Analyst's Notes: Report Card & Learnings Part 1 - February 2024

Introduction

Crux Investor published its first Analyst’s Notes in January 2021. In four months from January to April 2021 five companies came into the spotlight. Developments in the mining sector progress slowly. Now that about three years have passed, perhaps it is time for a review of those early reports? Did the Analysts get it right or wrong?

Obviously, the wider context of the past three years is one of stress in the resources sector. Capital availability has been poor apart from in a few hot commodities such as lithium or uranium. The share prices of many companies, whether junior or major, are down. In a sector-wide downturn such as has been experienced in the past three years company share price performance will be skewed to the downside. That is to be expected. 

Analysts’ Notes, however, always focus on the technical detail or the structural issues within a company. The reports are a bottom-up, not top-down, analysis. This update will focus on the technical detail and the status of the projects and the progress over the past three years. The five companies in question were Excelsior Mining, New Found Gold, MAX Resources, Harte Gold, and Novo Resources. In early 2021 all of these first five companies were viewed with, at best, caution. The report below reviews the progress made by each of the companies in the past three years. With the benefit of hindsight we also look at the ‘So What?’ and draw general conclusions from these case studies.  

Spoiler alert, we were right. Even though we say so ourselves, our performance has been pretty good. Readers who acted on the observations and conclusions of the Analyst Notes would have saved money. As you know the Crux Investor analysts work anonymously. This means that when we write reports that are critical of companies we are spared the online abuse and death threats that seem to be a feature of modern life. We write rationally and with logic, to the best of our abilities. Matthew Gordon has to soak up the loathing and opprobrium that is heaped upon the reports, and we thank him for that cover. 

For all the trolls and haters out there – we told you so. For everyone else, we hope you enjoy the update and the lessons learned that can be applied to your investing strategy going forward. 

Excelsior Mining

Analyst’s Notes Summary

Excelsior Mining ("Excelsior) (OTCQX:EXMGF) (TSX:MIN) (FSE: 3X3) is a company that developed the developed the Gunnison copper project in Arizona.  What set this project apart from other copper projects was the fact that copper would be leached in-situ with the pregnant solution pumped up and treated in a solvent extraction-electrowinning (“SXEW”) plant on surface to produce cathode copper that would be directly marketable.  

At the time of Analyst’s Notes publication on 27 January 2021, the company had declared first production, but was reticent about statistics.  It piqued the interest of Crux Investor and caused it to look deeper into the project.  

Whereas leaching of copper is a proven technology at surface for broken rock on leach pads, in-situ leaching requires a number of pre-conditions to make this successful.  Crux Investor warned about the following issues:

• Copper must be present in minerals amenable to acid leaching.  Any copper in insoluble form does not count towards production.
• No other minerals that consume acid should be present in meaningful quantities, otherwise acid consumption (and overall acid cost) will be prohibitive.
• The deposit must be below the water table, otherwise the injected solution will drain down to the water table. 
• The copper mineralisation must occur in permeable rocks with manageable fracturing and flow dynamics so that the leaching fluids can access the copper across a sufficient rock mass. 
• The deposit would ideally be encased in impermeable rocks to minimise leakage of acid or pregnant solution away from the deposit.

Review of the deposit, being a skarn (a type of altered carbonaceous rock), indicated that there was a risk of carbonates and iron oxides present, with its implications for acid consumption.  It was also noticed that the mineralisation was concentrated in zones with higher fracture density.  In practice fluid movement will prefer the pathways of least resistance, so-called channelling.  The geological model and cross section for fracture Intensity presented by Excelsior clearly point to the risk of channelling, both along bedding and especially along steeper fault structures.  Channelling would greatly reduce the amount of recoverable copper by sterilising large volumes of low fracture Intensity mineralisation from being exposed to the acid solution.

Had the company tested their in-situ leaching concept using a pilot project and demonstrated its applicability, all would have been fine.  However, the project’s go-ahead had been given purely on forecast metallurgical recovery based on laboratory tests combined with simulation models.

