds of square kilometers of this area are for all intents and purposes desert, with hardly any trees or other visible environmental concerns. This will be fundamentally a shallow-gravel quarry operation.

I am keenly looking forward to mining permit at Beatons Creek. This permit will set a strong precedent for Egina.

In front of us in this video is several hundred square kilometers of gold-bearing flat surface, with hardly any trees

If NVO proves its concept, it will be a very scalable operation, starting with perhaps 100,000 ounces per year of production, with current permit perhaps providing them four-year time-frame to profitably mine and refine their processing technology.

NVO’s is a very unique project, which required outsized out-of-the-box thinking, the reason, I have a massive amount of respect for Dr Quinton Hennigh. I have indeed done very well investing in his projects.

But isn’t 0.7 g/t low-grade? The mining industry goes from one fad-based valuation methodology to another, losing investors a lot of money. For the last one decade the fad has been “grade-is-the-king.” But would a 15 g/t non-contiguous vein with a small resource three-kilometer underground in Congo be economical?

What matters is not the grade but economics. I have seen many seemingly low-grade projects spit out a huge amount of cash.

Egina’s mining and processing will be not much more than a gravel quarry operation, with perhaps >50% gross margin, at the current gold price. Could NVO be generating a profit of $100 million per year four years from now? I would not be surprised.

Let’s do some basic math. NVO has $50 million in cash. The value of Beatons Creek based on my calculation is about $150 million. This means that the market is attributing a mere $150 million to Egina and everything else. For me NVO is a no-brainer at the current price.

As I stood outside my hotel at 5 am this morning waiting for my Uber to take me to the airport in Perth, Dr Hennigh walked out with a bag of clothes he was taking to the nearest laundromat. Should someone running an operation that has 35 staff, consuming perhaps a million dollars a month worry about saving money by not getting his laundry done by the hotel? On one hand is the value of time, and on the other the fact that money is extra-ordinarily slippery.

Some of the most successful people I have seen are the ones who keep a tight grip on finances. Some times this is not worth the money saved, but as is with regular meditation practice, which seems like a waste of time, a tight grip on money is extremely important discipline and financial hygiene. He of course took his laptop to work on while his clothes got washed.

A lot of can go wrong, but from my point of view the rewards far outweigh the risks involved in buying NVO at C$2.02.

Later today, I will be in my favorite country, Japan, on a five-day visit, on a site visit with Irving Resources.

Warm regards,

Jayant Bhandari

Associate: Rajni Bala

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