New Found Gold Corp. (TSXV:NFG) results from Keats is starting to resemble Kirkland Lake Gold Ltd.’s (TSX:KL) Swan zone, writes Bob Moriarty
Bob Moriarty | November 6, 2020 | SmallCapPower: Loyal 321gold readers and Novo shareholders are well aware I am writing a book about the Novo saga. I plan to release it the day Novo does their first gold pour now scheduled for the first half of Feb 2021. In the process of talking to Quinton about events in the book, he talked about his participation in going to Australia on behalf of Eric Sprott to Fosterville.
(The following is an article originally published on 321gold.com on October 29, 2020)
2015 was not a good year for Eric. He had pretty much been booted from the company he founded as a direct result of the terrible correction in resource juniors that took place from 2011 and didn’t end until the start of 2016. During 2015 Quinton went to Toronto for meetings and stopped in to see Eric to brief him on Novo. Eric indicated that on occasion he would ask Quinton to look over a project for him. In April of 2016 Eric asked Quinton to go visit Newmarket Gold’s Fosterville project in Victoria Australia.
Eric owned a lot of Kirkland Lake Gold and was actively buying Newmarket primarily for their Fosterville gold mine. On little more than a hunch he liked the project and wanted Kirkland Lake to merge with Newmarket.
Quinton went, did the tour and came back suitably impressed. He encouraged Newmarket to drill down plunge and deeper. They did one deep hole in July and while it had geological sniffs it missed the G-Spot. Quinton went again in August to do a due diligence report for RBC Bank in anticipation of a Kirkland Lake offer. He was still convinced they were about to hit something big. He favored the merger, as did Eric Sprott.
At the time Eric was the Chairman of Kirkland Lake. He owned 6.7% of Kirkland Lake Gold and 15% of Newmarket Gold. He pushed for the merger in spite of a lot of pushback in Toronto including from executives in Kirkland. The merger went through and closed in December of 2016 making a combined company worth about $2.4 billion. I’ll guess Eric owned about 10% of the new merged company worth somewhere in the $240 million range. Kirkland shares were about $8.
On January 17th of 2017, the new Kirkland Lake reported intercepts of 1,429 g/t Au over 15.15 meters, 356 g/t Au over 7.2m and 83.9 g/t Au over 3.5m just as Quinton Hennigh had predicted they would. If Eric Sprott hasn’t sold any of his Kirkland Lake shares, as of today his $240 million investment would have turned into somewhere in the $1.68 billion range. Listening to Quinton and ignoring the naysayers made him a cool $1.5 billion if he didn’t sell any shares.
The zone where KL hit was called the Lower Phoenix Footwall and that doesn’t exactly roll off your tongue so management renamed it the Swan zone. KL has mined 1.5 million ounces of gold from the Swan zone in three years. They still have a mineral reserve of 1.6 million ounces at a grade of 38.6 g/t Au. The Swan zone has made KL the lowest cost gold producer in the world while taking their market cap from $2.4 billion to $16.85 billion. At Fosterville they can produce for $127 an ounce with an AISC of $293 per ounce of gold. It’s not their only mine but it is their richest and contributes 44% of the gold they produce and most of the profit.
There is a new kid on the block that appears at first glance to have similar grade but rather than being a kilometer deep such as is the case at Swan, mineralization begins between 20 meters deep at Lotto and 70 meters down at Keats. That could be easily done in an open pit and would be a whole lot cheaper than working underground. Of course, that is New Found Gold Corp. (TSXV:NFG) who released a hole back in January that showed 92.86 g/t gold over 19.0 meters.
A month ago the company released assay results from the first target on their 100,000-meter drill program at Queensway. The first drill hole targeting the Lotto zone reported two intercepts of incredible mineralization. A near surface hit of 41.2 g/t gold over 4.75 meters began at a depth of 35 meters. That would be about 20 meters below surface and easy to strip and do an open pit. The hole continued with 25.4 g/t gold over 5.15 meters at 57 meters down dip.
But what the market really wanted to see were the first holes for the Keats zone, home of the monster hole from January. Those results arrived on October 27th and did not disappoint. Hole 18 reported 24.1 g/t Au over 7.9 meters. Hole 19 showed 31.2 g/t Au over 18.85 meters and hole 23 gave an incredible 41.35 meters of 22.3 g/t gold. Hole 21 showed a still respectable 15.8 g/t gold over 18.35 meters.
There are a few takeaways investors should ponder. The distance between the Lotto zone and Keats is about 2.5 km. Lotto has similar grade and thickness to the latest holes at Keats. Lotto is very near surface, which means open pit is certainly possible. If the system connects between Lotto and Keats, which is again possible, only drilling will tell the tale, NFG, has a deposit that is going to make Swan look like chump change. Don’t forget, Swan helped take Kirkland Lake from $2.4 billion to $16.85 billion.
Someone did a grade/thickness report for me based on the five holes released to date by New Found Gold. It shows 39.8 g/t Au over 21.25 meters and certainly is similar to that of the Swan zone of Kirkland. But Queensway appears to be a lot larger and much closer to the surface.
The market has been looking for a good story to get behind. I believe this is it. You have an incredibly high grade gold deposit near surface located on a highway and only a couple of miles away from a major airport in one of the most mining dependent countries in the world. The mob of unwashed investors who have been chasing Hertz into bankruptcy, Tesla and Bitcon need something to wake their ass up. New Found checks all the boxes. They have a major drill program in progress so there will be news on a constant basis. The company has something like $75 million in the till and can work year round.
This is a story that legends are made of. Collin Kettell got together with Denis Laviolette at the end of 2015. (Is that the same Collin Kettell that I taught how to shoot craps about 15 years ago and got him tossed out of a Vegas casino? Who says a 15 year old can’t throw dice?) Correctly they believed the correction in gold was about to end and they wanted to put something in a shell and move it forward. After a lot of searching they settled on the Queensway property near Gander Newfoundland. Noranda and Rubicon had worked on the project in the 1980s and early in the 21st century but had walked away from the area. The claims reverted to the original prospectors in spite of some great sniffs of gold.
By 2016 the market began to turn and after working with nine different landowners, the pair locked up Queensway. Rob McEwen was a first round investor, Eric Sprott stepped up to the plate and the company spent $10 million doing a systematic evaluation of the project. Part of the project was called Keats for Allen Keats. At surface it didn’t show any signs of gold but their technical people said it was the best target. Denis liked it a lot and hired Greg Matheson in early 2019. So while Denis Laviolette and Collin Kettell founded the company, found financing and got it moving forward, Greg Matheson was actually the genius that picked the spot to do their first hole. It was a home run out of the park.
And about this time Collin and Denis got in touch with Quinton Hennigh, the guy that Eric Sprott credits with the discovery of the Swan zone for Kirkland Lake. Quinton took a look at the core and realized it is identical to that of the Swan zone in Victoria. Quinton took a 15 million-share position for Novo Resources. All together the insiders and management control about 81% of the shares. The price of shares could be explosive once the market gets it.
This is going to be a giant home run for everyone involved. When the shares get above $5 in US pesos brokers in the US will be allowed to recommend it. I’d highly suggest to management that they prepare for a US big board listing right now. I think Queensway is bigger than Fosterville. And I believe it will make the same sort of contribution to the market cap of NFG that Swan did for Kirkland Lake.
Today NFG has a market cap of right at $450 million Canadian. That’s going to change a lot in a hurry. Investors at this price are going to see a return of hundreds of percent. Soon.
NFG is an advertiser. I have bought shares so naturally I am biased. Do your own due diligence. There is no limit to where this company could go.
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