At the time of report publication there were already ample warning signals with the company having changed their production wellfield configuration and other measures to “assist in acid breakthrough and continued copper mobilization.  Breakthrough will be achieved when free acid is detected at designated recovery wells; thereby maintaining the desired pH level (acidity level) where copper will remain in solution”.  The wording clearly pointed to acid being consumed and the injected fluid not being able to reach extraction wells.  Crux Investor concluded with the advice Caveat Emptor.

Subsequent Developments 

Figure 1 shows the share price performance since publication date, January 2021.

The graph shows a decline from around US$0.85 to currently US$0.13 with most of the collapse in price occurring before the end of June 2022.  It reflects the inability of the project to produce copper.  

Excelsior initially put a brave face on things, asserting the problems were temporary due to the formation of CO₂ in the wellfield which occurs when the acidified raffinate comes into contact with secondary calcite within the permeable fracture system.  This confirmed the concern of Crux Investor about the presence of carbonates.  

Excelsior planned to overcome this problem through the design, construction and operation of “a raffinate neutralization plant”.  The implication for acid consumption is carefully avoided.  The company received an amendment to the permit from the Environmental Protection Agency on 26 May 2023 to allow “well stimulation”.  Noticeable is that management explained the lack of flow through on the presence of CO₂.  It remains questionable whether the “stimulation” will solve the problem.  It is Crux Investor’s opinion that lack of permeability and channelling are issues that will continue to affect the project.  According to the latest Management Discussion and Analysis (“MDA”) report well stimulation should start in the first half of 2024.  Progress is obviously extremely slow.  

Despite management still holding out the prospect of restarting injection operations, it seemed to realise that it needed to re-strategize by restarting conventional open pit mining and heap leaching of the old pits at Gunnison.  It had drilled these by mid-2022 and completed a preliminary economic assessment assuming employing the Nuton^TM copper sulphide leaching technology of Rio Tinto for a 77% recovery.  It remains to be seen whether or not these resources are of economic interest. 

Naturally, the financial situation deteriorated dramatically with Excelsior forced to placeequity in 2021 for proceeds of US$23.3 million.  Despite this, the financial year ending 31 December 2021 showed negative equity capital of US$43.3 million.  This was due to liabilities related to the sale of a metal stream valued at US$65 million to Triple Flag Mining Finance Bermuda Limited (“Triple Flag”).  The stream was supposed to be serviced by selling a “percentage” of refined copper at a price equal to 25% of the copper spot price.  During the first stage of production, the percentage was 16.5%.  The stream is not subject to interest payments and is unsecured.  The fair value of the derivative was established using a Monte Carlo simulation model, which arrived at US$149 million in 2021, dropping to US$101 million one year later and US$95 million by 30 September 2023, the latest available financial statement.  With the cash balance dropped to US$4.6 million and the company unlikely successful with another share placement, the future looks very bleak.  

Crux Investor Analysts Self-Assessment and Take-Aways

Crux Investor Analysts got this one right. Although in situ leaching can work in some environments, it remains very site-specific. Host rock chemistry and fluid pathways need to be fully de-risked. Pilot plants are essential. Watch out for Companies adjusting work plans away from the Feasibility Study, irrespective of whether it is an ISL or conventional mining project. Watch out for Companies cutting corners in a rush to produce in all but the very simplest of development scenarios.

New Found Gold

Analyst’s Notes Summary

Whereas the first note on New Found Gold Corporation ("New Found”) (OTC:NFGFF) (TSX:NFG) was issued on 8 February 2021, Crux Investor has revisited the subject in 6 May 2021 and 21 July 2022.  

