Maurice Jackson - Mon, Jun 17, 2019

Exploration Continues at Three Australia Gold Projects

Maurice JacksonDr. Quinton Hennigh, chairman of Novo Resources, in conversation with Maurice Jackson of Proven and Probable, discusses his company's current exploration efforts at three projects in Australia.

Novo Resources

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Maurice Jackson: Joining us for conversation is Dr. Quinton Hennigh, the president and chairman of Novo Resources Corp. (NVO:TSX.V; NSRPF:OTCQX), which is delivering a new paradigm in gold exploration and investing. Dr. Hennigh, welcome to the show.

We have a number of topics to discuss today. Before we begin, Dr. Hennigh, who is Novo Resources and what is the opportunity you present to the market?

Quinton Hennigh: Novo is Canada-listed but Australia-focused gold company. We're exploring for gold deposits that are quite unusual. They're conglomerate hosted deposits derived from in the Pilbara region in northwest Australia. This is a region we think is endowed with a very large quantity of gold, and we're exploring some of these very unusual deposits. In the prospect we'll be able to basically build a brand new, major gold camp in Australia.

Maurice Jackson: Dr. Hennigh, let's begin with the eastern portion of Novo Resources' gold project portfolio, and go back to the first of April, and revisit some of the company's continued successes since our last interview, beginning with an update on the resource at Beatons Creek gold project. What can you share with us?

Quinton Hennigh: Beatons Creek was our flagship operation for many years. It's in the East Pilbara. It's in a town called Nullagine. We focused at Beatons Creek largely because that was an area of historical mining; it was a well-established gold camp. We entered Beatons Creek with a lot of naysayers pointing and saying, "Oh, this deposit's too erratic, it's too nuggety, it's too discontinuous to ever be able to define a resource." These naysayers were numerous. Everybody in Australia had this view about the deposit, but we set about doing some hard work.

We did a lot of technical work in the early days, really cutting our teeth. It took a while to come to grips with how to sample this, how to drill it to get some meaningful data, but what is absolutely astonishing is after a few years of work here we've been able to put together a resource now that's over 900,000 ounces.It's a solid resource. The modeling was done by a core expert, Dr Simon Dominy. Ian Glacken, who is one of the most respected geologists in Perth, also participated in this resource estimation. I would say this is probably a resource as solid as anything you'd ever see in the gold space. It's remarkable; we've taken what everybody thought was a geological curiosity and we've turned it into a highly valuable asset.

The deposit is shallow, the upper parts of it are oxidized, it's free dig. Novo, which has done a trial mining exercise out there a couple years ago, demonstrated this. Basically, Beatons Creek is now to a point where it's ready for production. More notably, we've gotten approvals in the past, say, month or so I believe it is for not only mining. We've got full mining approvals. We've also got a mining lease application approved. That means the last area of Beatons Creek that was a prospecting license is now fully converted to a mining lease. That's a major accomplishment.

People look at what we're doing at Karratha and they can see the path forward now that we've had this success at Beatons Creek. I consider this a huge win. We're undertaking an option study presently. We're looking at which path to take Beatons Creek toward production and monetization. We see several opportunities. We also have good support from Sumitomo Corporation. It has got money set aside to work on this particular project should we wish. So, we're looking at that as a potential outcome.

Maurice Jackson: In summary here, if I may for our readers, Novo Resources has filed an updated technical report as well on the 30% increased tonnage and received environmental permits, tenements known as the Edwards Lease, and is getting ready for production at Beatons Creek. Dr. Hennigh, most geologists would be satisfied with the successes at Beatons Creek this year but we all know that you're a big thinker and I know you're not satisfied with the successes there. What is Novo's path forward in the Eastern Pilbara now that we have substantiated critical mass?

Quinton Hennigh: Well, we see potential for more of these deposits out there. The conglomerate horizons, which are part of the Fortescue Group, there are extensive areas covered by conglomerates. Beatons Creek, I guess, is really a test case, is the way we view it. We think there's potential to discover and develop other deposits in the region similar to this. Novo also have other tenements in the area including Blue Spec and Talga Talga, which are not conglomerate hosted systems. They're actually hosted by the basement rock, more vain or sheer zone type gold systems, but we're looking at how we can add those to the mix and even augment what production we might be able to get out of Beacons Creek. So there's really nothing but upside. As I said early in the interview, we're unblocking or basically tapping into a brand new gold front here.

Maurice Jackson: Let's move to the western portion of the project portfolio. Take us to Station Peak camp, which is the headquarters for the Egina Gold Project. I woke up on the morning of the 29th of April and I had to check my coffee when I read the press release on the very ambitious project. You have a 100-ton bulk sampling and processing to be undertaken in the 2019 field season. Dr. Hennigh, provide us with an update at Egina.

