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The New Found Gold Rush

One district in the world is attracting the lion’s share of gold exploration attention these days and it’s Newfoundland.

It started with a famous Yukon prospector called Shawn Ryan and a junior explorer called New Found Gold (TSXV: NFG). Ryan is famous for sparking the modern Yukon gold rush. He staked the property where Kaminak Gold outlined a few million ounces; he optioned projects to dozens of explore-co’s based on his soil sampling grids and novel early exploration approaches, including being a pioneer in drone-based LIDAR imaging and using small, track-mounted drill rigs to get top-of-bedrock samples before committing to a full drill program.

That all happened in the last gold bull market. Even as explorers continued to flock to Yukon, though, Ryan’s attention started to shift. A combination of big picture geologic thinking, a near dearth of exploration, a history of small, high-grade mines, and a population that was generally resource friendly made him wonder about the gold potential in Newfoundland.

I’m not suggesting Ryan was the first. Marathon Gold has been advancing the Valentine Gold project in NFLD for a decade; Valentine now hosts almost 5 million oz. gold and is on its way to becoming a mine. But even though Valentine is a strongly economic asset, it was never an exciting discovery for the simple reason that it’s lower grade (resources average 1.72 g/t gold).

Then along came Ryan, talking about the high-grade gold potential he saw in Newfoundland. Around the same time the New Found Gold team also homed in on Newfoundland, where local prospectors showed them high-grade outcrops and gold-rich boulders and helped them pan gold out of the till in spots all along two major structures.

The duo behind New Found quickly bought and staked ground to establish the Queensway gold project along the Appleton Fault. New Found advanced Queensway privately from 2016 through mid-2020 when it raised $31 million in its IPO and debuted with a market cap over $100 million. Four months and two sets of drill results later, it was worth $590 million.

What gives?

There are a few factors to mention but let me start with geology. In today’s Newfoundland gold rush, the geology term that matters is ‘epizonal gold’, which described a kind of very high-grade mineralization that no one had thought to seek in Newfoundland until now.

That thinking kicked off some 18 months ago, when New Found’s team had respected geologist Quinton Hennigh look at old drill core from Queensway. Hennigh had one comment: “It looks like Fosterville.” He was referring to the uber high-grade Swan zone at the Fosterville mine in Australia. The discovery of Swan brought the entire Fosterville gold district back to life after years of decline by showing the district hosts epizonal gold in addition to the structural gold sought to date. Epizonal gold can be incredibly high grade but to find it requires a different approach.

Hennigh knew the Swan zone well because Kirkland Lake Gold got him to assess the new discovery when the major was contemplating a bid for then-owner Newmarket Gold (the bid happened and the Fosterville mine, powered by the Swan zone, has become the highest grade, lowest cost gold mine in the world).

Hennigh’s thought connecting Queensway and Fosterville wasn’t entirely out of the blue. Academic geologists had recognized for decades the similarities between this part of Newfoundland and the Victoria Goldfields, in terms of lithologies (rock types), grades of metamorphism (how much the rocks have been changed by heating and cooling), mineralogy (both offer a few exotic minerals seen in few other places), and structures borne of continental collisions

But Hennigh was the first to look at rocks and drill core from Queensway and say, “This high-grade gold you’re getting in Newfoundland – it’s the same as the Swan zone at Fosterville. It’s epizonal.”

Epizonal describes a sub-set of orogenic gold deposits. Orogenic deposits are formed during the mountain building the comes from continental collisions; lots of major gold deposits are orogenic. Epizonal orogenic gold deposits formed when the collision creates a major fracture that taps big pools of magmatic fluid at great depth, 5 to 10 km down.

The fracture instantaneously releases the immense pressure in those pools and the fluids rip towards the surface. The incredibly rapid changes in temperature and pressure mean gold is deposited in a flash. Gold is often constrained to relatively small zones in orogenic systems but in epizonal situations the bodies are tiny but very rich.

The gold also sits in the rocks in a particular way: as specks of gold in the middle of massive quartz. In most quartz-based gold deposits the gold sits on cracks or contacts; in epizonal systems it is pin pricks of gold within the quartz.

Epizonal systems also have vugs – openings that happen when magmatic fluids degas – within the quartz. In other orogenic systems the gold deposits a bit deeper and a bit more slowly, factors that together mean there’s enough pressure that openings close up. At Fosterville and Queensway, drill cores show lots of vugs.

Hennigh’s epizonal theory had guided the New Found story since. New Found developed its drill plan based on how Newmarket and now Kirkland Lake search for epizonal deposits in Fosterville. On the marketing side, the New Found story is about an underexplored district with all kinds of high-grade gold that wasn’t understood…until now.

Those first two sets of results lifting NFG’s market cap to $590 million was just the start. If you can believe it, the explorer is now valued at $1.7 billion.