The company has been on a very intensive drilling campaign of the Queensway Project in Newfoundland, Canada, since mid 2020.  Gold mineralisation is present along a number of fault structures, the main ones called Appleton Fault Zone (“AFZ”) and Joe Batts Pond Fault Zone (“JBP FZ”), which strike NNE-SSW and with indications of better mineralisation where NE-SW striking structural zones cross cut.  Initial focus was on the Keats Main Zone.  The company had reported here spectacular grade intercepts.  It had caused the share price to dramatically increase in in a couple of months with the market capitalisation reaching C$0.51 billion by February 2021.  This converted at the time to an estimated US$1,000/oz of the gold content based on a back-of-an-envelope estimation.  Crux Investor warned that the market was getting ahead of itself.  

By May 2021 the market capitalisation had risen further to C$0.91 million (US$1,220/oz) on the back of more very good headline results.  By generating its own cross sections Crux Investor found the mineralisation to be limited in size and again warned that the valuation was excessive.  

When Crux Investor revisited the project in July 2022, the share price was C$5 after peaking above C$13 in mid 2021.  The market had become somewhat sceptical about a company that kept on drilling /for years (with up to 14 rigs!) without being able to come up with a resource estimation.  The Analyst’s Notes of July 2022 concluded that, of the numerous deposits drilled, only the Lotto Zone, Golden Joint Zone and Keats Zone appear to be of potential interest.  The dimensions of these deposits would at best support mineral resources of 1.0 million ounces (“Moz”).  This converted at the time the market capitalisation to a valuation of US$660/oz, which was still excessive.  

In all its reviews Crux Investor found that New Found Gold:

• Made it very difficult for an outsider to get a view on the true potential of the mineralisation drilled.  No comprehensive drillhole collar locations plans are given, no cross sections are presented which clearly show consistent mineralisation, borehole numbering is sequential and does not distinguish between deposits, the drilling sequence is chaotic without systematically testing the deposits. 
• The company is front-running good results. From logging intersections with visible gold are identified and their assaying expedited to be mixed in with earlier, much less attractive results.  The company in its news release only gives “highlighted” results with much prominence for the expedited result of the visible gold section. 
• There is evidence of the drilling revisiting a previously high-grade block by drilling only a few metres away.  This guarantees good headlines for subsequent press releases.  In general drilling is very wasteful with holes drilled at very short distances from each other, not contributing in a meaningful way to adding resources.

Subsequent Developments 

Figure 2 shows the price performance since the first Analyst’s Notes on the subject in February 2021 and indicating when the updates were published.

The graph shows the typical sharp initial upswing of the Lassonde Curve and the subsequent sharp drop as reality sets in. 

Since the second update report New Found Gold has kept releasing drill results in the same manner.  Some names stopped cropping up; examples are Golden Joint, Little, Zone 1744, Pocket Pond, Cokes, Road Target, the Dome Target.  Instead, new names appeared, the most important being Keats North, Keats South, Keats West, Lotto North and Iceberg.  Noticeable is the absence of drill results for deposits along the JBP Fault Zone, which Crux Investor had determined in the second update note to be of no economic interest.

The company also started drilling tens of kilometres south-southwest along the AFZ where it found mineralisation at areas with names such as Devils Pond, Nebula, Astronaut, Goose, and more.  

Figure 3 is a slide from the latest corporate presentation showing a plan identifying the relative locations of the various deposits along the AFZ in the north.  The plan also illustrates the drill density at the various targets.  

The plan illustrates that Keats Main, Iceberg and Lotto feature prominently in terms of drilling.  However, a review by Crux Investor of reported results between August 2022 and December 2023 did not show an obvious addition to the dimensions of mineralisation that was identified in the second update report as potentially of economic interest.  Apparent from these results are isolated blocks with exceptionally high grade, mostly in very narrow intervals but for which the reported grades have been smeared over much wider distances.  

By 3 January 2023 New Found Gold has completed 319,000 m of drilling of the “current diamond drill program” without being able to generate a mineral resource estimate.  It announced on that day an expansion of the programme from 500,000 m, which allowed the company to postpone the release of a mineral resource estimate for another extended period.  It does not speak for the company’s confidence in the project when it does not generate a maiden mineral resource estimation for Keats Main and Lotto, the deposits it has drilled in most detail, but rather keeps plugging holes in a chaotic fashion along the whole Appleton structure.  

