Ask The Expert

Ask The Expert - Dr. Quinton Hennigh - December 2021

ATE with Dr. Quinton Hennigh

 

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Dr. Quinton Hennigh is a renowned economic geologist with 25 years of exploration experience, mainly gold related. Early in his career, he explored for major mining firms including Homestake Mining Company, Newcrest Mining Ltd and Newmont Mining Corporation. Dr. Hennigh joined the junior mining sector in 2007 and has been involved with a number of Canadian-listed gold companies including Gold Canyon Resources, where he led exploration at the Springpole alkaline gold project near Red Lake Ontario, a 5-million-ounce gold deposit. In 2010, Dr. Hennigh helped start Novo Resources and began assembling its Australian exploration portfolio. Dr. Hennigh is currently Geologic and Technical Director at Crescat Capital in Denver.

In this edition of Ask the Expert, Dr. Hennigh answers several of your burning questions, including:

  • What are the best countries for gold exploration?
  • If the future is so bright for mining stocks, why aren’t there more M&As?
  • What about Newfoundland makes it so compelling?

For the answers to these questions and more, listen here:

Craig: Well, welcome back to the Sprott Money News and sprottmoney.com Ask The Expert series. It's your final one for the year 2021, as it is now the month of December. I'm your host Craig Hemke, and joining us this month as Dr. Quinton Hennigh. Many of you will recognize him. He's one of the co-chairman of Novo resources. He's a renowned geologist and someone that is highly respected in the precious metals industry. He's also now an advisor and director at Crescat Capital in Denver.

Quinton, thank you so much for joining me this month.

Dr. Hennigh: Thank you, Craig. Pleasure to be here.

Craig: It's great to have you on. I know this is your first time and we've gotten quite a few questions for you. I'll get to those in just a second, though, of course, I just wanna remind everybody this content comes from Sprott Money, so be sure to keep them in mind for all of your physical metal and physical metal storage need.

And, of course, it's the holiday season. Don't forget that Eric is in the giving mood this year. If you haven't already, be sure to catch Eric's year-end wrap-up. He and I recorded that last Friday, that audio was linked at the Sprott Money page. You go to the insights tab. Not only does he chat about junior miners everybody's been asking about, he's also giving away five, five. Count them, five 10 ounce Sprott silver bars.

If you'd like one, all you gotta do is go to that insights tab on Sprott Money, find the details. What you do is you head over to Wall Street Silver's Reddit page, you hashtag Sprott Money, and then you tag three of your friends. That's all you gotta do on the Sprott Money contest post. That will get you registered. All those details are on that insights tab at sprottmoney.com. And again, that's where you can find the podcast wrap-up that Eric and I recorded just a few days ago.

Okay. With that, Dr. Hennigh, let's dive right in. Can I hit you with question number one?

Dr. Hennigh: I love it this way.

Craig: All right. Here we go. This one I think is right up your alley. With a few currencies in the world continuing to weaken, is there a preferred gold producing or exploration country that you prefer, like, you know, like Brazil, Turkey, that sort of thing? Does the currency regime kind of change how you look at a jurisdiction?

Dr. Hennigh: Yeah. Look, we do consider jurisdiction obviously in investments and it's important. You know, part of that is the exchange rate, okay, and there are places which are absolutely hands down, great places to be right now in the gold space. And what you just said is spot on, Brazil is certainly one of them. We got several investments there. I would also rank Australia very highly and Canada very highly.

So yes, I would put those kind of three at the top of our list. It's not to say there aren't other countries that are great to mine gold, but as far as jurisdictions go, those are our top three.

Craig: Well, that's gonna give me a chance to kind of segue in to the next question, which was further down the list, but I'm gonna slide this up to number two. And this, just get this is on that jurisdiction line because, you know, I always tell people and I know Eric has always said this, you know, if you got a good team that has done it before, and if you're in a jurisdiction that has produced metal in the past, that's, you know, you're two-thirds of the way there.

But in a broad sense, kind of countrywide, Quinton, when you consider the rule of law, respect to the rule of law, the permitting process, you know, the how friendly they are toward mining companies and that sort of thing, what are the best countries, the best jurisdictions that you like to see?

Dr. Hennigh: Again, this is, you know, like, one of the top considerations we make when investing in stores and we focus on safe jurisdictions, period. Okay, Canada, hands down, number one. You know, actually, Ontario and Quebec traditionally always are great, but Newfoundland can't beat it. Okay, Newfoundland is a wonderful place to invest and I actually have a great deal of optimism about British Columbia at this point.

