Snowline Gold ($SGD.CN) and Nova Minerals ($NVA.AX)  

October 14th 2022

Recently I’ve been thinking about one of the top market darlings—Snowline Gold. After the latest excellent headline sporting a very good hit of 318.8 meters at 2.5 g/t gold, I decided I should write something about it, and try to compare it to a company I see as its more advanced (better?) peer.

If you’re not the reading type–skip to the bottom of the document and you’ll see the Final Recap section.

Snowline Gold

Snowline is a Canadian-listed junior with an already meaty market cap of ~C$375 million (~US$270 million). The company is working on its Rogue and Einarson projects in Yukon. They are adjacent to each other, remote, and cover a huge land package of more than 2540 square kilometers:

Snowline has two discoveries so far—the Valley discovery at Rogue and the Jupiter discovery at Einarson. We’ll ignore Jupiter in this discussion.

Valley is an intrusion related gold system (IRGS). These systems have been formalized and classified fairly recently (last decade or so)—with the bottom line being they’re usually big, in a continental setting, bulk-mineable and mostly carry gold.

Valley has eight drill holes so far, including:

  • V-21-001: 135 meters of 1.09 g/t gold.
  • V-21-002: 136.8 meters of 1.0 g/t gold.
  • V-21-003: 168.6 meters of 1.2 g/t gold.
  • V-21-004: 93.8 meters of 0.77 g/t gold.
  • V-22-005: 331.3 meters of 1.03 g/t gold.
  • V-22-006: 294.5 meters of 0.23 g/t gold.
  • V-22-007: 410 meters of 1.89 g/t gold, including 146 meters of 3.24 g/t gold.
  • V-22-010: 318.7 meters of 2.55 g/t gold, including 108 meters of 4.14 g/t gold.
  • V-22-014: 285.2 meters of 1.45 g/t gold, including 128.2 meters of 2.48 g/t gold (latest one).

Drilling so far hasn’t covered too much space, which can be seen in the graphic below (note the scale):

This hasn’t prevented one of the company’s big shareholders, the ubiquitous Crescat Capital, from touting otherworldly resource size numbers for the project—like 30, 40, 50 million ounces. I’m not mentioning this because I’m salty, or because I don’t think this is a good/great discovery that is also very big. I’m just painting the picture on the “market darling” description from the beginning. I’m also not saying that anyone who says “30 million ounces, easy!” is an idiot.

The potential size of this thing can be seen here:

No question it could be huge. But remember—we’re talking remote Yukon, no infrastructure, and grades which should be between 1 and 1.5 g/t (based on results to date). These grades aren’t low, but not crazy high either for a project like this.

Drill results are also expected from the Gracie target. Success here would most likely send the share price even higher, despite the weak overall market.

That would pretty much be it for Snowline—remote Yukon, bulk grades, no infrastructure, probably very big, nine drill holes, market cap of $250 million and over.

Nova Minerals

Nova is an Australian-listed junior working on its flagship Estelle Gold Trend project in Alaska. Like Snowline’s project, Estelle is also an intrusion related gold system, remote (150 kilometers northwest of Anchorage), and it covers plenty of land (450 square kilometers). Nova is earning up to 85% of Estelle, there’s an airstrip on site and a winter road system to site, and a gas pipe/road in state plan.

Estelle has had two discoveries since 2019—Korbel Main and RPM North. They’re roughly 20 miles apart, which can be seen in the project map below:

The current JORC-compliant resource includes:

Korbel Main:

  • Indicated: 3 million ounces of gold at 0.3 g/t (0.15 g/t cutoff).
  • Inferred: 5.1 million ounces of gold at 0.3 g/t (0.15 g/t cutoff).

RPM North:

  • 1.5 million ounces of gold at 2.0 g/t (0.3 g/t cutoff).

Now, you’re probably thinking “What?! Almost all of the material at 0.3 g/t? In Alaska? Come on!”—but bear with me here.

In February 2022, Nova published an interim phase 1 scoping study (preliminary economic assessment equivalent). Due to JORC regulation, only Indicated ounces are allowed to be considered in scoping studies, so only the Indicated portion of the low-grade, low-strip Korbel Main deposit was considered.