Nothing has occurred since August 2022 to change Crux Investor’s opinion about the over-valuation of New Found Gold which had a market capitalisation of C$858 million on 16 February 2024.

Crux Investor Analysts Self-Assessment and Take-Aways

Crux Investor made a largely correct (negative) assessment of the drilling and resources challenge facing the New Found Gold. Eye-catching grades at Keats Main, Iceberg, and Lotto go some way to mask these fundamental issues. Thanks to headline good grades, the share price has held up well relative to peers despite falling on an absolute basis.

As a general point, this case study will hopefully remind investors that drilling structurally complex and highly deformed gold deposits is extremely difficult. Very high drill densities are required and resources are hard to define. Investors should watch out for missing drilling data and the non-arrival of promised technical reports. What is not reported is sometimes just as important as what is reported.

MAX Resources

Analyst’s Notes Summary

Crux Investor published an Analyst’s Notes on MAX Resources (“MAX”) on 8 March 2021, with an update on 14 August 2022.  

MAX is active in Colombia and has a history of announcing being involved in exploring deposits with mega scale potential: Witwatersrand style gold deposit, copper porphyries, Kupferschiefer style massive sulphide deposits and, finally, African Copperbelt style copper deposits.  

A review of the exploration activities indicated however that none of the discoveries that were announced under banner headlines were systematically tested with the company continuously moving to another “discovery”.  By the time the company at last settled on an exploration target called URU that received more systematic sampling and geophysical survey attention, the type of deposit was no long of mega-scale potential, but tectonic structures with good copper showings.  

In the update note the Crux Investor analysts were divided, one emphasising the exceptionally poor exploration progress made over such an extended period (since 2019) by management that favoured a scattergun-and-hyperbole approach, the other analyst open to the upside potential of the African Copperbelt type exploration targets for a company with a diluted Enterprise value of only C$40 million.

Subsequent Developments 

Figure 4 shows the share price performance of MAX since March 2021.

The drilling programme at URU finally kicked off on 11 October 2022 with results announced on 24 January 2023.  A total of 14 holes were drilled from seven drill pads testing two targets 750 m apart.  According to MAX six holes intersected “significant” copper silver mineralisation for which it provided two cross sections with only 4 holes, which are reproduced in Figure 5.

The top cross section shows how two holes were directed almost immediately under a sampled outcrop and in very close proximity of each other.  The drilled grade intervals are much lower than the average assays for the outcrop.  The interpreted outline of the mineralisation makes little sense as the indications are for a subvertical structure.  The high outcrop copper grade is possibly due to leaching and redeposition of copper down dip of the outcrop of the mineralised structure.  

The bottom cross section has two holes drilled from the same platform testing the target over a very limited extent.  The grades were at best subeconomic.  In conclusion, the drill results have been very disappointing and give very little information about the type of mineralisation.

MAX went back to the drawing board and commissioned airborne magnetic and radiometric surveys over the entire district and at regular intervals announced new discoveries.  From the share price performance, it seems that the market no longer put much trust in these ‘discoveries” and has kept downgrading the company to its current share price of C$0.095 for a market capitalisation of C$16.7 million which, considering the net current assets of C$7.5 million on 30 September 2023, indicates very little value given to the current prospects of the company.  Crux Investor agrees with the market. 

Crux Investor Analysts Self-Assessment and Take-Aways

Crux Investor Analysts acknowledge that the reports would have been more right if the update note in August 2022 had not contained a whiff of optimism.

The lesson for investors is to prefer junior exploration companies that work with integrity. By integrity we mean straight-forward communication and systematic work. Support companies that offer transparency and good reporting. Exploration carries risk. It is a high-risk business. That is understood, and geological risk in exploration cannot be avoided. Given that the business model already carries significant risk, a good investor will limit other risks as much as possible. The case study here suggests you should avoid management teams that tout belt-scale discovery without substantiation. 

