For the most part I have remained fairly quiet in recent times, but I have seen the frustration in these threads continue to fester as time has gone on. Some are selling at a significant loss (managing their capital in the face of uncertainty), others are taking the opportunity to DCA, and others are simply waiting. My research, and my understanding of the market drivers and emotions, leads me to believe that we are significantly undervalued. But, I wanted to write this post to illustrate my musings and also thoughts on our value, albeit with an inexact science (and without any level of ‘expert knowledge’, just my own DD). I hope this is informative, and I happily welcome any and all challenges of my POV.
Over the past 10 or so months, the share price of NVA (above) has been on a steady decline following a pretty dramatic rise. We have seen a high of 23.5c (20th November), followed by a decline to the low on the 20th of July at 10.2c (a decline of 57%). A decline of this severity ultimately leads to shareholder disdain, capitulation and tax loss selling, which is a shame. This share price decline, in my opinion has come off the back of a few key catalysts;
1. A weakened gold price, following a strong run in 2019 and 2020. We can see this by reviewing the price of gold (USD) per ounce, which shows a decline throughout 2021 and additional volatility in recent weeks;
2. The ‘miss’ by NVA in upgrading the resource to 5Moz (instead it hit 4.7Moz, only slightly short of expectations). Whilst they were close (within 6% of the target), the management of Nova (namely the CEO) led shareholders to believe that 5Moz was in the bag, and potentially we would be looking at 5-7 for this upgrade. The market did not like the news, and we saw a sell down and a decline in the sentiment across Hotcopper and other media outlets I follow regarding Nova and it’s potential. I think the market acted irrationally, and I think we due for a strong surprise come the end of the year, but it is worth mentioning this hit to investor confidence nonetheless as a contributor to our SP pain.
3. The classification of our resource only as ‘Inferred’. By JORC standards, only Indicated/Measured resources can be converted to Proven/Probable reserves, and certainly from a financial modelling perspective there is no value given to the Inferred classification. Until we convert the resources to the Indicated/Measured category (which the company is working towards with the current infill drilling program), I think we will appear undervalued by the market. In my honest opinion, this has presented a sensational opportunity to accumulate shares, if you believe that Nova will convert a significant portion of our current 4.7Moz to these categories (not to mention the additional ounces the company is currently drilling for, namely in the extension of Korbel and the Resource at RPM). I certainly believe they will.
4. The delay to the scoping study. Management once against ‘missed’ by promising the SS and delaying it at the eleventh hour, however the reasoning (imo) is extremely fair, and in our best interests. I don’t subscribe to the sentiment from some posters here that management ‘lied’ about the reason for the delay, or found that the mine was not economical, or the grades weren’t as good as they expected etc. I trust the words in the announcement released on the day of the SS delay, which stated (off the back of surprisingly strong drilling grades);
It’s clear to me that management & their key advisors believe that the results will have a material impact on the economics of the project. Why release a SS, which will shortly after be irrelevant/outdated, when it makes sense to delay it and present (what I expect to be) a stronger result? I am comfortable with this, like anyone I don’t want it to be delayed and I would welcome the news to properly value our resource in the market. But I want it to be accurate and relevant when it comes time to discuss the start up of the Project itself, and to inform the strategy of the company to maximise their chances of making it to Production.
Now, considering these catalysts, and where the SP sits (valuing NVA as a sub-200m gold explorer), I want to discuss two of the key fundamental drivers and my view of their value to NVA.
1. Estelle
As we sit currently, the resource at Estelle is 4.7 Million Ounces in the Inferred category (lowest level of confidence), with the company’s infill drilling campaign seeking to convert a portion of this resource to the Indicated/Measured categories. As posted by
@wombat777, taking a few peer gold explorers with an Inferred resource gives a
peer average value per ounce of $96.
NVA’s ownership of this resource sits at 85%, hence NVA owns 3.99Moz.
Hence, the value of NVA’s 3.99Moz Inferred resource = 3.99m * $96 = $383M. Our current Market Cap is $185M, suggesting we are more than
50% undervalued on this metric.
This analysis doesn’t include possible upside with RPM, or the upside once we convert our Inferred Resource to Indicated/Measured (which will carry an increased confidence and hence re-rate). Even on the conservative assumption that they find another 2Moz, and convert 50% of this resource to I/M,
we are way undervalued.2. Snow Lake IPO
Nova holds a 74% ownership of Snow Lake Resources, which is a Lithium Miner soon to IPO. In the most recent news, Snow Lake are raising USD$23m for the IPO (with an additional $5m already secured), or in total circa USD$28m.
Now, on the assumption that this USD$28M is for the 26% not owned by NVA, we can infer that Snow Lake will IPO at a valuation of USD$107m. NVA’s share of this Market Cap is therefore USD$80m, or
$109m AUD. This is purely on the assumption above, and also doesn’t consider the heat of the Lithium markets right now, or the hype that might surround the IPO. Earlier today
@PuddleJump posted this image below, which shows the scale of Snow Lake compared to other Lithium Miners based on resource size. Research of the Market Cap of these peers shows me that the above is
probably conservative.
Combining the logic of the above, I can see that Nova is currently undervalued to the extent the above analysis is valid. If NVA prove up the Resource to the Indicated/Measured categories, plus expand the Inferred Resource at Korbel and RPM, plus demonstrate the economics of the mine in the Scoping Study, and Snow Lake has a strong IPO… my guess is we will soon see a re-rate. I am willing to be patient, I will continue to accumulate, and I will re-assess once we see the reports we are waiting for. Until then, good luck all and stay patient.
Cheers.
(20min delay)