In addition to trying to find good stocks that I think can perform well, another thing that I’ve done over the years is find things that help investors avoid the pitfalls in the market.
In fact, that is exactly how I’m building Advance Gold (AAX.V), I’m building it from the ground up on a foundation that avoids the pitfalls. So obviously, I think this is a crucial part of investing in the mining space, or any sector for that matter.
For this report, I have one stock that was a high flyer that has come down a lot but could go down a lot further. Then I have a new company to follow and an update on news from Advance Gold.
A Broken Stock Promotion
Figuring out that a stock promotion is broken, and also trying to avoid them can save you a lot of money. Novo Resources (NVO.V) was a high flyer from last summer, that I started coverage on because of their Pilbara gold exploration story.
But since then, after peaking at over $8.00, they have been slow to get out results on grade from their Pilbara conglomerate gold projects and have recently become a serious broken stock promotion. And it will likely get a lot worse.
Initially, what sent the stock into orbit was the grades from some small samples from their Purdy’s Reward joint venture ground, and some slick stock promotion at the Denver Gold show in 2017.
Those early grades were eye popping and combined with Quinton Hennigh, who runs the company, and a few high profile newsletter writers, they pumped it up with the Witwatersrand 2.0 promotion and the stock went ballistic.
I thought, if they can come up with this kind of grade and the conglomerate is as vast as they were talking about, it could realistically be a Wits 2.wow play. But as is often the case, following through on that kind of hype has been difficult especially since they have been so slow to get results out.
I had a conference about the play, interviewed principals of a couple of the key companies and did a few shows with John Kaiser about the Pilbara gold story.
One of the interviews was with Quinton Hennigh, and in that show, I was trying to dig deep into the similarities between the course gold at Pilbara and diamond exploration. He mostly wanted to talk about the Wits 2.0 theory.
I know from my long career in diamonds, which make this gold look easy concerning the nugget effect, that big samples are crucial. I wanted to know if they understood that and when they would be doing big enough samples to get a realistic idea of the grade.
A year later, I’m glad to report they are thinking like diamond explorers, in fact, Quinton Hennigh had a slide at the Denver Gold show recently that said: Think...Diamonds. Sadly, I also have to report that the way he is talking about the grade has my diamond explorer alarm on red alert.
Since the interview I did with Quinton Hennigh a year ago, they have been super slow to come back with results. Another alarming thing that I saw was in 2018 they turned the focus from Purdy’s Reward to their Comet Well project right beside it. The pace of getting to big bulk samples, and also the strategic move to focus on Comet Well have cost the company significantly in market cap that looks to get a lot worse.
I was fortunate to get a chance to look closely at some of the gold nuggets in person from Purdy’s Reward, they were very impressive. Like any good diamond explorer, who has looked at the surface textures of diamond indicator minerals and diamonds for many years, I looked closely at the shapes, sizes, thickness, and textures for patterns.
Since then I’ve only seen pictures of the gold nuggets from Comet Well and other spots around the Pilbara, but they also have patterns. I know a lot of the promoters of the project say that there is gold all over the Pilbara, and that is all the same. Looking at the grains of gold from various areas, the only thing that is the same are that they are gold.
I wasn’t happy to hear when they changed the focus to Comet Well and the first batch of results they released from there confirmed my worry that the grade is not as good as at Purdy’s Reward. Another reason I wasn’t happy to see the change of focus was at Comet Well they only had permits for small samples of around 5 tonne. At Purdy’s they have permits to do big samples up to 20k tonnes.
To get serious confidence in the stats, much like in diamonds, they need to start at around 500 tonne samples. The change in focus from Purdy’s to Comet Well told me they weren’t in a hurry to get to the big samples they need to get a handle on the grade.
When I saw the early results from Comet Well, and that they were in no hurry to do big samples, I started to get progressively more bearish. Considering more than a year has gone by, they have reported results at a snail’s pace.
Recently, I have heard some things that have me thinking that even though this stock is way off the highs, the downward pressure will continue.