Is that too high? It seems so to me but of course the answer depends on what you are valuing.

If you are valuing what they have outlined at this point, you have to model the zones they have drilled into and estimate ounces. At Keats, closely spaced drilling has outlined 400 metres strike and 425 metres down plunge extent. Assuming an average thickness of 10 metres, Keats currently hosts roughly 1.3 million ounces at 14 g/t gold. Lotto is smaller but similar grade, offering something like 500,000 oz. today.

Just today New Found announced a new zone called Golden Joint located almost midday between Lotta and Keats, along the Appleton Fault. It returned a headline hole of 430 g/t gold over 5.3 metres. With only a few holes reported, it’s too early to estimate ounces.

OK, so based on reported drill results, New Found has outlined a bit more than 2 million oz. A $1.7-billion market cap means the market is valuing each of NFG’s drill-touched ounces at about $800. In situ ounces are usually valued more like $60, and that’s once they’re in a real resource estimate.

Are New Found’s ounces really that much more valuable? They are very high grade and sit in relatively wide structures, which suggests easy mine-ability. But it is SUCH early days that, while it’s always important to talk about mineability, it’s pretty early to talk about mineability…

But the early days factor is also very important in stoking excitement over potential. New Found’s story was never about finding one high-grade zone. It was that the Appleton Fault has the potential for multiple high-grade zones all along. Today’s news about the Golden Joint zone supports that idea

Most of the targets on this map are early. Keats and Lotto have been drilled, obviously. To the southwest, Knob and Letha saw some historic drilling but haven’t been worked by NFG. Everything else is a sampling target.

But Golden Joint was a sampling target until today. In fact, until today’s news, NFG didn’t even have Golden Joint on its target maps!

It’s one thing to make a very high-grade, near surface gold discovery. It’s quite another when that discovery is ridiculously high grade and appears to be one of multiple zones along a structure, the entirety of which is controlled by one company.

Put those things together and you get serious excitement. Now, does NFG deserve a $1.7-billion valuation? I don’t know. Great Bear is valued at less than half that amount and is close to actually defining something like 10 million ounces of high grade and largely open pittable gold, in a similarly workable jurisdiction.

Great Bear has had some very high-grade hits. Why are NFG’s shining brighter? I don’t know for sure. NFG spends more on marketing, of that I am very sure. And because Queensway is now the heart of an area play, there is group momentum behind NFG.

Area plays can do this. The hottest area plays offer a potent combination of factors:

  • Large area that has been chronically underexplored until now, for [reasons]
  • At least one exciting new discovery.
  • New reason to be excited. Possibilities include new geologic theories, new roads, new ability to work the area (politics/permits), new rock exposure (glacial retreat), and new technology to find gold (such as to see through cover rock or gravel).
  • Lots of players, lots of investors, lots of work. The more exploration, the faster the discoveries that are waiting to be made will happen.
  • A few lead explorers with big marketing budgets and good stories to tell.
  • All taking place in a good gold market

Newfoundland has all of these pieces in play. The province has been chronically underexplored, though not for any good reason. It’s really just that no one thought of focusing on it until now. Weird but true. NFG has an incredibly exciting discovery that’s based in a new geologic theory, it spends aggressively on marketing and has polished its story until it shines, and there are now dozens of companies using the new theory to chase high-grade gold in Newfoundland.

That’s a VERY long preface to discussing other players in Newfoundland. But I think it’s important to set the stage because the company leading this area play has an insane market cap based on very high expectations of what they will deliver. They have met those expectations so far but to really live up to a $1.7-billion valuation NFG will have to grow Keats, Lotto, and Golden Joint substantially and will have to deliver several more discoveries along the Appleton Fault.

The very, very high valuation for NFG also raises the bar for others in the area, because this area play is based on uber grade gold. Hitting into less will likely disappoint. That’s supposition, but I think context and expectation matter.

Here’s a map showing the players in Newfoundland. It’s busy and hard to read; to see a zoom-able version online click here.

New Found’s Queensway project is in blue. The next most advanced explorer in the Appleton Fault area is probably Labrador Gold, which has the dark grey property off the northeast end of Queensway. Labrador reported a high-grade discovery in its second set of drill results ((20.6 g/t gold over 3.6 metres) and followed that up with 50.4 g/t gold over 1.9 metres.

With fewer than a dozen holes out, Labrador Gold now has a market cap of $205 million. This is why context matters: if explorers can hit into a high-grade discovery in this area play, the upside is much bigger than usual. From another angle: waiting until a company hits a discovery to buy means it is darn expensive relative to explorers with discoveries in other places.