At $1,750 gold, highlights of the study include:

  • Pre-tax, 5%-discounted net present value (NPV-5): $381 million.
  • Internal rate of return: 20.4%.
  • Initial capex: $424 million.
  • Payback period: 3 years.
  • Mine life: 15 years.
  • Average mined grade: 0.44 during payback period and 0.41 g/t over life of mine.
  • Strip ratio: 0.76 during payback period, 1.97 over life of mine.
  • Ore sorting (already tested and confirmed to work) to improve head (i.e mill) grades to 1.03 g/t (during payback period) and 0.70 g/t over the life of mine.
  • 6Mt processing plant.

Now, AGAIN, you’re probably thinking “Come on man. These are crap numbers at an unreasonable gold price assumption. This is going nowhere”—but (please) bear with me here (and you’re right).

For starters, a couple of points:

  • The study was done without considering the high-grade ore from RPM North (see the graphic below the bullet list).
  • The phase 2 scoping study is expected in Q4 2022/Q1 2023, and a pre-feasibility study is expected at the end of 2023 (probably early 2024). The presented capex of $424 million shouldn’t be much different in either of the studies, considering that this phase 1 scoping study is from February 2022.
  • Ore transport methods from RPM to Korbel are being assessed. The company plans to build a slurry pipeline to take advantage of the altitude difference between the deposits. The CEO eyeballs this to be an extra $10 million in capex, but that sounds low to me. Anyway, the capex shouldn’t be much different in the subsequent economic studies.

The second bullet point mentions higher grades from RPM. Here’s the sensitivity analysis, showing how the project responds to changes in different parameters. Note the response to grades, and the “lack” of response to capex changes:

YES, I know it also looks very sensitive to the gold price and the $1,750 assumption is silly. THIS is where we arrive at why I decided to write any of this in the first place. Check  the next page.

So what’s the catch?

Shortly put—I think there’s solid potential this project looks completely different in the following studies. I also think it has huge (potential) exploration upside. I base this stance on:

  • Already reported results.
  • Speculative part of the story.
  • Comparison to Fort Knox (Snowline also uses Fort Knox for comparison).

Already reported results

The current 9.6 million-ounce resource was reported in December 2021. In 2022 so far, a drill program mainly focused on RPM has been in progress. Reported drill holes so far include:

  • RPM-008: 140 meters of 6.5 g/t gold (from 44 meters), including 24 meters of 24.7 g/t gold (infill around the earlier RPM-005 hole which yielded 373 meters of 3.8 g/t, including 132 meters of 10.1 g/t, and was included in the initial RPM resource—this hole RPM-008 yielded 260 meters of 3.6 g/t gold overall).

  • RPM-010: 168 meters of 2.3 g/t gold (from 16 meters), including 30 meters of 10.0 g/t gold (infill around RPM-005, I’ll write a note on this RPM-010 hole later in the Grievances section).

  • RPM-015: 161 meters of 8.1 g/t gold (from surface), including 117 meters of 11.1 g /t gold, including 14 meters of 51.2 g/t gold (overall 258 meters of 5.1 g/t gold, this is a step-out hole to the west—I’ll show some RPM graphics later).

  • RPM-018: 113 meters of 1.4 g/t gold (from 8 meters) with no significantly different sub-intervals (also a step-out hole to the west, yielded 169 meters of 1.0 g/t gold overall).

  • RPM-022: 193 meters of 3.9 g/t gold (from 4 meters), including 67 meters of 10.4 g/t gold (from 112 meters—this is also a step-out hole to the west).

  • RPM-025: Main Zone—198 meters of 2.1 g/t gold (from 8 meters) including 62 meters of 6.0 g/t gold (from 43 meters). Middle Zone—171 meters of 0.5 g/t gold (from 227 meters). Lower Zone—197 meters of 0.9 g/t gold (from 413 meters), including 76 meters of 1.2 g/t gold (from 440 meters) (also a step-out hole to the west—I will put up a graphic with this hole and RPM-022 later).

Quite impressive hits, right? Indeed. I have issues with them in the context of the project, which I’ll address, but holes like RPM-008, RPM-015, and RPM-022 are really great.

