Novo: Q&A With Rob Humphryson Part 1

Q: What is your background? How did you get into mining?

A: As a preamble to agreeing to answer these first few questions I must say that I’m not all that comfortable talking about myself and I’d much prefer to let others familiar with the Novo story pass comment and judgement. Possibly the best qualified in this regard (outside Novo) are Bob Moriarty and Erik Wetterling (aka The Hedgeless Horseman) : I’ve had the privilege of hosting the former to the Pilbara more than once and spent a good amount of time with the latter during and after our whirlwind Pilbara tour of 2019. On a side note, if any reader gets the opportunity to play a game of pool against Erik, my strong recommendation is to play for money (THH: Fake news! I’m extraordinary good at pool… At least in my mind!).

Given Novo insights in North America are largely Quinton / Leo centric, Erik has asked me to provide insights about myself as CEO, how we operate down under and to share some thoughts about various technical aspects of our operations and our visions for the future. As these words are likely to find their way into the public domain, I will endeavour to undertake this task as candidly as possible within the bounds of disclosure limitations and obviously without betraying strategic initiatives that we expect will benefit patient Novo shareholders in the long run. Rest assured as shareholders that your best interests are foremost in our thoughts as we wrestle this Pilbara beast.

Feel free to skip this next section if you’re pressed for time – it gets a bit whimsical. In my defence the question was asked quite directly so I felt compelled to answer it. It represents an abridged version of what you’d get if asked the same question over a beer ……

So to my background and how mining hooked me. I am an Australian mining engineer, slightly the experienced side of 50, born and raised in Perth WA and left home quite young to study in Kalgoorlie at WASM (WA School of Mines). Mining had always held an interest for me from a very young age. My Grandad and Uncle on Mum’s side of the family lived and worked in Kalgoorlie and I would often catch the “Prospector” train up to Kal, spending school holidays in the shadow of the Golden Mile headframes, falling asleep at night to the rhythm of the ore skips clattering into the headframe scrolls and emptying their gold ore from the depths. By day we’d mess about in whatever underground excavation we deemed moderately safe enough to enter. The whole concept of working beneath the earth and creating wealth from what nature bestowed was incredibly exciting for a young lad from the city. When the time came to launch down a career path I actually fooled myself into thinking that I had a choice in the matter but it was inevitable that I’d end up in Kal studying mining engineering. Practical work opportunities abounded and at one point I found myself working underground on the Golden Mile on the same level that my Uncle and Grandad had worked many decades prior. It was incredible to me that as new areas were developed on old levels you could come across newpapers from the second world war ! The fact that the areas I used to work on the Paringa and North Kalgurli shafts are now in mid air in the massive ‘Super Pit’ does nothing to support my delusional self belief that I am still youthful.

As a student I tried to work every study break and work at as many mines as I could to broaden the base of my experience pyramid, witnessing different mining methods and watching how people interact with management and what worked and what didn’t. How well this has paid off is for others to judge.

From then until now anyone is free to jump on LinkedIn and track where I’ve worked and in what capacity, but I trust what becomes evident is that I tend to stick at places long enough to endure the consequences of poor decisions and benefit from good ones. It would also be evident that the vast majority of my career has been spent in underground mine contracting, primarily at Macmahon and also a cameo at Swick prior to Novo. Underground contracting in Australia is ultra competitive and certainly no place for the feint hearted. It’s a complicated exercise in risk management in a very challenging commercial and operating environment, but where successful innovative thinking can give you a competitive edge. Contracting and in particular underground contracting gives a fantastic exposure to operating discipline and cost management and I was very fortunate to have been mentored by some of the doyens of the contracting industry. Advice such as ‘surround yourself with people smarter than yourself and empower them’, management guidelines around expectations of people ‘hard, fair, consistent’ and an understanding of the relationship between productivity, morale and safety (let one fail and they all fail, work on improving any one of them and they all improve) have all been simple yet effective guiding principles among a myriad of others. Importantly, contracting has enabled access to most mining operations in Australia and exposure to a vast network of talent.

