The final two weeks of January is the busiest time of the year for Vancouver’s mining industry, with Cambridge House’s Vancouver Resource Investment Conference and AME BC’s Roundup conventions gathering mining professionals and investors from around the world back to back.
Reflecting on the chaotic two weeks, spending an hour with Quinton Hennigh was definitely a highlight. Dr. Hennigh is the founder and CEO of Novo Resources (NVO:CSE) and he is also an occasional contributor to Brent Cook’s Exploration Insights mining investment newsletter.
Hennigh is one of the living ‘gurus’ of gold exploration. A geologist by trade who began his career with Homestake Mining, Newcrest Mining and Newmont Mining before joining various junior companies, he is considered among experts including Brent Cook, Jay Taylor and Bob Moriarty to be one of the brightest technical minds in mining.
Back in the early 2000’s when Hennigh was with Newmont, he began researching a theory for gold mineralization in Northwestern Australia analogous to the Witwatersrand goldfields of South Africa, by far the world’s largest gold camp. Millions of years ago, the continents were connected, and Hennigh believed that gold reefs similar to those found in South Africa were waiting to be found in Australia.
He pursued the theory more aggressively over the past decade, eventually meeting prospector Mark Creasy, who controlled the exploration rights to large swaths of land in Australia, including the areas Hennigh wanted to explore.
Coming to terms with Mr. Creasy was not an easy task for Hennigh, as the prospector had already earned a large fortune by finding gold deposits in the 1990s. Creasy continued to invest in the mining industry and had more success in the following years. Just recently, ground that belonged to Creasy yielded a nickel discovery (Sirius Resources). Mr. Creasy’s stake in that company is worth over $300 million today.
Eventually a deal with Mr. Creasy was done and Novo Resources was created to explore for gold in Australia.
321Gold Editor Bob Moriarty, who is an investor in Novo, wrote of the company’s potential for finding a Wits West. No other gold exploration company had such staggering blue-sky potential. Investors chased the stock past $2 per share a year ago (it’s currently in the $1.06 range).
The grand comparison to the Witwatersrand gold fields unnerves Mr. Hennigh; he doesn’t want to overpromise, although he does believe in the potential.
Despite having over US $10 million in the bank, Hennigh is worried about the mining capital markets being there to finance Novo’s exploration plans.
The company has pivoted in recent months and now wants to advance its known deposit, Beatons Creek, into production to start generating cash flow that could potentially pay for the drill-testing of some of Novo’s deeper and more expensive drill targets. The company recently reduced its land holdings in Australia to prevent it from having to spend $4.5 million in expenditures this year, with the non-core claims reverting back to Mr. Creasy.
Dr. Hennigh believes he can build a mine at Beatons Creek cheaply and quickly. The project has an oxide resource just a few meters below surface that requires no drilling or blasting to get to. The company experimented with a simple bulldozer in 2014 which easily scraped off the overburden, revealing a roughly 1 meter thick sheet of approximately 5 grams per ton gold mineralization contained in conglomerates. Dr. Hennigh believes he can mine the area with a backhoe and process in a simple mill with high recoveries. While he has no economic studies to prove it yet, Hennigh believes he can bring Beatons Creek into production with roughly $15-$20 million in capital and produce roughly 35,000 ounces a year for less than $600 an ounce, which would cash flow nearly $25 million a year to the joint venture (70% to Novo).
To complete its earn in, Novo must finish a bankable feasibility study on the project by August 2016. The JV Partner, Millenium Minerals, owns a mill of interest approximately 8 miles from Beatons Creek. That company is in a precarious financial situation.
I pressed Hennigh on whether his exploration company is suited for the transition to production, and he says he is in the process of assembling a team of mine builders the market will have confidence in. Additionally, he compared Novo to Desert Sun, which began mining at small-scale in Brazil in 2004 and was bought out by Yamana Gold for $574 million just two years later.
“I don’t want to blow my brains out,” Hennigh says of drilling the high impact deep targets investors in Novo Resources are so excited about.
However, the company did drill one nearly 1 kilometer deep hole in late 2014, a significant step-out from Beatons Creek, with assays expected in the next couple of weeks. The nearly $300,000 drill hole hit sulphide bearing conglomerates, and appears similar to the mineralization nearby at Beatons Creek. Investors in Novo are holding their breath for the results.
“If assays come back with anomalous gold, good, but if there’s even a meter of multigram I would be quite ecstatic,” Hennigh said, “Because that means we have the potential for a big Witwatersrand sheet. That would be the target. The problem is, imagine a large bay, we drilled one hole in the middle of it, while we need to drill about 8 or 10 more holes to get a real understanding of the system.”
“To go back to my point about blowing my brains out, we could easily spend $10 million drilling holes like that and end up broke. Or we could get to cash flow and do this more systematically and build off it.”
Novo’s largest shareholder after Mr. Creasy happens to be the company Hennigh used to work for, Newmont Mining, which bought a large position from a former Novo shareholder in 2012. Hennigh says Newmont has been very supportive of the project technically, but that he has low expectations for continued financial support in light of the falling gold price since Newmont acquired their Novo stake.
Novo will also release assays from over 300 shallow holes drilled near Beaton’s Creek to increase the confidence and grow the resource. He’s currently just focused on oxide mineralization because it requires a more straightforward permitting and milling process, but notes Millennium’s mill can handle sulphide ores.
The company’s opportunity to find Witwatersrand style gold mineralization has not gone away, Dr. Hennigh says. “It still has the bigger potential, the beds we’re looking at mining oxide go out into the basin and could be quite large, basically it’s the best prize in the Pilbara.”
He also doesn’t want investors to condemn the opportunity if multigram gold material isn’t found in the company’s first deep drill hole.
With such a broad expertise in gold exploration and geology, we asked Dr. Hennigh for some perspectives on other gold junior companies of interest.
He told us to watch out for Gold Canyon Resources (GCU:TSXV) in 2015, a company he’s been an advisor to. The company is developing a large gold resource in Red Lake, Ontario, and has been under a lot of undue selling pressure in recent months. Gold Canyon may even offer a better return potential to Novo Resources this year, Dr. Hennigh believes.
Editors note, author has since bought a small trading position in Gold Canyon.
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This article is not intended to be professional or investment advice, nor a solicitation to trade securities. Some statements in this article contain forward-looking information (within the meaning of Canadian securities legislation). These statements address future events and conditions and, as such, involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the statements. Such factors include, without limitation, the ability to undertake and complete the planned exploration activities, the receipt of successful results as exploration proceeds, customary risks of the mineral resource exploration industry, dependency upon third parties, assumptions made by management of Novo, as well as Novo having sufficient cash to fund the planned drilling and other activities. Always do your own due diligence.