New Found Gold Corp V.NFG

analyis

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@northstars Summary –The Most Advanced Explorer with Excellent DiscoveryMomentum:NFG is a gold exploration company currently exploring the Queensway project in the Gander region. Queensway,the company’s flagship asset,comprisesan assemblage of claims totaling over 1,500 km2, making NFGone ofthemoststrategiclandholdersin the province. Its US$846Mmarket cap may raise eyebrows, but we explain that while it is ahead of itself it is not nearly as expensive as a casual glance might suggestonce the exceptional grade is taken into account. NFGis the most advancedexplorer in the region, by a year or two,with 3–4 high-grade zones discovered to dateand strong discoverymomentum. Based on our late October property tour and subsequent analysis,we estimate drilling has outlined ~1.8Moz grading about 16gpTin these zones to date, dominated by the Keats Zone. Over time,we fully expect expansion of thesezonesand newdiscoveriesand we see no reason why NFG won’t eventually identify 5Moz+ of high-grade mineralization, but that is just an educated guess. We have included NFG in our selection of Newfoundland explorers for its pioneer status, striking initial exploration success, large land packageand ideal position along epizonal gold-hosting fault structures. Afully funded 400,000mdrill program utilizing 10rigs (to be expanded to 14) is now about 32% complete(NFG has C$140M incash).We believe this will maintain or accelerate itsdiscovery momentum. As ofmid-December,there was a large assay backlog (~30,000m) causedby a review of assay lab protocol. Amaterial discrepancy in assay results between two labs used by NFG had been noted and press-released in early November, slowingassaying and press releases. For ownership structure, see Figure 25.Queensway Project–Pre-eminent Land Position in Gander Trend:Located 15-km westof Gander and easily accessed via the Trans-Canada Highway, NFG’s 1,500 km2Queensway property is the pre-eminent and thus most strategic land position in the Gander Trend, at least as we understand the playto date(Figure 1).This large strategic land position in a new camp will be important to a future acquirer.Gander Lake crosscuts the property east-westinto two zones which NFG has named Queensway North and Queensway South. The North and South zones are structurally defined by a pair of northeasttrending faults, the Appleton Fault and the JBP Fault, which trend parallel to one another for a combined 105km of strike within the Queensway boundary.Queensway North contains the key discoveries to datealong the Appleton and JBP faults for 7.8km and 12.4km of strike, respectively(Figures9 & 10).Three Key NewDiscoveries onQueensway North:NFG has identified 12+ high-grade gold targets along secondary fault structures, splaysoff the primary Appleton Fault. Ultra-high-grade mineralization has been discovered at the three most advanced targets —Keats, Golden Jointand Lotto. Theseare the first substantive deposits found on the Gander Trend. A smaller historical target called Dome was known to prospectors before the three other discoveries. We toured the property in late October and have carried out a back-of-the-envelope resource estimate, summarized in Figure11.Keats Is the Most Advanced Target:The “discovery”hole at Keats was drilled below previous drilling by Noranda which had shown interesting but sporadic intersections. It hit a remarkable19m @ 92.9 gpT gold, reported in December 2019. Up to October 14, 2021 —the most recent press release—127holeshadoutlineda high-grade zone with a footprint of 530m down-plunge (deepest hole H360 5.2m @ 61.5 gpT),to a vertical depth of 307m,up to 250m wideand open in all directions.Fourdrills areconducting infill and step-out drilling.A 100m step-outhole was underway when we toured the property in late October,results of which are still pending, along with many more. There are also early indications of a related structure in the footwall;Hole 238(reported October 13)hit 3.35m @ 88.5 gpT,65m below the Keats Main Zone in the footwall at a depth of 307m. Weare looking forward to hearing more about it. There may be other related structuresas well. Time will tell. We are impressed with Keats’down-plunge continuity, considering the remarkably high grades which have averaged16 gpT,

 