Harte Gold

Analyst’s Notes Summary

When Crux Investor published the Analyst’s Notes on Harte Gold Corporation (“Harte”) in April 2021 the company was already in trouble.  Harte had given the go-ahead to develop the Sugar Zone mine on the basis of a preliminary economic assessment (“PEA”).  Construction started in February 2017 and commercial production declared on 1 January 2019, months later than planned.  The declaration must be seen as very artificial, probably to prevent loan covenant breaches, as production during H1 2019 fell far short of plan with total mined production of 75,000 tonnes, which is less than half the rate envisaged for 2019 in the PEA.  

A review of the suggested operating cost rates in the PEA compared woefully low to benchmarked Canadian operations that also mine narrow gold structures.  Actual operating cost was almost double from forecast, partially explained by the much lower production rate.  Harte management sought to solve the problem by expanding production to benefit from economies of scale.  Referring to the findings of an Analyst’s Notes dated March 2021 on guidelines for operating cost and sustaining capital expenditure for underground Canadian gold mines, Crux Investor found that sustaining capital expenditure forecast for the expanded scenario was far too low.  Moreover, referring to a cash flow-feed grade function contained in the same March 2021 Analyst’s Note, it was observed that the planned feed grade of 7 g/t Au is uncomfortably close to the 4 g/t Au feed grade below which the 17 Canadian underground mines are not able to generate positive cash flow.  And this grade threshold is for mines with deposits of much larger width than the Sugar mine deposits.  

The report painted a bleak picture for the prospect for Harte.

Subsequent Developments 

The company did not manage to grow itself out of trouble.  Being in poor financial health affected the recruitment and retention of staff and the ability to repair and maintain equipment.  

When it announced the financial results for Q1 2021, the company also had to push out the planned throughput of 800 tonnes per day (“tpd”) from Q1 2021 to Q4 2021.  The impact was a downward change in production guidance of 10,000 oz for the year and revenue shortfall of C$22 million.  Concurrently with the press release of the Q1 2021 financial results, Harte advised it had started a “Strategic Review Process”.  The Strategic Review Process purpose was to identify other sources of funding.  

In the last quarterly period for which there is a Management Discussion and Analysis (“MDA”) report, Q3 of 2021, the production rate was with almost 71,000 tonnes at a grade of 7.1 g/t actually at a record.  Despite it being almost on target and with record gold production, cash flow from operations minus investments was barely positive and negative after servicing debt.  The financiers pulled the plug and on 7 December 2021 Harte Gold was granted creditor protection by the Ontario Superior Court of Justice and the Toronto Stock Exchange suspended trading of Harte shares.  

Silver Lake Resources (“Silver Lake”), an Australian listed company, purchased all the shares of Harte, which became a wholly owned subsidiary.  The company was granted in October 2022 an exploration permit and has been exploring the Sugar zone by drilling from surface and underground.

Crux Investor Analyst Self-Assessment and Take-Aways

It was crystal clear to us that Harte Gold was a disaster in the making. We got the call right.  The story of Harte Gold is a cautionary tale that encapsulates everything wrong in attempting to turn around a too-narrow deposit with a too-short strike length requiring an excessive amount of development to ever be economic

Harte Gold made a critical blunder by starting to build a mine without doing the appropriate preparatory work. In theory a company that skips the well-trodden de-risking steps of PEA, PFS, and FS invites disaster. Harte Gold proved the point. The time and financial cost of doing good study work is nothing compared to the time and financial cost of making serious mistakes in the build phase.

Within the general ‘it was a stuff-up’ narrative other details emerge. Benchmarking of capital and operating costs remains vital. Beware companies that promise below-industry cost performance, especially single-asset companies making the transition from exploration to production. And a final point is that starting small to generate the capital to scale up production is highly risky. It works so rarely that a wise investor will give companies with a start small strategy a wide berth.  