To go with the drill holes above, here are two RPM graphics:

Here’s a graphic to go with RPM-015:

Here’s a graphic to go with RPM-022 and RPM-025 (also shows RPM-020 yielded nothing):

Here are also two graphics from a promotional video, showing RPM North drill holes (after the initial estimate) and the current resource model. Pay attention to the drill holes—I’ll address this in the Grievances section. Graphics:

Recap points:

  • The combination of high-grade surface samples and geophysics yielded obviously impressive results at RPM.
  • RPM North is on a topographic high, which is usually very positive for open pit deposits in terms of stripping.
  • As can be seen in the first graphic, the RPM North geophysical anomaly continues further west—and there’s already 1.5 million ounces without the so-far-reported step-out holes.

The third bullet point brings us to the Speculative part of the story.

Speculative part of the story

A different name for this section is obviously exploration upside.

In the August 30th, 2022 news release Nova said there are >50 drill holes to be announced from RPM and Korbel. There has been just one news release with drill holes since then, and it included RPM-022 and RPM-025. So—plenty more to come.

At RPM (which we preliminarily looked at in the Already reported results section), drill results are also expected from RPM South. This is an obvious potential expansion for the resource. The geophysical signature at RPM South isn’t as strong as RPM North, but the target yielded a big footprint of surface samples with grades up to 103 g/t. Based on the graphic below which shows the RPM South magnetic anomaly, it could be that the proposed drill holes aren’t deep enough for the target, but I definitely wouldn’t count it out. Maybe the “bad” results from the seemingly shallower holes warrant a test with one deep drill hole to see what’s below (edit: the geologist agrees with me here, I managed to talk to the CEO in the meanwhile):

On the Korbel side of the Estelle project/trend, drilling consists of infill drilling the Korbel Main deposit to convert Inferred ounces, and testing a previously-untested target. This new target is named Cathedral:

Based on the graphic from the crime scene, Cathedral is also on a topographic high, which is good. Surface sampling in 2020 yielded results like 114 g/t, 98.3 g/t, 37.1 g/t, 24.5 g/t, 19.6 g/t, and 11.05 g/t. The team is theorizing Cathedral could be the feeder system for the large and low-grade Korbel Main.

I couldn’t find geophysics for the area outside of Korbel Main and its adjacent targets (so we don’t know Cathedral geophysics), but the graphic below is good enough to show Cathedral’s surface footprint, as well as other Korbel prospects:

Here is also a graphic showing drilling at Korbel:

On top of this, Nova also found two additional prospects in between Korbel and RPM:

  • Stoney (polymetallic).
  • Train (another potential big IRGS).

Stoney and Train are not important for now.

Recap points:

  • Plenty more drill results to come.
  • RPM South mineralization surely expands the resource should the drill bit turn up anything there.
  • RPM North has space to grow to the west.
  • If the bonanza results from RPM North are insufficient to make this project go places, potential high grades from the Cathedral target would surely change the story significantly. High-grade material close to the planned processing plant is a game-changer here.

By “game-changer” for Estelle I mean an “ingredient” which would make the project economics very compelling and allow the large but very low-grade, very low-strip Korbel Main to be viable as a long-term mine after rapid initial payback. This brings us to Comparison to Fort Knox.

There’s one more thing I’d like to mention in this section. Check the next page graphic:

This is quite interesting. The insiders see Estelle going >$1B pre-tax NPV (yes I know it’s pre-tax and yes I know it’s not specified at what gold price) and the strike price for the 3-year options is roughly double the current market share price.

Comparison to Fort Knox

The obvious difference between Snowline’s Valley/Nova’s Estelle and Kinross’ Fort Knox is that both projects are more remote.

Fort Knox started as a ~1 g/t gold operation, and it has been hovering around ~0.35 g/t on the reserve/resource level for the last 12 years. Here are the 2010 and 2021 estimates:

This is encouraging for Estelle.

The idea for Estelle is to have something that is extremely good early on which is going to skyrocket project economics. The longevity of the mine is to be ensured by the low-grade, low-strip material from Korbel Main.

I might add more to this section if I think it needs to be done once I get to know a bit more about Kinross’ Fort Knox.