Quinton Hennigh: Certainly. That's a big focus for us this year. What we're doing is a bulk sampling program on the Egina mining lease in an area that was previously disturbed by trenching from the party that we bought the tenements from. In this area, via the trenching, we were able to see the gravel horizon. So what we're working on at Egina, to be very clear, is a bit different than Beatons Creek. These are gravels that contain gold. They're very recent in geologic time, as opposed to, say, 2.7 billion years old like those at Beatons Creek. We're dealing with gravels that are a few million years old, and they're sitting right at surface. These are sheet-like deposits. They're a meter or two deep. They cover a vast area from what we can see, and we're really jumping in and seeing if we can do a bulk test program on a test area roughly 0.8 to maybe 1 square kilometer in size within the granted mining lease at Egina.

The goal is to see if we can get data; this would be gold grade data as well as data around the continuity and the distribution of gold to see if we can put a resource together for this. What's intriguing about Egina is it's free dig. This is all loose gravel sitting right at surface. Most of the gold is very coarse grained. The bulk sample we collected back in late 2018 showed that something like 97% of the gold was in nuggets coarser than 1 millimeter. That means recovery of the gold should be quite straightforward using gravity processing.

That's why we are focused so intently on Egina right now. We put in a brand new 20-man camp. We plan on being there for a while. We've put in all the upgrades to the site and to the small test mill that we have. This is our IGR 3000 plant that we bought a couple years ago, and we're upgrading the haul road between the test area and the processing area. I'd say within a week or two we'll be ready to start digging samples and then shipping them over to Station Peak where we're going to put them through our test plant where we'll be able to generate a pretty steady stream of news and tell people what we're seeing in the field.

Maurice Jackson: Let's discuss Comet Well and Purdy's Reward. Novo Resources has just completed a gold project update, a completion of a mineralization report, and an outline of future work. What are some of the things that shareholders should note?

Quinton Hennigh: Novo calls the entire project area there—Comet Well and Purdy's Reward—the Karratha Gold Project. It's really a collection of Novo controlled ground as well as joint venture ground with a couple of prospectors at Comet Well as well as 50/50 joint venture with Artemis Resources at Purdy's Reward. At the Karratha Gold Project, we've done a lot of the hard work now as far as sampling goes. That was our main effort last year. We did a lot of bulk sampling. We've identified the gold horizons. We see two distinct gold horizons, one at the basement contact and one sitting about 12, 15 meters above that. We see good continuity of the horizons over about a 3.6 kilometer strike that we did all this intensive work. We put a mineralization report together recently, which is something that helps support application for a mining lease.

These are similar things to what we did at Beatons Creek in the early days. So we've done a lot of the early, say, hard yards and now we're looking at taking things further by doing trial mining, trial processing, things like that. That's a similar process to what we did at Beatons Creek. Anybody that's been with Novo for a while knows that in 2016 we did a test mine and test processing at Beatons Creek that was largely successful in showing that the deposit was there, was continuous, was mineable and process worthy.

So those are the steps forward. It will take a little bit more time and a little bit more aggressive approach as far as mining and processing this material because it is hard rock. Egina is free dig. The other advantage we have at Egina is a granted mining lease there right now which at Comet Well and Purdy's Reward we have to literally discuss how we're going to take these bulk samples on exploration licenses with the government. So we have to go through an approval process. We're working towards our native title agreement there as well. It might seem slow to investors but that's how you make a mine these days.

Maurice Jackson: Sir, before we leave the project portfolio, near term, what is the next unanswered question, when can we expect results, and what will determine success?

Quinton Hennigh: The next results, this will be data that comes in out of the field, is going to be from the Egina Project. Those results will start coming back in July, in just a few weeks. We're going to see bulk sample results. These are 100-ton samples dug from almost like a grid pattern. Samples are roughly 100 meters nominal spacing across this test area that I mentioned, roughly 0.8 to 1 square kilometer in size. We'll have a steady stream of news. What we plan to do is something like what we did back in December, actually show photographs of the gold that we're seeing out of the samples, that we've produced, and give people a sense of what kind of gold contents we're seeing per cubic meter, per ton out of the bulk samples. Give everybody a good flavor for the grade, continuity, and so forth.

Maurice Jackson: Switching gears, Dr. Hennigh, please share the current capital structure of Novo Resources.

Quinton Hennigh: Certainly. Novo currently has about 177 million shares outstanding. I believe we have 27 million options and warrants. All of the remaining warrants are at $6. So, that brings us to about 204 million shares total fully diluted.

Maurice Jackson: And you referenced this earlier in the interview but you made a significant strategic move with Sumitomo. Share the details of that.

Quinton Hennigh: Certainly. Sumitomo Corporation, this is actually the sister company to Sumitomo Metal Mining; Sumitomo Corporation is a finance company. It is basically one of the biggest Japanese finance houses. It has direct access to capital from the Bank of Japan. It's a very good partner. It typically partners up with large mining companies like Newmont, and Teck, and others. It usually takes minority positions in projects directly and do not like to run projects necessarily. It likes to let others run those but it likes to take investments. In doing so it puts up cash.

