RCKS: Novo UpdateJan 31, 2019
Sorting Results Continue to be Positive - Novo Resources Corp (TSXV:NVO) - Novo continues to demonstrate the viability of its ore sorting technology which, has the potential of lower processing costs at its Karratha gold project. With much of Novo’s current value underpinned by its Beatons Creek resource, we believe the market undervalues the company’s Karratha, Egina and wider Pilbara projects.
See our full comment here Novo Resources Corp Sorting Results Continue to be Positive
Impact: Mildly Positive
Download Report Novo continues to demonstrate the viability of its ore sorting technology which, has the potential of lower processing costs at its Karratha gold project.
With much of Novo’s current value underpinned by its Beatons Creek resource, we believe the market undervalues the company’s Karratha, Egina and wider Pilbara projects. Highlights: Grades continue to fall within the typical range for bulk samples. Results from ore sorting returned good grades highlighting up to 2.97g/t Au and an overall weighted average grade of 1.76g/t Au. These results are slightly below the weighted average head-grade of previous samples (2.4 g/t Au) but above the minimum grades that we estimated from preliminary results. Moving forward, Novo will aim to improve Au recovery via ore sorting in the sorting process by optimizing crush size.
Improving potential economics. While crush size still needs to be optimized, preliminary indications are the ore sorting may work to concentrate the material mined, prior to processing which would reduce costs. It appears that both oversized and undersized unsorted material, would need to be processed in the same way as sorted material. However, we would still expect this in a material costs saving, depending on how well crush size can be controlled.
Plenty of news still expected in 2019. We expect further news to come this year from Karratha as the company refines its ore sorting parameters and gets ready for even larger bulk sampling. The company is also completing 58 2t+ bulk sample at its Beatons Creek project which we expect to be complete in February. Together with recent drill data, we expect a resource update from Beatons Creek beyond the current 4.6 Mt at 2.3 g/t Au (345 koz) in Q1/19.
Valuation: As Novo continues to prove out its technology and grow its resource base, we expect positive upward momentum. Our preliminary DCF valuation for Beatons Creek alone underpins an estimated value of C$1.10-1.40/sh and a combined value of C$2.40-4.80/sh for Karratha and Beatons Creek. A valuation gap is evident as Novo currently trades at C$2.75/sh and we believe steady newsflow from all projects should drive the stock towards the top-end of our valuation range.
Upcoming catalysts include, 1) Filing of the mineralization report for Karratha (Q1/19) 2) Bulk sampling at Karratha (H2/19), 3) Systematic bulk sampling work at Egina (Q1/19) and 4) Beatons Creek resource update (Q1/19).
Derek Macpherson | VP Mining Analysis Edmond Thorose | VP Corporate Development
Alex Pitcher | Associate, Mining Analysis
Beatrice Cigagna | Associate, Mining Analysis Red Cloud Klondike Strike Inc. 105 King Street East, 2nd Floor
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