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@northstars based on the 127 holes and 305 interceptsin our database, including sevenintercepts greater than 100 gpTgold. Initially,the drilling was quite tight until NFG’s geologists got a handle on the orientation and controls. We can only count seven dud holes —impressive. One early criticismthat reported assay intervals did not break out the narrowultrahighgrade intervalswas corrected in 2021. As one can see in Figure 12,the mineralization balloons at about 150m depth. This dilatational zone will be a real jewelryboxwhen mined.Simplistically speaking, there is clearly a high-grade “core” with a lowergrade “halo”. The high-grade averages about40 gpT and thelow-grade halo about2–3 gpT. Keats has been comparedtothe company-making Swan Zone at the Fosterville mine in Australia. Both haveremarkable grades and widths and appear to have a similar epizonal style of mineralization. In our opinion,Keats too will be a company-maker, but these are early days and muchworklies ahead to unlock the Queensway property’s remaining potential, estimate resources, carry out economic studies and themany stages of permitting. Keats is not the only promising discovery. It was just the first and thus most advanced.Lotto DiscoveryOctober 2020:The Lotto Zone discovery was announced October8, 2020. Lottois located 2-km north of Keats(Figure 10)and it appears to be the same style ofmineralization asKeatsand it is also within a fault splay located asimilardistance east ofthe Appleton Fault. To date,25 holes with 37 mineralized intervals have been reported with only one dud. Like Keats, Lotto hasa low-grade background of about 1–2 gpTassociated with an array of steeply dipping high-grade veins (85 degrees) withinthe Lotto Fault (Figure 13). One vein, Lotto Main, hasa population of exceptional high-gradeintervalsand is the focus ofdrilling.This becomes quite apparent when one looks at averages and medians: the average intersection for all 25 holes has been 4.2m @25.2 gpT (interval weighted) while the median has been 2.6m @ 3.6gpT. True widths are believed to be 80–90%of reported widths.The deepest intersection reported to date at Lotto was Hole 311 with 2.8m @ 76.8 gpT starting 295m down holeto about 200m verticalfrom surface,apromisingindication of vertical continuitydown-plunge. Golden Joint Discovery Late June2021:On June 29, 2021,NFG announced results from fourdrill holes at the Golden Joint Zone, a new and central discovery, 1-km north of Keats and 850m south of Lotto. As one can see from Figure 14,Golden Joint is also a similar distance east of the Appleton Fault to Keats and Lotto. When we looked at the core from all three zones,we could seeno significant differences in the styles of mineralization. To date,only 11 holes have been reported with 28 mineralized intervals. The average for all intervalsis3.2m @ 32.5 gpT, well above Keats and Lotto, including the second-highest grade x width discovered to date on the Queensway project with a metal factor of 2,258 gram x meters. Like Lotto, two conjugate,steeply dipping zones of mineralizationhave interpreted, one a network of veins and the other a more discrete vein set called Golden Joint Main. Like the other two zones there is an ultra-high grade population and a low grade.The zoneshave been outlined so far over a 185m x 185m footprint with the deepest hole being Hole 307B with 4.5m@ 16.4 gpT starting at 349m down hole,suggesting, once again, that Golden Joint has promising down-plunge potential.It remains open along strike as well.Our Current Resource Estimate:To date,NFG has beenable to release assay results for 162holes for the threediscoveries on its Queensway North land package. At the time of writing NFG is about 32% of the way through its 400-km drill program, but has a large backlog of drill results, representing about ~24% of the drilling to date.Among the published holes,78%have been in the Keats discovery(127 holes), 24 in Lotto, while the most recent and highest-grade zone —Golden Joint—has the fewest,with only 11 holes. A summary of our back-of-the-envelope resource estimate is shown in Figure 11.There are not enough holes in Lotto orGolden Joint to provide much more than a thumb-suck potential estimate, but they account for only 0.4Moz, while Keats is 1.4Moz.Particularlystriking are the high grades at 14–20 gpT, averaging 15 gpT. Admittedly,our estimate is a simplification; structurally,the mineralization is quite a bit more complicated than our estimates assume.Our estimate should only be considered an indication of potential, yetwe believe itisreasonablyconservative andsufficiently accurate to give us confidence in our conclusions —that: 1)NFGhas already outlined a very robust series of deposits; 2)these will most likely become mines;3)there tremendouspotential foradditional discoveries.The Overhang of Differing Assay Lab Grades:In aNovember5press release,NFG explained that 30 duplicate samples sent to itstwo assay labs gave materially different grades. Not too surprisingly, the differenceis most evident in the higher-grade assays. Ultra-high-grade assays of nuggety gold always present a challenge, not only for the labs, but also for resourcecalculationsaswe discussed in the earlier section,“The Mixed Blessing of High Grade NuggettyGold”. Before knowing about the assay lab discrepancy we hadalready adopted a fairly conservative approach for our resource Precious MetalsParadigm Capital Inc. | IIROC/TSX memberPage |14RESEARCH NOTE | December 20, 2021estimate. In short, we have used the average interval thickness, but the median grades. Let’s look at Keats, since it is the dominant part of the calculation. We divided Keats into the high-grade core and lower-grade halo. The average grade of the higher-grade core is 41 gpT, while the median is 25 gpT. We used the median. Hence, we are not terriblyconcerned that the assay lab discrepancy will materially change our estimates or, most importantly, our conclusions(the average and median of Keats’lower-grade halo is essentially the same at 2 gpTand the lower-grade ounces only account for 5% of our total 1.4Mozfor Keats).With more drilling and, presumably, bulk samples,Queensway’strue gold tenor will become clearer, including a suitable grade cap to temper the impact of the ultra-high-grade intercepts, a featurethe three deposits discovered so far have in remarkable abundance.