If I was pressed to provide insight into what motivates me generally, I’d say that I get a kick out of putting teams together to suit a situation and moulding them to become a seamless and self sustaining unit to achieve an outcome. The current team is far and away Novo’s strongest and are suitably skilled and motivated to tackle the technical challenges presented by the Pilbara’s nuggety gold deposits. We’ve attracted some gun geologists and field staff and without exception they have uncomplainingly signed on at often significant salary discounts with the lure of a story that’s incredibly unique, interesting and challenging and with the funds available to do good geology. More about funding a little later. Another thing that really floats my boat is technical innovation and in particular creating a safe team culture and environment where sensible risks can be taken. Technical innovation often ends in failure, so a safe environment is important for people to make suggestions. It is an area that takes some courage to pursue and is fraught with risk – corporate, personal and leadership credibility risk and perceived squandering of shareholders funds. I believe a sound approach is to firstly assess the chances of success and if an idea passes the smell test, find ways to test it as quickly, effectively and cheaply as possible to absorb minimal time and funds if unsuccessful. On the flipside, the successful use of innovation can unlock untold value – in Novo’s case, Ground Penetrating Radar to identify subtle and shallow swales around Egina, Chrysos assaying technology to assay order of magnitude larger gold samples (ideal for more accurate grades in nuggety deposits) and the use of mechanical sorting which has thus far produced remarkable results, albeit so far in the laboratory. These are a sample of this principle at work and all are helping us to move our prospects up the value creation curve.

There a few things specific to Novo that motivate me greatly. Having met many small to medium shareholders personally or responding to the occasional email that finds its way out of North America past Quinton and Leo, I understand your enthusiasm and excitement about the story and how much it means financially. I am very focused to make this work and not let you down. I am also acutely cognisant of the reputational risk Quinton is taking pursuing such an unusual gold story and so I really want to prove this thing is real and commercial for his benefit also. Quinton’s been responsible for finding more gold than most geologists would in 5 lifetimes and he’s just getting warmed up, but it’s funny how you can be a successful geologist your whole career however one very public failure could have you tarred and feathered. It takes courage to put yourself out there and publicly promote an unusual geological system and with a bit of luck and a tail wind we hope to prove that his Pilbara gold theory is absolutely correct.

When Quinton interviewed me for the role at Novo back in April / May 2017, what Novo had at the time was a modest nuggety resource at Beatons Creek (cynics may say it’s still modest but it now has the critical mass to support an operation and is better understood than ever before). Karratha, Egina and the bigger picture was just a twinkle in the eye.

Returning to the topic of funding, it is an absolute godsend that Kirkland Lake and Eric Sprott et al saw the potential and had the foresight to invest into this story when they did. The capital cycle has little patience for left field big picture stories. The distraction of ongoing fundraisings against a backdrop of an unconventional mineralization style may have hampered the development of what could yet be one of the worlds potentially significant goldfields. Ideally we’ll get into production soon and make our own money to enable us to take the story to the next level.

Before leaving this question, a brief word about the oft underrated topic of culture. Defining our culture was a Novo wide team effort from both HQ and the field. At the end of the day an organisations culture reflects its leadership, so what we did is essentially enshrine Quinton Hennigh’s characteristics into our culture document, then rounded it out with some team interaction definitions to guide how we conduct ourselves. We constantly hold each other accountable to these ideals, we recruit against it and we have regular informal performance reviews against it.

Q: What do you find most exciting with Pilbara and by extension Novo?

