The Big Australian Gold Gamble by Gerardo Del Real
Major companies are finally acting on the reality that they either replace their reserves or cease to be producers.
We haven’t yet seen the trend of M&As that usually accompanies young bull markets but that’s largely in part because there’s a lack of quality deposits to buy.
We may finally be approaching that stage of the cycle as the retail and institutional interest in Novo Resources (TSX-V: NVO) has forced many a speculator and broker to take time away from their vacations and decide whether or not they want to participate in the Novo show.
In six weeks since this discovery, the stock has zoomed over 700% based on early-stage indicators that support further investigating of Quinton Todd Hennigh’s theory.
Hennigh's theory is that the Pilbara region of Western Australia has mineralization potential similar to that of the famous Witwatersrand Basin in South Africa. Since 1886, the “Wits” has produced over 1.5 billion ounces of gold, which represents about 50% of all the gold ever mined on Earth.
As Bloomberg recently reported, Hennigh began exploring the idea in 1993 for his doctoral dissertation at the Colorado School of Mines. His hypothesis was that the Witwatersrand was once covered by acidic seas that could dissolve gold. The emergence of photosynthetic life — blue-green algae spewing oxygen into the atmosphere — changed that chemistry, forcing gold to precipitate out of seawater.
That belief would influence how Hennigh looked for gold. Where others saw coarse sedimentary rocks of little interest, he saw potential: they might hide an ore-rich layer formed by a primordial seafloor.
The initial discovery was made at its recently 50/50 joint ventured property named Purdy’s Reward. The 25km Purdy’s Reward area is less than 1% of Novo’s land package of over 7,600sq km in the Karratha region of Western Australia. The 2x2x.5-meter pit for the bulk sample was two ounces of gold per ton at surface.
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The markets have thus far agreed with Quinton, and on a personal note I’m rooting for him and Novo, but not with my checkbook.
My take on Novo is pretty straightforward. I have nothing but the utmost respect for Novo’s CEO Quinton Hennigh. Like every geologist I’ve ever spoken with, he has a theory.
Unlike with many geologists his theory is one that, if proven correct, could lead to the biggest gold discovery in history.
There are, however, too many questions unanswered for me to justify speculating on a company with a market cap approaching C$700 million.
Especially in light of the fact that mining companies like Midas Gold (TSX-V: MAX) and Almaden Minerals (TSX: AMM) — with 10 million gold equivalent ounces across all categories and exploration upside that could easily double that — are still extremely undervalued, and whose combined market caps would not equal the market cap currently assigned to Novo.
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