I think British Columbia and the kind of the advancement in, you know, the way things are working with First Nations and stuff is all heading in the right direction. I see a lot of really good, you know, progress being made, I guess is the best way to put it, and I can see mines will get built.

You know, beyond that, look, Australia is certainly a close second. There is a bit of stuff that's in a state of flux right now in Australia given the Rio debacle a couple of years ago. It has stirred up a lot of passions, and there's a lot of political motion at this time which needs to kind of settle down. And, you know, once that clarity is in hand, I think, you know, the ranking of Australia will settle down again. I think it'll be a strong place to invest, but there is a bit of uncertainty there.

U.S. is still favorable, very favorable. You know, you have to look at it state by state, of course, in the U.S., but we love Nevada, we love Arizona. You know, there's other places where we're seeing kind of a diminished status. You know, Peru is certainly one politically, and then Mexico, some of the rhetoric and stuff I've been hearing outta Mexico gives me a bit of pause.

I like Brazil a lot. I think Brazil is actually moving in the right direction, and funny enough, Bolivia. Bolivia is moving in the right direction. We have of a big investment in Eloro, of course, and I see Bolivia at about the same level, say, Peru was late 1980s and early 1990s when things started getting cleaned up and really heading in the right direction as far as mining investment goes. So that's kind of our general tone around jurisdiction.

Craig: All righty. Well, then let's move on to question number three, and I thought this is kind of a long question. I'm just gonna read the whole thing to you and pick it apart from there. It is stated in previous years we've seen old mines with amazing grades closed down as metal prices slumped. With prices climbing now, we are seeing some interest be renewed. Is it possible from a geological standpoint to intercept super high grades again or even very economical grades at current prices?

Dr. Hennigh: You know, look at Fosterville. I mean, that was a mine that just basically slugged along, you know, at about 4 grams, 4 or 5 grams per ton for I don't know, for two decades or something. And it took them that long to mine a million ounces. I mean, it was a long haul, but, you know, they find the high grade zone right below this low grade.

So geologically, certainly. The question is, are there opportunities to replicate that? Absolutely. There's other deposits, other opportunities out there where there's existing mines that might have a hidden gem like that. So I like to see companies, you know, develop a thesis around those kinda stories and test them, but maybe I'm not quite understanding the question. How would you interpret that Craig? Like what do you think the person is asking here?

Craig: Well, I think it's...the way I read it is like, okay, there was a lot of gold there and now we've shut it down. Is it a feasible business plan for some companies to go back in and go, "I bet there's some more."

Dr. Hennigh: I see, I see. Look, that's always the best place to look for gold is right next to a gold mine. So yes, there are opportunities like that where there's mines that did shut down due to low gold prices. I would say less so this cycle than in previous cycles. I would say the cycle in the late 1990s, that one really killed a lot of mines.

The downturn say in 2013, where we started to drop down to, you know, 1300, 1200, 1100 gold, that one killed a few mines, and I'm starting to see, you know, some of those stories resurrect I guess is the best way to put it, but I don't think we have as many. You know, the inventory of those opportunities is not as robust as it was say, 20 or 30 years ago.

Craig: All right. Well, hey, we're already halfway done. How about that? We are just rolling along. All right, this is a fun one. You know, we've seen with the Kirkland Lake, Agnico Eagle thing that happened recently, and then we had Kinross with Great Bear. So all of a sudden, there's at least a little bit of action in the M&A space. This question just is written that way. If the future's so bright for mining stocks, why isn't there more M&A? You want to try that one?

Dr. Hennigh: It is very cyclical. M&A is part of the overall cycle of the mining space. You know, the clock that Bob has, you know, the mining clock, I guess you call it or [crosstalk 00:09:08] clock is...

Craig: Yeah, Bob Thompson.

Dr. Henningh: Yeah. Is an example of, you know, a way to look at that cycle, and it happens every time. I can remember back in 2004, 2005, and 2006, I was at Newmont at the time. And, you know, I remember what the company was doing internally looking at opportunities at that point, but also looking around at some of the deals that were starting to be cast about.

You know, Goldcorp was very aggressive and picked up, who was it? Glamis and can't remember, Meridian or something like this. So anyway, there were a number of deals back then that are like the deals that you're seeing right now that really forecast the up and coming gold boom, okay? And I think we're starting to see those rumblings here.