Novo Resources

Analyst’s Notes Summary

In September 2020 Crux Investor published a comprehensive review report on Novo Resources Corporation (“Novo Resources”) (TSX:NVO), which included a valuation of their Beatons Creek project.  The report was highly sceptical about the merits of the Pilbara conglomerate prospects, but gave the Beatons Creek project the benefit of the doubt, the only property for which the company could release a resource estimation. 

On 31 March 2021 Novo Resources published the results of a preliminary economic assessment (“PEA”) on Beatons Creek which gave it an after-tax NPV₅ value of US$250 million, which was less than half the market capitalisation of US$538 million of the company on that day.  This confirmed Crux Investor’s conclusion of September 2020 that “the underlying assets do not get nearly close to that (Enterprise) valuation”.  For its conclusion Crux Investor had used a discount rate of 7.5%.  It meant that Novo Resources itself confirmed the extent by which the company was overpriced.

Drawing on the PEA press release Crux Investor published a report dated 14 April 2021 before the technical report became available.  The most important insights were:

• The amount of dilution was severely underestimated placing a big question mark behind the assumed PEA feed grade.
• The higher dilution proposed by Crux Investor would drop the annual gold production by 18% and extend the life of mine by almost 2 years to 8 years.  
• The cash cost (“CC”) calculated by Crux Investor was US$209/oz higher than quoted in the PEA.
• The drop in net present value suggested in the PEA by discounting at 5% was only 4% lower than undiscounted cash flow, something which is mathematically impossible because of the compound nature of discounting.  
• The much lower NPV value derived by Crux Investor must be seen as optimistic as there were a number of red flags associated with the resource estimation. The red flags included: the bulk sample exercise in 2018 giving a much lower overall grade than the block grade for that area; difficulties mining a horizon that is indistinguishable from the horizons above and below; difficulties controlling dilution under mining conditions; and the impact on operating cost of such problems.  

Subsequent Developments

Whereas first production was achieved in Q1 of 2021, it was obvious that production was not straightforward, something management indirectly acknowledged by having embarked on a “grade control and resource upgrade reverse circulation drilling” exercise at 20 x 20 m spacing throughout the entire Beatons Creek project.  The spacing would be reduced to 10 m x 10 m “in more geologically complex areas”.  

Matters did not improve much in the following quarters, but Novo Resources declared commercial production on 1 October 2021, but this was pre-mature and must be seen as a face-saver.  For commercial production to apply the project must substantially meet planned levels in terms of throughput, grade and recovery.  Not what Novo Resources put forward as it being “a matter of significant judgement”.  

Table 1 compares actual production to planned as per PEA.

The table illustrates that production was disastrously below plan, mostly because the feed grade was very much below plan.  Lower feed grades point to dilution being much higher than forecast.  Novo Resources did not report any numbers for mined production apart from a statement in the MDA report for Q3 2021 in which it was mentioned that the strip ratio had stabilised around 1.7:1.  This was very much lower than the planned strip ratio of 4.4:1 in year 1 and 8.0:1 in year 2.  The implication is that operating costs were held artificially low by cutting back on waste stripping.  

The Q3 2021 MDA report illustrated once again a lack of transparency from Novo Resources management.  After that, things got worse. From August 2022 production wound down and ceased in October 2022 due to depletion of the oxide resource.  The permits for production from the sulphide resource production were awaited.  This is an illustration of management incompetence. 

Given the production performance the update mineral resource statement, effective 30 June 2022, with Indicated Resources with an average grade of 2.4 g/t Au and Inferred Resources with 1.6 g/t Au should be approached with great caution.  The cut-off grade used is 0.5 g/t Au, which equates to a value of US$18.43/t given the assumed gold price of US$1,680/oz, recovery of 91% and dilution of 25%.  Considering that mining cost is US$3.54/t and processing (incl. G&A) US$24.94/t, the cut-off grade is far too low.  It is another example of the rubbish produced by the consultants used by Novo Resources.