A: I love that people believe it isn’t real because it doesn’t fit the normal gold paradigm. I love the simplicity and coherence of the storyline back to the Wits in terms of timing, location and mode of formation. I love the fact that most shy away from coarse gold systems because they are notoriously challenging with respect to resource definition, grade control and reconciliation of mining to processing. Despite these challenges this Pilbara story is impossible to walk away from, owing to the sheer dimensions of it and clear evidence of the existence of gold systems through metal detecting and bulk sampling. Typical gold systems are subvertical and localized whereas the Pilbara conglomerates and their erosional remnants appear to have a very large spatial footprint and are shallow and flat or shallow dipping. Owing to these dimensional advantages the scalability potential in the Pilbara is stupendous. I love the fact that historical technical challenges associated with coarse gold systems could be largely overcome through the intelligent adoption of new technology. I’m excited by the fact that everything I’ve read so far that’s been written by Pilbara prospectors and geologists since the 1880s lends weight to our current geological theories and reinforces why nobody truly understood it then and why it has remained undeveloped ever since. Reading prospectors journals and old stories of the Pilbara gold rush feels like reading through real life treasure maps. For example, government geologist A Gibb Maitland in the 1919 publication ‘The Gold Deposits of Western Australia’ regularly refers to the ‘cement lodes’ (conglomerates) of the Pilbara as being analogous to the ‘banket deposits of the west Witwatersrand’ and that ‘when the economic conditions are favourable these deposits of the Pilbara will one day be mined on a vast scale’. Not only was this written just over a century ago, but also many decades before modern geology and tectonic plate understanding put the Pilbara and Kaapval cratons in the same place at the time of formation of both systems. Remarkable.

Q: What are your thoughts on ore sorting and what impact it might have on economics?

Q: What impact might the “green” nature of ore sorting have on things such as permitting etc?

A: Firstly, we have been advised that we cannot publicly refer to ore sorters as ore sorters, owing to the insinuation that we have defined ore resources at projects at which we are planning to use them. Hence we’ve referred to them traditionally as mechanical sorters – possibly a better name would be sensor based sorters but we’ve adopted the terminology now and we’ll stick with it to avoid confusion.

I have always had an interest in mechanical sorting since it debuted in the industry around 20 odd years ago. The potential for significant changes to mining really appealed, such as reducing mass when hoisting from underground or increasing the effective distance of a processing plant by trucking a high grade rock concentrate over further distances, or changing the nature of the material to impact acid mine drainage issues. It kind of seems to me that for a little capital and operating cost you can accelerate the mineral concentrating work that nature has been undertaking for millenia. Whilst watching developments at other operations with interest I’d never been in a position to test sorting technology, which may be to our favour as my view of the technology has not been scarred like so many other early adopters. Like most new innovations, early attempts proved troublesome and perception suffered through a mismatch of applicability, lack of technical support and impatience of mine owners. From what I have personally observed in the laboratory, I am optimistic that initial sorting issues have largely been overcome by recent step change improvements in scanning technology and computing power. It also appears that our nuggety gold deposits provide an ideal application for this technology. I regularly say to anyone who will listen that nuggety gold may be our worst enemy in exploration but it could well be our best friend when it comes to processing.

So whilst we need to back up successful lab work with larger scale field trials, I’m really excited about the technology and what it could do for economics. The units are rapidly deployable, modular and readily relocatable – ideally suited to deposits of large areal extent where drilling out a conventional resource well in advance of mining could prove problematic. As you mine out an area and the economics are becoming less favourable owing to increasing trucking costs, you could simply pack up the plant and relocate it closer to the operation again. For a field with significant strike length it’s within the realms of possibility to have a series of modular sorting plants at intervals that could be leapfrogged to maintain continuous production as mining progresses along strike. Approvals processes are likely to be significantly simplified owing to the lack of water and chemicals and construction time is nothing like for a conventional processing plant which requires concrete footings and substantial tankage. Not having to construct and maintain a tailings facility is also of significant benefit. Long lead environmental studies are also simplified owing to the lack of requirement for water and chemicals, simplifying hydrogeological studies and stygofauna assessments among other studies. In the modern world of increasingly green mining, I also like the energy savings potential with mechanical sorting, with only the concentrated rock requiring intensive comminution as opposed to the entire rock mass.