-> Fort Knox started at a resource size of roughly ~2.5 million ounces, and then grew later. Almost 50% of the recovery was achieved with gravity and the next step was CIL, according to a source I talked to recently. So, metallurgy was quite good and favorable. It was low-strip at grades around 1 g/t gold. Kinross bought it later.

Grievances

Here’s a list with my complaints and some discussion about Snowline and Nova:

  • Snowline cites true widths as “currently unknown”. There’s potential for a surprise to the downside here.
  • Nova will publish true widths, according to their appendix on JORC rules. But the true width “issue” is not that “bad” since there are graphics which are pretty good.
  • Both of the companies report visible gold. Snowline doesn’t report tables with grade distribution in drill holes. Okay, it kind of does, but it’s not detailed like Nova’s.
  • Based on the grade distribution tables from Nova’s RPM (and also look at the graphic with drill holes above), the good/great material is not immediately close to the surface. I find this to be key for the “starter pit” and the “initial high grades” thesis mentioned in bold at the end of the second Nova chapter above). Or am I wrong about this? Certainly someone smarter should weigh in.
  • Based on the grade distribution tables from Nova’s RPM, I assume both Snowline’s and Nova’s projects to be nuggetty since they’re the same type of deposit (Nova is capping grades at 31 g/t which is cool). If Snowline’s Valley is nuggetty, what’s the grade distribution there? Sure the last news release was a sexy hole, but how is it distributed in detail?
  • RPM-010 drill hole highlighted numbers in the August 8th news release do not match what’s in the assay table and in the graphic. Both are pretty good so this isn’t a big deal.
  • I almost thought RPM-003 (an earlier drill hole before the initial RPM resource) was left unreported but it was buried in a news release. It was a duster. Pretty much the same goes for RPM-020. Not a big deal but worth noting.
  • The CEO touted heap leaching but then switched course in H2 2021 (not 100% sure on “when”). No heap leaching is planned now. So—why? Did he expect better grades at Korbel Main? Not too big of a deal, but also very worth noting.
  • I don’t know about the “slurry pipeline” plan to transfer ore from RPM to Korbel. The “$10 million extra capex” for that sounds low. Would this affect permitting negatively? Or would it be better because there would be no hauling through the district?
  • Nova cited pre-tax numbers in its initial scoping study. It’s not criminal, but it’s annoying. It’s also understandable to want to put some lipstick on preliminary numbers which suck but don’t mean much. But if they don’t mean much—why even do the study in the first place? Maybe they thought that showing that the very low grades on a standalone basis were barely viable would be useful? That would make sense.
  • Nova had a couple of historical holes from 2012. One was at RPM—177 meters of 0.8 g/t. Who did this and what is the history of the project? Apart from this, everything Nova has at the moment, has been done since 2019.

Final recap

This is the punchline and why I wanted to write this whole thing in the first place. Let’s just compare Snowline and Nova since the stories are similar, and assess how much of an effect backing/promotion/marketing of companies has.

Snowline’s market cap is ~$275 million at current USD$/CAD$. Nova’s market cap is ~$75 million at current USD$/AUD$.

Nova is significantly more advanced and there’s more known about the whole story. It has plenty of metallurgical work done and a defined flowsheet. Snowline has zero metallurgical work done.

Nova has confirmed exploration upside on top of a greater-than-9-million-ounces resource. Snowline doesn’t have a resource.

Nova is in Alaska which is a better place to try and permit a large operation than remote Yukon.

Nova is fully-funded to the pre-feasibility study planned for Q4 2023 (phase 2 scoping study expected before that also), according to its April 11th news release. I assume the PFS will be postponed. Snowline also has plenty of cash and can find money.

Nova reported outrageously good numbers from RPM, which haven’t been discussed too much or at all as far as I’ve seen. It has confirmed exploration upside, and a potential game-changer in Cathedral on top of that. On the other hand, each one of the Snowline’s drill holes was extrapolated to infinity. Resource numbers of 30-40-50 million ounces have been touted.

Bottom line? If I had a gun to my head and had to buy one of the two—I’d definitely go for Nova (after talking to the management, of course ☺). The lack of noise generated by Nova’s stratospheric hits is telling. The red carpet in front of Snowline is also telling, in my opinion.