It always spooked me that one of the biggest promoters of the stock is Bob Moriarty, he has been in it for a number of years. He got a lot of folks into the stock cheap, but it brought him a lot of attention, he got married to it, and has stayed a perma bull while it looks like Novo could do the round trip. He has said on many occasions that the gold there is unmeasurable and they just need to mine it to figure out the grade.
I agree with him in a way, they need to start out with big bulk samples that as they answer the questions they lead to a ramp up to trial mining and then full scale mining. This is the way they test kimberlites in Africa for diamonds. Keep passing the progressively larger tests and pretty soon you are a mining company.
The part that scared me is he calls it unmeasurable. Bob Moriarty was not in the mining business during the 1990s. If he was, he would know about another project that got hyped to the moon on unmeasurable gold in California. They had a black box method to get the gold out, that unmeasurable gold was great for stock promotion, but when it was unable to reproduce the gold recovery to anybody, the stock promotion ended abruptly leaving a lot of bagholders.
I wasn’t too worried at the start, but lately him calling it unmeasurable has reminded me of that old stock promotion from the 1990s. More alarming, are the comments that I heard from Quinton Hennigh at the 2018 Denver Gold show.
He started to explain about how this course gold is challenging because you can take a sample and then right beside it, you can have no sample but lots of gold. Then explained how they were sitting on the results because the samples were not representative.
In diamonds, that word representative is used carefully, but the way he used made the alarm bells go off for me. The main reason is, I think he used the word irresponsibly for a geoscientist. The reason I say that is that he has not done samples large enough to know what representative is, just because there is a wide range of grade does not mean it is not representative.
When I heard this, I knew immediately that he is prepping the market for bad results. Then on Friday, I heard an interview, listen here as Eric Sprott talks about Novo at around 12:45 mark, during his weekly wrap up show. He confirmed for me that the results that Quinton Hennigh is in no rush to report and calls unrepresentative are not going to be good.
Eric Sprott mentioned that it is proving difficult to show the grades that indicate the conglomerate gold will be economic. I was floored, he was recently in Australia for a conference that Quinton Hennigh was also a guest speaker. So obviously he had a chance to discuss how slow things are going with Novo exploration and sampling.
He was pulling no punches, but he also thinks that the new project Egina, that is supposed to be the newest greatest thing since sliced bread will be good. When it looks like the last greatest thing since sliced bread, Comet Well, has gone moldy. I appreciate he is holding out hope for the other projects and the honesty about his feeling that the conglomerate gold story might not be economic.
I think their new Egina project is more about keeping Quinton Hennigh’s science project alive, but it is a distraction. A very well timed and strategic distraction as they are sitting on results from the conglomerate samples that they hope are not representative. Larger samples might prove the samples they are sitting on and hoping are not representative are not a problem when it comes to the distribution of gold in the conglomerates.
Here we have a project that was hyped to insane valuations on the hopes that high-grade gold could be easily picked out of the conglomerate for as far as the eye could see. But as they do more testing, the grade is not being cooperative, dropping and making things not nearly as rose coloured as before.
Bob Moriarty says they have unmeasurable gold, Quinton Hennigh says that the gold results they are sitting on are unrepresentative, and Eric Sprott says it is challenged to show the conglomerate will be economic to mine. Unmeasurable, unrepresentative and uneconomic are not things that justify the insane valuation this company still has.
I think there are a bunch of lessons to be learned from this saga. The biggest one is be careful when it comes to companies with projects that start out so big and get smaller as they do more work.
Also be careful online, there are a lot of cheerleaders online that are happy to sell you a bill of goods. When they really have little experience in mining exploration, and are more interested in pumping up the stock regardless of the bagholders they leave in their wake.
From what Novo has releases to date, and the comments from Quinton Hennigh about unrepresentative samples and one of their largest shareholders about the possibility of challenging economics, nobody needs to be in a hurry to own this one. It is a great one to learn about the hallmarks of what to look for in a busted stock promotion.
A Golden Future
I remember years ago, going to the PDAC and visiting the Goldcorp booth, where they had well armed security standing around a display of rock samples just full of gold. Some of them looked like over half rock and half gold. It was the most impressive thing I had scene in mining, for a gold exploration guy, it was like I was a little boy again looking in the candy store and my favourite thing I couldn’t reach.
