Elevator Pitch Last week I received an article in my mailbox by Maarten Verheyen, a Belgian newsletter writer.
I have diffuculty explaining the Novo story to people that hear it for the first time.
There's no easy 'elevator pitch' so to speak.
This article came pretty close to this, because it briefly explains what we see to date and what might be expected, backed by personal view and investment.
So I asked Maarten's permission to translate his text and he agreed.
Not perfect English, but it's about the content.
Most here know this stuff, but I've found this text already useful.
There are times as an investor, all you have to do is 'connect the dots' to understand a story before the rest of the market does.
Let me take you to the Pilbara region in Western Australia.
There's hope that this region is comparable to the Witwatersrand in South-Africa.
This region has produced 40% of all gold in the world: 1.6 billion ounces to be precise!
Those 1.6 billion ounces are currently worth $1,900 billion.
Just to illustrate the scale here.
Should the Pilbara turn out to resemble even a bit like the Witwatersrand, then the companies that are currently active down there will make their shareholders rich beyond imagination.
Time to collect the pieces of the puzzle to see if we can catch a glimpse of its entirety.
What do we know at present?
Well, first off there's the Kirkland Lake Gold investments.
Kirkland is the best performing gold mining stock of these last years and well on its way to become one of the Majors.
The share price was at 1.7CAD in 2016 and rose to a high of 30CAD earlier this year.
Kirkland was early to the party last year, by buying 14Million shares of Novo Resources for $56Million.
Novo is by far the biggest land owner in the Pilbara and the number one play for investors looking for exposure in this region.
One month later Kirkland invested another $5Million in the region. This time shares of neighbour De Grey were added to the portfolio.
More recently, some months ago Kirkland bought the 4Million Novo shares that were held by Artemis for $20Million.
In short: Kirkland has invested $81Million in the Pilbara to date, which makes it the biggest investor in the region.
Remarkably enough there isn't a single resource estimate, which leaves us a bit in the dark at the moment.
If things go bad here, Kirkland will look like a fool.
What do they know that we don't?
CEO Tony Makuch recently give us a brief look into his cards:
"We believe the Pilbara has the potential to be an important new discovery. It is going to create a whole new chapter in gold mining in Australia and the world. If it is as big as we think it's going to be it's going to turn the industry upside down. If it turns out to be anything close to what we think it is.. we want to be there and we want to be a active participant and that's why we're there...."
"We think there's something there"
These boys have faith, that much is clear.
Sprott is chairman of the Board of Directors of Kirkland and personally posesses more than 10% of the shares in Novo Resources.
Through Kirkland, Sprott has lots of exposure towards the Pilbara already, but apparently this didn't suffice.
So next to the Kirkland investments, Sprott went on a buying spree with his own money.
He currently owns more than 11Million shares in Novo Resources.
What is his motiviation for this move?
"The various conversations I have with people who have been on the ground, including people from Kirkland, Novo, Pacton,... I think everyone is a total believer in the universality of the deposit and the grade, although we don't have data on the grade yet that we can bank on."
Well well well...Both Kirkland and Sprott have invested a ton of money in the region and they're letting us know -between the lines- that everything looks quite alright.
Sprott recently bought another package of stock.
So it's not just his words that do the talking.
The problem the market currently has with Novo Resources, is that the company only rarely comes out with a news release.
They are moving tons of work, but only sporadically gives some information.
Investors in general are an impatient breed and the lack of news is reason enough for most to sell their shares. We all know that as an investor, sometimes you got to have patience, but only few walk the talk.
I don't mind however. I've been accumulating shares of Novo and it currently sits as the largest position in my portfolio. I used to look at Novo Resources as an option on some gigantic discovery but now I have a lot more faith, which is why I gradually increased my position.
It's not a safe bet in the very least, but the chance they've got something big is large enough to make some substantial money here.
I look at this as a mispriced option.
I'll explain why: Say Novo Resources can prove up to 50Million ounces of gold and the market values each ounce at $300.
That's $15 Billion.(Novo's ounces are more valuable because the gold can be extracted at a low cost)
However, Novo Resources' current market value is $474Million (Canadian dollar)
Which tells me the market is giving Novo a 3% chance of success.
Because at the moment, you pay $474 Million for a shot at $15 Billion.
Well, I believe the odds are much higher than that.
Which the market will likely experience once Novo Resources gives us more data.