So, in the case of our recent deal with Sumitomo, it is putting up around $42 million Australian. It's spent in stages over the next couple of years. The stages really are defined by goals that we've set. What we see will determine what the next input of money and work that needs to be done. But these three stages in cumulative add up to about $42 million Australian. So basically it is in effect free carrying the project forward for the next, say, 18 to 36 months. That's a huge win for us. That means we can remain focused on spending our money at Karratha as well as what we're going to do at Beatons Creek and greenfields exploration, but we're still in control. Sumitomo is basically looking to earn up to a 40% interest in doing so. If for some reason we pick up some more land within the defined area of influence, Sumitomo has to contribute more money or opt to dilute down.

The other aspect of this deal, Sumitomo has a convertibility right. So if it spends, let's say it spends $20 million and two years from now it decides it's not for them, Sumitomo can actually convert to Novo shares. What's really beneficial to Novo shareholders is the floor of that conversion, the price is set at $2, which is the price the day we signed the agreement. So the way it's worded, any conversion is at the higher of, either the $2 floor set on that date, or the TSX allowable discount at the time it decides to convert. If we were trading at $5, I think the discount is something like 20% if I remember right. Don't hold it against me if I'm forgetting my numbers but it'd be like $4 at the convert.

So really in a way it's almost like a financing toward the project if Sumitomo decides to convert. My hunch is it will stick with us. They're lifetime partners. These are the kind of folks that love to back projects and teams. We built a very good relationship with them. They tend to be very friendly to work with. They have very good technical people. We know the people that we're going to be working with from their side, very smart metallurgists and geologists. We see a lot of benefit to putting the two teams together and basically letting them spend their money to advance our project, and we're going to make what I would say, if everything goes well and the sampling comes back positive we could make a large scale commercial mine with Sumitomo's backing.

Maurice Jackson: Sir, good and or bad, what kind of feedback have you been receiving from shareholders lately and what would you like to say to shareholders?

Quinton Hennigh: Our share price is about $2 Canadian right now. We've come down from the euphoric days of a couple years ago. Some people are frustrated, those who bought above. A lot of people who were in earlier though have done well and are fairly content, but I would say this to people, I built this company not as a pump. This company was built to exploit these deposits of gold that I think will prove to be vast, will prove to be basically one of the major gold camps on Earth in the next few years. We intend to not only explore these but we intend to develop them, all right?

So if you look at this like a horse race, right now we have three projects that are on the track; we've got Beatons Creek, we've got Egina, we've got Karratha. All of them are racing toward the finish line. Which one makes it first? We don't know. There are some paths for Beatons Creek that might take it out ahead. There are some paths for Egina that could be very quick. Karratha I think will be a little slower but it's still on the track. It's going to make it to the finish line, there's no question. What's really intriguing is there are other horses out there, okay? We're exploring right now. I'd say in the next two or three years we will have multiple discoveries similar to what we've already found in various areas across Pilbara. So if you look at Novo three to five years from now, we're going to be a producer, in my view. I think we're going to have lots of projects in the pipeline, and we're going to be well on the way to establishing a major gold company in what is a new major gold camp.

Maurice Jackson: Speaking of the current share price, myself and my sons are going to be active buyers at these prices, just for the record. Last question, sir, what did I forget to ask?

Quinton Hennigh: You didn't ask anything about our team and stuff like that. A lot of people wonder how we can pull this off, and one thing I'd like to pause and give acknowledgement is the hard working team we have in Australia. We've got a first class CEO, Rob Humphryson, who's an Australian, Perth based. He's an engineer. He's been in the mining circle for many years. Rob has very good connections throughout the mining industry, people close in the government, in the mining services sector, all across the board. I picked Rob because I knew he could build a good team, and we have great exploration management in Kas De Luca. We have great in-house environmental specialty with Chris Goti. There are many others that I could name, Ronan Sabo-Walsh, our CFO's been with us from the very beginning, has absolutely busted his rear getting all these deals done for me. I would say if there's anybody I got to give a lot of credit to is our team in Australia.

Maurice Jackson: Dr. Hennigh, for someone listening that wants to get more information on Novo Resources, please share the website.

Quinton Hennigh: Yes, we're at novoresources.com.

Maurice Jackson: Novo Resources trades on the TSX.V: NVO | OTCQX: NSRPF. For additional inquiries please contact Leo Karabelas, phone number 416-543-3120. He may also be emailed at Leo@novoResources.com. Novo Resources is a sponsor of Proven and Probable and we are proud shareholders of Novo Resources for the virtues conveyed in today's message.

Finally, please visit provenandprobable.com where we offer mining insights and bullion sales.

Dr. Quinton Hennigh of Novo Resources, thank you for joining us today on Proven and Probable.

Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.

Disclosure:
1) Maurice Jackson: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Novo Resources. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: Novo Resources is a sponsor of Proven and Probable. Proven and Probable disclosures are listed below.
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