Analyst’s Notes Summary
Whereas the first note on New Found Gold Corporation ("New Found”) (OTC:NFGFF) (TSX:NFG) was issued on 8 February 2021, Crux Investor has revisited the subject in 6 May 2021 and 21 July 2022.
The company has been on a very intensive drilling campaign of the Queensway Project in Newfoundland, Canada, since mid 2020. Gold mineralisation is present along a number of fault structures, the main ones called Appleton Fault Zone (“AFZ”) and Joe Batts Pond Fault Zone (“JBP FZ”), which strike NNE-SSW and with indications of better mineralisation where NE-SW striking structural zones cross cut. Initial focus was on the Keats Main Zone. The company had reported here spectacular grade intercepts. It had caused the share price to dramatically increase in in a couple of months with the market capitalisation reaching C$0.51 billion by February 2021. This converted at the time to an estimated US$1,000/oz of the gold content based on a back-of-an-envelope estimation. Crux Investor warned that the market was getting ahead of itself.
By May 2021 the market capitalisation had risen further to C$0.91 million (US$1,220/oz) on the back of more very good headline results. By generating its own cross sections Crux Investor found the mineralisation to be limited in size and again warned that the valuation was excessive.
When Crux Investor revisited the project in July 2022, the share price was C$5 after peaking above C$13 in mid 2021. The market had become somewhat sceptical about a company that kept on drilling /for years (with up to 14 rigs!) without being able to come up with a resource estimation. The Analyst’s Notes of July 2022 concluded that, of the numerous deposits drilled, only the Lotto Zone, Golden Joint Zone and Keats Zone appear to be of potential interest. The dimensions of these deposits would at best support mineral resources of 1.0 million ounces (“Moz”). This converted at the time the market capitalisation to a valuation of US$660/oz, which was still excessive.
In all its reviews Crux Investor found that New Found Gold:
- Made it very difficult for an outsider to get a view on the true potential of the mineralisation drilled. No comprehensive drillhole collar locations plans are given, no cross sections are presented which clearly show consistent mineralisation, borehole numbering is sequential and does not distinguish between deposits, the drilling sequence is chaotic without systematically testing the deposits.
- The company is front-running good results. From logging intersections with visible gold are identified and their assaying expedited to be mixed in with earlier, much less attractive results. The company in its news release only gives “highlighted” results with much prominence for the expedited result of the visible gold section.
- There is evidence of the drilling revisiting a previously high-grade block by drilling only a few metres away. This guarantees good headlines for subsequent press releases. In general drilling is very wasteful with holes drilled at very short distances from each other, not contributing in a meaningful way to adding resources.
Subsequent Developments
Figure 2 shows the price performance since the first Analyst’s Notes on the subject in February 2021 and indicating when the updates were published.
The graph shows the typical sharp initial upswing of the Lassonde Curve and the subsequent sharp drop as reality sets in.
Since the second update report New Found Gold has kept releasing drill results in the same manner. Some names stopped cropping up; examples are Golden Joint, Little, Zone 1744, Pocket Pond, Cokes, Road Target, the Dome Target. Instead, new names appeared, the most important being Keats North, Keats South, Keats West, Lotto North and Iceberg. Noticeable is the absence of drill results for deposits along the JBP Fault Zone, which Crux Investor had determined in the second update note to be of no economic interest.
The company also started drilling tens of kilometres south-southwest along the AFZ where it found mineralisation at areas with names such as Devils Pond, Nebula, Astronaut, Goose, and more.
Figure 3 is a slide from the latest corporate presentation showing a plan identifying the relative locations of the various deposits along the AFZ in the north. The plan also illustrates the drill density at the various targets.
The plan illustrates that Keats Main, Iceberg and Lotto feature prominently in terms of drilling. However, a review by Crux Investor of reported results between August 2022 and December 2023 did not show an obvious addition to the dimensions of mineralisation that was identified in the second update report as potentially of economic interest. Apparent from these results are isolated blocks with exceptionally high grade, mostly in very narrow intervals but for which the reported grades have been smeared over much wider distances.
By 3 January 2023 New Found Gold has completed 319,000 m of drilling of the “current diamond drill program” without being able to generate a mineral resource estimate. It announced on that day an expansion of the programme from 500,000 m, which allowed the company to postpone the release of a mineral resource estimate for another extended period. It does not speak for the company’s confidence in the project when it does not generate a maiden mineral resource estimation for Keats Main and Lotto, the deposits it has drilled in most detail, but rather keeps plugging holes in a chaotic fashion along the whole Appleton structure.
Nothing has occurred since August 2022 to change Crux Investor’s opinion about the over-valuation of New Found Gold which had a market capitalisation of C$858 million on 16 February 2024.
Crux Investor Analysts Self-Assessment and Take-Aways
Crux Investor made a largely correct (negative) assessment of the drilling and resources challenge facing the New Found Gold. Eye-catching grades at Keats Main, Iceberg, and Lotto go some way to mask these fundamental issues. Thanks to headline good grades, the share price has held up well relative to peers despite falling on an absolute basis.
As a general point, this case study will hopefully remind investors that drilling structurally complex and highly deformed gold deposits is extremely difficult. Very high drill densities are required and resources are hard to define. Investors should watch out for missing drilling data and the non-arrival of promised technical reports. What is not reported is sometimes just as important as what is reported.