Depending upon the size of the unit and configuration, units can be purchased from between $600k and $1.5m AUD, a figure which could be doubled per unit to account for mobilisation costs and crushing and screening infrastructure. Other than crushing and screening costs, operating costs largely centre around compressed air consumption and hence are dependent upon mass pull into concentrates or ‘accepts’. For mass pulls of around 50% costs are typically of the order of $5/t down to very low costs of well less than $1/t for mass pulls of only a few percent, such as we see for Egina and Comet Well / Purdys. Mechnical sorters require the rock to be presented in size fractions, broadly in a rule of threes to ensure effective scanning and particle ejection. The key to the overall costs of the system are related to productivities at various size fractions, with economics similarly impacted by gold recoveries at each size fractions. Note than when you screen and / or crush a body of rock to say a top size of 50mm, you will inevitably generate an amount of fines (around 30% is a typical outcome). So mechanical sorting is less likely to currently be a suitable solution for gold systems characterized by fine gold particle sizes and where a great deal of the gold is contained within the finest size fraction. Conversely, where coarse gold can be found within larger dimensions of rock, the results are likely to be more favourable. This is why Novo is particularly excited about the results we have seen for Egina and Comet Well / Purdys as they tend more towards this latter category. Comet Well / Purdys is an interesting case as we believe the vast majority of the fine gold to be encased within a halo directly surrounding the coarse nuggets. So the game here is trying to keep the primary feed to the sorters as coarse as possible to maximise capture of fine gold proximal to the nuggets, which is a stark change to the usual goal of crushing being to make the rock as small as possible for the least total cost.

So what concerns me about mechanical sorting ? That the existence of an abundance of very fine gold that cannot yet be recovered by sorting may still require either conventional forms of processing with chemicals and water, or other forms of wet or dry alluvial processing. If we generate too many fines through screening and crushing the productivities will suffer, requiring more sorters and hence more capital – though it would be inconceivable that this could tote up to the cost of a conventional processing facility. With nuggety gold systems such as Egina and Comet Well / Purdys, it may yet be the case that scalping off the nuggets greater than 1mm with sorting technology could recover the vast majority of the gold by weight and represent the optimal financial outcome for the deposit.

When it comes to the less nuggety deposits, we’ve been greatly encouraged by the ability of sorting to increase gold grade. We’ve used Beatons Creek as a proxy for all such deposits as it is the best understood and has areas that can be readily accessed for sampling. We will conduct similar testing on other conglomerates as we learn more about them and are able to select appropriate sample sites. For these types of conglomerates, best results were achieved when shooting on density, targeting denser minerals of the matrix as well as gold itself. Admittedly the concentrating process does leave appreciable gold behind in the reject pile, however despite this we still see significant strategic potential. Increasing the grade increases the effective radius of an existing processing plant, meaning that we can truck material from further away to be processed. It may allow us to undertake early mining from distant conglomerate deposits as a way of quickly mining a very large scale bulk sample to prove up the grade and reduce risk ahead of constructing a processing plant at the site, all whilst generating cashflow. Assuming the economics stack up, the initially rejected gold could then be fed into the subsequently constructed plant. For a company looking to grow its production profile across mutltiple plants from multiple deposits this allows a very intelligent and risk managed approach, whilst maximizing the capital efficiency of the first processing plant. Please note that this represents a conceptual approach only for deposits that we are only just starting to come to grips with such as Contact Creek and Virgin Creek and whilst their strike extents could indeed be substantial, we are at a very early stage of exploration and understanding of these prospects.

Q: How would a theoretical production flow sheet look that involves ore sorting?

A: Ahead of sorting would be crushing and screening operations (or in the case of the Egina gravels likely just screening with a discharge belt detector to capture very large nuggets). The various feed sizes would report to an array of mechanical sorting plants, with the width of the array designed to match incoming mining productivities and the depth of the array to either scavenge missed gold from the primary sorter or further purify the gold from the primary sorter. Depending upon the properties of the resulting concentrate, it could either be processed to a gold bar in-situ (induction furnace or other) to trucked to a distant processing plant as high grade plant feed.

Q: Are there any mineral sands operations akin to what could be expected at Egina that are permitted in WA? What mining techniques are being considered for Egina ?

A: Yes, WA has significant mineral sands deposits, which like Egina and the marine terrace geology models are typically spatially expansive and flat, shallow lens-like features. These are typically mined with either scrapers or conventional digger / truck configurations and regularly involve progressive rehabilitation practices concurrent with the mining.