 

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@northstars Potential for 5Moz+ of High Grade, in Our Opinion:How many ounces will be found on Queensway North andSouth? We have no way of knowing, but weare not afraid to go out on an intellectual limb and guess that it will be more the 5Moz, potentially muchmore. Let’s start with the three zones identified to date. How big might they be? The down-plunge potential is the low-hanging fruit, sincewe know that shear-hosteddeposits like these tend to run deep, often more than 1 km, such as in the Abitibi Belt.Add to thisthe potential forthe associated structures, such as Keats’Hanging Wall Zone,and we are comfortable saying that Keats alone could ultimatelyreach 2.5–3.0Moz.Other deposits are most likely to be found along the 7.8-km corridor of Appleton Faulton Queensway North. The Big Dave boulder found 2.0-km northeastof Lotto graded 1,131gpT —a strong indicator. So far,the best deposits havebeen found on the east side of the Appleton in the more brittle sediments, but some good intersections on the west sidehave been encountered with scout drilling too. There just hasn’t been time, or the priority to follow them up. Another source of upsideis Queensway North’s12.4km of parallel major fault called JBP, where drilling of targets hasonly just begun.Finally,exploration at Queensway South—the far larger of the two Queensway parcels —is muchless advanced. It is still at the stage of target generation. No drilling has yet occurred. In 2018, aregional-scale till sampling program was completed covering 60km of strike in the southern property using a 2km x 2km grid and was subsequently followed up by an infill goldintillsurvey along a section of the Appleton Fault. The surveys have identified sixbroad areas of anomalous gold in till counts and are coincident with geophysical survey work on the property. The largest anomalous region is the Eastern Pond anomaly located ~45km south of the Queensway North drill program. Till samples have returned grades of up to 15 gpT over 4km of strike and additional field work is currently underway.Well Suited toUnderground Mining:One aspect that we noticed on our tour wasthe proximity of the three zones to Gander Lake and Gander River. While some mineralization might be mineable by open pit, we suspect the large majority of tons will be mined underground, for environmental reasons, but probably for economic reasons too. A number offeatures of the mineralization found to date lend themselves to efficient, relatively low-cost mining, at least at this early stage: the high-grade(our model estimates 16 gpT); the near-vertical orientation of the zones; reasonable thicknesses of mineralization (typically 3–8m); and good apparent vertical continuitythat starts near surface.Too Expensive?Finally, we would like to address the very common comment that NFG is very expensive and way ahead of what has been outlined. Not really. These comments don’t considerthe major impact of Queensway’shigh grade onconstruction andoperating costs. Wemonitorseveral development-stage companies in what we call our Takeover Twenty. The average grade of this group is 1 gpT.Our simple resource model for NFG yields a grade of 16 gpT.Think about the implicationsfora mill and tailings set-up. To produce150Koz/year,our typicaldeveloper would need a 14,200Tpd mill. NFG’swould only be850 Tpd. The average developer will have a large tailings dam, waste piles and large open pit. Theircapital cost median isabout $155/oz recovered (before inflation). We would expect NFG’s to be half this, witha simple ramp to access anunderground mine, possibly with a small starter pit;i.e.,a small footprint.Similarly for operating costs, we would expect NFG’s AISC to be $500/oz or less, compared to $830/oz for our median developer. One measure that we find helpful as a first blush valuation gauge is ourInvestor Total Cost (ITC). This is the sum of the investor’s purchase price for the shares, expressed in market cap per ounce recovered, plus the construction cost per ounce plus the AISC. It is essentially the total cost per ounce of recoverable gold to an investor before tax and before a time valuediscount. The median ITC for our Takeover Twenty developers is currently $1,050/oz(Figure 15). Assuming NFG hasthe operating economics we discuss aboveto have the same $1,050/oz ITC as our median developer then NFG, at its current market capitalization of $915M less C$140M incash,would need to have a mineable Precious MetalsParadigm Capital Inc. | IIROC/TSX memberPage |15RESEARCH NOTE | December 20, 2021resource of 1.7Moz —pretty close toour 1.8Moz NFG resource estimate. Granted, our Takeover Twenty developers all have defined resources and economic studies to back up these estimates and NFG just has drill holes. MaybeNFG isa bit aheadof itself, but it is not nearly as expensive as one might thinkand there are few developers that can match NFG’sresource growth potential, in our opinion.Nor does the median developer have such a low political risk, mining-friendly setting. Conclusions:We believe NFGhas an extraordinary discovery in the KeatsZone. Two other promising discoveries, Lotto and Golden Joint,share the same mineralization and extraordinarygrades but have seen far less drilling. We expect these two deposits will only continue to grow in size. Our 1.8Moz @16 gpT resource estimate is just a snapshot in timein what we believe will eventually be 5.0Moz+ of high-grade gold mineralization. NFG’s exploration momentum is increasing as it expands its program from10 to14 drill rigs and a fully funded 400,000m drill program. Our analysis should only be considered an indication of potential, yet we believe it is reasonably conservative and sufficiently accurate to give us confidence in our conclusions —that NFGhas alreadyoutlined a very robust series of deposits, that these will most likely becomehighly profitablemines,and that there is tremendous potential for additional discoveries. NFG is in the heart of what we believe is the most prolific emerging gold camp that we have seen in many years