Looking Ahead - SP MaximisationThe vast majority of gold mines are generally valued on a combination of the following metrics:-
- Earnings
- Gold grade
- Sustaining capital
- Geolocation
- Reserves
When Novo has ticked all the above numbered points 1-4, there remains the Reserve metric which many conventional mines can validate.
Since Novo’s prospective reserves are located in surface conglomerates, or alternatively, near surface gravels, then near term mill ore requirements can be added in relatively short order.
Indeed, the additional property purchased with the mill at Nullagine, has shown to contain similar conglomerate ore as that being mined at the adjacent Beaton’s Creek (“BC”). The sustaining cost of proving up this additional conglomerate
This is in contrast to the 5 year plus that KL needs to add a new shaft at Macassa.
Novo management has already indicated that it is not an economic proposition to expend valuable resources at this time on proving additional gold reserves when the present NI-43-101 reserves, which amount to ~ 6 years plus gold production.
Moreover, before BC’s existing reserves reach a half way stage, Karratha and Egina should be producing gold and premium levels of cash flow.
The BC mill should by then be generating gold output sourced from far and wide in the Pilbara and this may be the time to focus on quantifying additional reserves.
MAXIMISING SHARE PRICE. It is apparent that the only metric that Novo cannot compete with conventional gold producers relates to that of Reserves.
Therefore, when BC is generating sustaining capital in order to extract gold from its expanse of property in the Pilbara, it may be compelling for management
to maximise dividend pay-outs, in contrast to the dividend / earnings ratios metrics of conventional miners. The rationale is that this will demonstrate to investors that the directors recognise that sustaining capital needed for future development, mainly using sorting machines, will be far less than its peers as capital intensive underground producers.
Accordingly, at this stage, a high proportion of Novos earning being paid out as dividends will demonstrate to investors that Novo would have graduated to becoming a cash generating machine for investors.
Novo’s potentially above average dividend return to shareholders, may therefore more than compensate for low proven reserves, which are only critical when hundreds of millions of $’s are needed to sink shafts in order to justify access to deep underground gold reserves.