At Egina, there exists potential for remote continuous miners to be deployed for the marine terrace gravels, depending upon the grade and continuity of the mineralization. The golden rule in low grade alluvial systems is to handle the dirt as little as possible (ideally only once), thereby minimizing labour and operating costs. Our base case would be the conventional use of diggers or scrapers, indeed any trial mine is likely to involve this conventional technology and require rehandling of the waste to rehabilitate the mining areas. During initial mining we would gain a better understanding of gold deportment and shape and continuity of the geology, which we can then use to assess the potential for continuous miners. Conveyors linking an excavation unit and a non-mobile processing facility are also under consideration to remove the need for trucking, which also better allows for a larger more permanent plant to be constructed should the degree of fine gold in the system warrant it. The use of continuous miners is something that we have been considering as it removes one element of rehandle and we would regard this as an engineering upgrade over a simple and conventional solution. If continuous miners and mechanical sorters can be combined into a mobile production unit, the waste material can be returned to directly the ground behind the unit without the need for rehandling.
All options are the subject of ongoing scoping study level financial assessment in parallel with geological exploration works.

Q: What are the requirements in order to be allowed to start large scale bulk sampling or mining any of these conglomerate/lag gravel deposits? Do we need 43-101 reserves and a Feasibility Study for example?

A: ‘Bulk samples’ of up to around 20,000t for a tenement can typically be undertaken through a system of Program of Works approvals, approved by DMIRS generally within the same month as application, which come with a list of operational compliance requirements provided all heritage clearances are in order. As a general rule, the more advanced you are with your environmental studies and the better you have established credibility around professional land care and rehabilitation processes the more likely you are to receive a positive result. Complications arise where crushing and / or chemical processing is required at site, necessitating approvals from both DMIRS and DWER, often with long lead times of well over a year. Hence despite mechanical sorting not requiring water or chemicals, if it requires a crushing plant it attracts a higher level of approval scrutiny and can result in significant approval delays. Approvals for more substantial bulk samples or trial mining packages of around 100,000t would require special ministerial consent, of which there are numerous examples in WA and should not be overly controversial for deposits such as ours. Novo regularly engages the regulators to keep them informed as to our exploration progress and likely development pathways. As a result, our relationship with the relevant regulators remains positive and constructive.

People are often mistaken that a resource report is required to advance a project. In fact a mineralisation report is the minimum requirement when applying to change the lease status from exploration to mining. It should be remembered that when companies publish traditional resources, they are extrapolating data from sparsely located and infinitesimally small data points from which to assess critical geological and metallurgical information, with results frequently vastly different once in production. Having a resource statement is the more traditionally understood path to production and arguably lowers project risk, however Novo’s projects are far from traditional and inherently reduce operating risk owing to the unique geometry and metallurgy of the deposits. In their favour, they are typically outcropping (allowing bulk sampling) shallow and shallow dipping (not requiring large pre-strips) and have substantive outcropping strike lengths (annual vertical drop down is reduced so any changes to metallurgy and grade with depth can be managed). Further, in deposits where the nuggety nature appears to be more extreme (Egina / Comet Well / Purdys so far) and does not reward conventional exploration by drilling, it appears that these prospects are more amenable to simple, modular, relocatable low cost processing routes.

Prior to commencing full scale sustainable mining and processing operations, a mining proposal and mine closure plan must be submitted for approval and will only be assessed if it can be demonstrated that a Native Title Mining agreement exists between the parties, which defines specifics around royalties payable to Native Title parties, employment and other business opportunities available etc – similar in many ways to North American First Nations agreements

Q: How do you see your relationship with the aboriginals? Good? Bad?

A: We maintain very solid relationships with a number of Native Title parties across the Pilbara. We believe this is attributable to being consistent in our approach to exploration and land care, being patient, respectful and understanding and patiently allowing time to build relationships and trust. We’ve worked hard internally to establish procedures and protocols to ensure we undertake rehabilitation works professionally and in a timely manner and maintain significant heritage site avoidance processes to make sure nothing occurs to break the established trust. We are very fortunate that we have the capacity to maintain permanent in-house resources to oversee native title relationships and environmental stewardship, which complemented by specialized external assistance allows us to adopt a really professional approach in this area.

… That concludes Part 1 of the Q&A with Rob Hymphryson of Novo Resources

Rob in Action

Note: This is not investment advice. Always do your own due diligence. I am a shareholder of Novo and the company is a banner sponsor.