I get asked all the time which Newfoundland explorers I think could be the next NFG or LAB. It’s not a question I like to answer. Even those who haven’t hit anything yet are well priced. Exploits Discovery (CSE: NFLD) is a good example. Exploits has a large land position in this area play, to be sure (all the red ground in the map), and has defined a list of targets based on high-grade gold samples, promising geophysical signatures, and structural arguments. But they just started drilling. There is no guarantee of success – a large land position with multiple targets is a blessing and a curse, as it could be a while before they test the target that does dole out a discovery – and the company already carries a $100-million market cap.

Exploits could certainly hit into a discovery and vault higher from here. But they also might not.

If you want to find still-inexpensive Newfoundland explorers, you have to go with teams that are not yet ready to drill or those with projects that are not on the Appleton Fault. Canstar, for instance, is the pale pink ground in the bottom middle of the map. They are reasons to believe their ground is prospective and they just started drilling to test those reasons, but it’s not a direct Appleton Fault situation.

Not that the Appleton Fault is the only good ground. Maritime’s great Valentine Lake project is on the left side of the map, at the west end of the Valentine Lake Shear Zone (VLSZ), and you can see companies have staked all along that structure as well. C2C holds a commanding position in that play as do Canterra and Opawica. All of these companies hold much more normal market caps for pre-discovery explorers, in the $15 to $30-million range.

Are their odds of success similar or different from those working right in the Appleton Fault area? I would argue similar, given that (1) the VLSZ is, broadly speaking, part of the same geologic plumbing system as the Appleton Fault, (2) the VLSZ is clearly mineralized, as Marathon Gold’s 5 million ounces of gold attests, (3) there is high-grade gold on the other side of the VLSZ at the Hammerdown deposit, and (4) there is at this moment far more that we don’t know about gold in Newfoundland than we do know.

That last point was the main thing I took away when I hosted a panel of Newfoundland gold explorers a few weeks ago. Many of the companies working in the province have banded together to form Newfoundland Gold, an alliance through which they can share what they are learning about Newfoundland and work together to attract investor attention to the area. I tried to delve into the geology several times with the panel of mostly geologists I was hosting and came away with a strong sense that it is still early days for this gold district and geologists need much more data before they will really know what to say.

There have been small high-grade gold mines in NFLD for years. Why they didn’t attract exploration interest sooner, I have no idea. It’s great that it’s attracting attention now, led by a truly phenomenal discovery at Queensway. How much more will be discovered, I truly have no idea. New Found’s successes at Queensway, the abundance of old high-grade mines, the web of deep-seated structures that all appear to host gold, and the almost dearth of exploration to date suggests there is more gold to be found.

I have exposure through Sassy Resources, which has established a portfolio of promising projects in Newfoundland within its subsidiary, Gander Gold. Gander is spending this season mapping, sampling, running geophysics, and defining drill targets that it will test next year.

If you are looking to add some Newfoundland exposure, here are the things I would keep in mind.

  • Understand plans. The Newfoundland area play is still young so many companies are new arrivals. Is the company going to drill this year? And will they drill one target or several? Or are they still sampling, mapping, etc? Drilling means potential for discovery this year; more targets means more kicks at the discovery can. Earlier stage work means a stock will cost less but you’ll need patience (the market might reward really splashy sampling results but that’s about it)
  • Assess location. Is the project along the Appleton Fault or elsewhere? Projects along the Appleton are commanding higher valuations even before drilling has begun; the odds of success might be higher but there are never any guarantees, and investor expectations are NFG high. Meanwhile, projects elsewhere (along other fault structures or along the VLSZ) are less expensive but still prospective if the team has good data and geologic rationale for their targets
  • Consider valuation relative to the above. A company deserves a higher valuation if it has done the work to define drill targets and is drilling but pre-discovery market caps above ~$40 million carry a fair bit of risk if drilling doesn’t deliver.

I’m sorry if you wanted me to provide straight stock picks for this area play and instead I’m putting that task in your hands. But given the valuations (high if you’re on the Appleton fault) and lack of understanding around how gold was emplaced on the island, I find it hard to see targets that are particularly convincing in companies with reasonable valuations (the most convincing targets are along the Appleton Fault, because that’s the only place with a reasonable load of new information, and those stocks are rich).

As such I’m content to have exposure through Sassy. That doesn’t mean buying a handful of these explorers is a bad idea – it’s probably a good one, actually.

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Great letter this morning Gwen. I am not "all aboard" with your picks but your understanding of how best to manage a high risk portfolio is second to none. And I did buy a lot of G when you made the call and sold it about a month later for a very healthy gain. Thank you very much!
As for "shiny ponies" that are moving on anticipation and will move big on good news, you need to get on the BAY train. Just sayin’..........

-PL (June 7, 2018)

Your "Maven Letter" has totally blown me away! I was thinking one of your letters would be a 2 or maybe 3 page letter about one or two mining companies. Instead, each one is a detailed report. Bravo to you for such great detail.

-CY (February 2021)