Due to the poor operational performance Novo Resources burned cash badly: in 2021 there was a C$27.4 million outflow before financing activities and in the nine months until 30 September 2023 operational cash outflow was C$28.2 million.  However, the company managed to increase cash on hand from C$32.3 million to C$65.2 million at 31 December 2022, because of selling a fortunate investment in New Found Gold Corporation (“New Found”), which share price had rocketed on the back of hype about their Queensway exploration project in Newfoundland, Canada.  This once-off windfall will not be repeated, confirmed by the cash balance declining to C$16.4 million as at 30 September 2023 despite raising C$15.5 million via equity funding. 

With Beaton Creek proven to be unfeasible it is not surprising that Novo Resources started casting around for other exploration targets about which they could make a song and dance to keep their shareholders interested.  It is beyond the scope of this report to discuss the numerous prospects, but Figure 6, extracted from the latest available quarterly report dated 30 September 2023, shows the widely dispersed targets in the Pilbara area in northwest Australia to illustrate the shotgun approach taken by Novo Resources.  

After Q3 2022 initially much was made about Cu-Ni targets at Purdy’s North, gold targets in the Becher area, and drilling deposits in the Nugalline.  The prospect map above no longer highlights Purdy’s North and all focus is now on Egina, where De Grey Mining Limited (“De Grey”) assumed management control, Nunyerry North, targeting orogenic gold and the Belltopper Gold project in Victoria (not on the map).  This indicates that Nullagine has been downgraded as a priority as well.  

Figure 7 shows the share price performance of Novo Resources since September 2021 clearly demonstrating that the market slowly lost faith in the company, something that announcements of exploration successes could not reverse.  The loss of faith in management is fully endorsed by Crux Investor.  The manner in which the Beatons Creek project was advanced and operated should be a case study of incompetence in the mining sector.

Crux Investor Analyst Self-Assessment and Take-Aways

Although it may be unbecoming to say “I told you so…”, this is one of those times when it bears repeating. I told you so. Getting the call right was straightforward, and yet the publication of the note caused a furore. Crux Investor received significant abuse for pointing out what seemed to us to be obvious. 

The many red flags in Novo Resources can be put into one of two categories - quantitative and qualitative. Both of these kinds of problems can apply to other companies as well. 

The quantitative red flags include problems such as a PEA or technical study NPV being much lower than the market capitalisation of the company in question.  Remember that studies at the PEA stage are a relatively high-level view of a project and expensive technical details typically emerge later if the benchmarking exercise is not complete, conservative, and robust. Other qualitative problems include not hitting plan or guidance figures. Keep an eye out on strip ratios, feed grade, tonnage rates, and recoveries. 

The qualitative red flags include a lack of transparency in reporting. Examples are a lack of technical details in news releases, as well as non-publication of reports that were promised. Constant shifting of the spot-light from prospect to prospect or project to project is also problematic. You have been warned.  

Investment Return Since Publication Dates

The table shows the total return and the compounded annual return.  In green are the numbers where Crux Investor got it correct and in red where we got it wrong.  Crux Investor got the initial call on New Found Gold wrong as our negative view was made during the initial stages of excitement around the company.  Crux Investor is confident that it is only a matter of time before New Found will trade below C$3.46 per share.  

The compounded return is holding for the full period until 3 February 2024 and should be seen as minimum return.  In reality, a reasonable investor would have disposed of the share much earlier after it had become evident the bet was on a losing horse, or rather donkey.

Conclusion

This update report shows that Crux Investor analysts have a good track record of spotting problems in companies. Mining is a difficult and complex industry that comes with many technical challenges and risks. Investors and analysts will be right more often than not by taking a cautious and conservative approach to investing in the junior end of the resources sector. 

Investors are advised to not own shares in companies that start on a journey to production without thoroughly de-risking the asset by doing good quality technical work. Watch out for short-cuts, as they rarely pay off. Once in the commissioning or production phase, keep a close eye on actual versus forecast performance. Avoid companies that frequently hop from one prospect to another while making claims that the new prospect is fantastic and failing to give update details on the old prospect. The best projects retain management attention, and yield resource updates and steadily advancing technical reports. Such projects are extremely rare.

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