Risk VS Uncertainty…

Not the same thing but often treated as such…

Case in point when people consider Novo to be extremely risky/speculative because the targets are highly unconventional. Some even, for some reason, goes so far as to claim that “Novo has no gold”. This is of course completely untrue since Beaton’s Creek already has a resource and the deposit is fully permitted to boot. Now, I actually believe some might actually not be aware that Beaton’s Creek (BC) exists and is as advanced as it is because they have only heard the “bears” harp on about all the challenges that relates to the other projects such as Egina and Comet Well etc…

Anyhow, the consensus is that Novo is extremely RISKY.

My take is that they are making a big mental mistake by a) forgetting, or perhaps neglecting, Beaton’s Creek, and b) that risk is not the same as uncertainty. Not only is BC looking like a high quality project, but with increasing prospects of getting access to a mill, Novo has never been closer to underpinning the company with a tangible cash flowing operation. This is not something that can be said about 99% of juniors who have exploration as their main driver. Secondly, while it is true that the long term value of Novo is highly uncertain at this point in time, it does not mean that Novo is highly risky because of it in my opinion. If BC gets into production that should mean the risk of dilution and risk of no access to capital goes way down. The same can’t be said by, again, 99% of juniors. Most juniors are 10-20 years away from reaching the same point, if ever.

Thus, when I read all the comments about Novo being so risky I just shake my head because they are probably confusing risk with uncertainty without even knowing it.

I do really believe that the extremely broad blue sky spectrum for Novo’s unconventional gold systems is one big reason for the overall “pessimism”. Not only do most people not understand Novo because they haven’t really dug into this complex case, but the huge variance in outcome probably leads to anxiety since investors VALUE certainty above all else.

For example: If there is a 33% chance that something is worth 0, a 33% chance that something is worth a lot and a 33% chance that something is worth an immense amount, then the Expected Value would be [0.33 * Value of each scenario] added together. That is the RATIONAL valuation (Expected Value). However, the broader the range of outcomes, the higher the uncertainty. This uncertainty translates to anxiety and is discounted hard by the market. Case in point when we see people state that “Nothing has been proven yet so I’m staying out” while QH is stating “think big” while describing how mechanical sorting could “shrink” all of Pilbara’s nuggety prospects. The former is so IMHO irrationally anxious due to uncertainty that it leads to a sense of extreme risk/fear of loss. The latter is describing the top end of a blue sky scenario.

On the whole, I personally consider Novo as one of my “safest” picks, and even one of the safest juniors I know of. This opinion is of course highly unconventional or contrarian if you will… And I like it.

… But then again, I think people in this space are pretty bad investors on average (there are exceptions). I know that I started out by owning crappy companies and I have worked hard to educate myself on how to think properly on the subject of investing…. It’s a work in progress and the goal is to get a little bit better each day. The ability to differentiate risk from uncertainty, and hopefully taking advantage of other people confusing these concepts, is another step forward in my book.

To Sum Up:

Risk is not the same as uncertainty. If/when BC gets into production, which looks more and more likely, then Novo should be less “risky” than the majority of juniors. Lastly, it is true that there is an extreme uncertainty in terms of Novo’s long term value ATM, which is leading to anxiety and people impulsively confusing upside uncertainty with risk. In other words I see Novo’s extremely wide spectrum of outcome scenarios (uncertaintly) translating into an irrational sense of extreme risk.


(Note: This is not a buy or sell recommendation. This is not investment advice and I am not a geologist. This article is highly speculative, forward looking and I can’t guarantee accuracy. Always do your own due diligence. I own a lot of shares of Novo Resources which I have bought in the open market and am thus biased.  Novo is a passive banner sponsor on my site. )

Best regards,

The Hedgeless Horseman

Follow me on twitter: https://twitter.com/Comm_Invest

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