I had never seen anything like that since, until recently when a little nickel mining company called Royal Nickel (RNX.V) stumbled across gold in their failed Australian nickel mine that is jaw dropping.
The rocks they are pulling out of there is just dripping with gold, it is awesome. They did some blasting to open up some of the prospective zone and the rocks were packed with gold. They haven’t done much in the way of exploration to see how much more of the prospective rock has this beyond bonanza grade gold.
They have talked about compiling all the past work and looking for the signs of where there could be more. It really won’t take a lot of area, to have literally millions of ounces of high-grade low cost gold.
They have other projects, but the gold project is the jewel. Unfortunately, while they were trying to be a nickel company they diluted the stock in a big way. There are currently at around 400 million shares issued. I don’t like extremely diluted stocks, but the golden rocks they are finding doesn’t really care about how many shares are out.
The good news is, they have made millions so far from this small scale operation of mining the golden boulders. They shouldn’t have to keep diluting the stock to move ahead, with upcoming drilling, if they can show these pods of extreme high-grade gold repeat, then a ½ billion dollar valuation or higher is realistic.
As a gold exploration guy, I love seeing the golden boulders they are pulling out of the ground, and I will be watching closely for future exploration results. I especially want to hear about key markers that helps them to easily find the pockets of golden boulder riches.
It is already a must watch gold stock, if they can show that this is not isolated and they can pick them off easily, this could get a much higher valuation, even though they have a lot of stock to eat through.
Advance Gold Finds 5 Blind Epithermal Veins In Elephant Country
This week Advance Gold (AAX.V), where I’m a big shareholder and CEO, had important news out concerning drilling. From 7 drill holes, the company has found 9 epithermal veins, in a region of Mexico with a bunch of world-class mines that mine precious metals rich epithermal veins.
In the news release I pointed out some key things. One of those is that 5 of the new vein discoveries, are blind veins, that have no surface or geophysical expression. I feel this is important because if you do research in scientific papers on the mines in the area, some of the important ones are blind veins.
This isn’t just any area either that we are finding a cluster of epithermal veins across a small area. Zacatecas, Mexico is one of the world’s most important regions for silver mines for the past 500 plus years.
We found the blind veins by first drilling through the Tabasquena vein, then continuing. The geology is fairly straightforward in the area, with the old marine volcanics are the country rock. Before we hit veins, the andesite is pretty plain old andesite, until we get close to the veins. So our game plan is once we hit a vein we keep going until we see that plain old andesite again. We found all 5 blind veins in this fashion.
In the first phase of drilling, only one hole went under the oxide zone of the veins, it was our high-grade gold discovery hole. Now we have nine veins in total to test below the oxides. It is important to note that the zonation of epithermal veins is very well known in the region due to the prolific mining.
After you get through the oxide zone, which is also where our veins are showing significant width, you hit the top of the precious metals horizon which can be around 700 metres or so deep. This give us 9 veins, covering an east to west distribution of a couple hundred metres, that strike mainly north to south, to drill into the precious metals horizon.
Another important point that I included in the news was that as we have started to get deeper below the oxide zone, into the precious metals window, we are seeing much more quartz than we did in phase 1 drilling. This is crucial as the precious metals in these epithermal veins are associated with the quartz.
With our first 7 holes, we are learning quickly how to target the known veins to give us an improved chance of more quartz, and also how to find the blind veins. At the moment, we have pending assay results from the 3 holes drilled in phase 2 drilling. Have a look at the news from this week here and check out other sections of the website.
It is an excellent time to look closely at Advance Gold, as we are in the early days of a discovery, in elephant country for precious metals mines that mine epithermal veins, we have a cluster of 9 veins so far that are starting to be tested into the precious metals horizon. Yet, we still have a very modest valuation.
There you have it, a busted stock promotion, a new one to follow and an update on my company.
All of them with plenty to learn from for investors in the space.
All the best,
Allan Barry Laboucan
Allan Barry Reports
Advance Gold (AAX.V)
P.S. my reports are for information purposes only, before making any investment decisions it is important to do your homework and speak with your financial advisers.