You know, it always starts out slowly. I know people want instant gratification but look at Great Bear, it took them four years of drilling to get to where they are. And, you know, the fact that Kinross is taking them out right now is really kind of a warm-up back to what I think is coming I think over the next two or three years.

A lot of the exploration stories that have been kind of trundling along here, and there's a lot of them, are gonna be the, you know, the food for the next M&A cycle. So I'm really optimistic about where this is headed. The majors need these deposits and these high-grade ones, all the better. You know, these are really high-quality deposits that are just absolutely necessary to perpetuate the mining industry.

Craig: Don't you think, Quinton, you've even had this so long? I mean, things have changed where people want 50% in a day, you know, like GameStop, that sort of thing.

Dr. Hennigh: Oh, it's crazy, man. I'm telling you, like, the instant gratification phenomena has become very acute lately. I would say really over the past year, year and a half. And I think that's because you have seen a lot of the easy money, stimulus money, whatnot, go into the investment space, but it's very short term. It's very short thinking.

You see a lot of, you know, like you said, meme stocks and stuff just behave completely irrationally, but you also see a lot of ETFs, just, you know, they have money just being thrown at them and they park it and guess what, you know, Apple and Microsoft and, you know, the FAANG stocks, all right? This is irrational, man. And what does it feed? It feeds short-term thinking and this instant gratification. Look, life is not really like that. Okay. I don't care what planet you live on.

Mining is longer-term as we know. In fact, it's getting longer term. You have to permit stuff and do ESG and so forth. These are not things that move along at light speed, but if you invest in mining, you're gonna be way better off. This is where intrinsic value is held and created. I'd rather have mining stocks over the long haul than ride the bitcoin pony up and down every day like a lot of these folks do. So bring it on. This is a great opportunity.

Craig: Yeah. It presents opportunity for those willing to do their homework and have some patience.

Dr. Hennigh: Yep. That's right.

Craig: But that's what is in such short supply at the present time. All right. Question five is one that I'm glad came in because I'm dying to ask you this myself. In that call last week with Eric, he mentioned that he's still heavily invested in Newfoundland. I think actually he now physically owns a large part of Newfoundland. If you want to like even buy a rental house, you gotta ask him, right?

But anyway, he still loves it. And New Found Gold, you know, they had their nuggety drill samples that, you know, freak people out and all that kind of stuff. The question doesn't deal with that. The question is just simply Eric loves Newfoundland, but what about...I wanna hear you explain this, what about that geology there makes it so compelling?

Dr. Hennigh: Well, Newfoundland shares a lot of similarities to the Victorian goldfields in Australia. Obviously, that's the home of Fosterville, and, look, there were many, many mines before Fosterville. There were, you know, famous mines around Bendigo and Ballarat and Castlemaine.

And so, these were all, you know, high grade, very famous mines of years gone by, but it is a district that's known for producing high-grade orogenic gold deposits. In particular, at Fosterville, you seem to have this supercharged system where the depth that the deposit formed is relatively shallow. So it's kind of what we call epizonal in nature. It's also probably got some sort of connection to granite magnetism that happened there and the granite seemed to really supercharge these epizonal systems.

In Newfoundland, you see the absolute same ingredients. In fact, it's so spooky that even the age of the host rocks is identical to what you see in Victoria. So we have the same suite of host rocks, the same types of host rocks, age is the same, and we also see this phenomena with these granites that are hovering nearby. And I think all of the ingredients basically are in Newfoundland like they are in Victoria.

Now, one of the things that's really critical about Newfoundland is the level of erosion. It seems that the entire Northern part, certainly perhaps maybe the whole, all of Newfoundland has been eroded down to kind of this critical level in which these epizonal deposits proliferate.

Okay. So mother nature has basically, you know, cut down this earth's surface down to this level where you see these very, very high-grade deposits, and that's why you're seeing so many of these discoveries. I mean, New Found obviously is the leader of the pack, but you see other companies, Lab Gold, which is right next door and really on the same district.

And then you have Sokoman and, you know, probably a dozen others like Ethos. Ethos has sampled some absolutely phenomenal grade stuff here, and they're on a different structural line, but they're in same package as the rocks due north of Gander.

Ethos, when I first...I was kinda advising Ethos at the time. When I first looked at the photos of the textures of the courts and the gold particle size and so forth, I said, "This is epizonal, it has to be." And they picked up the property at that time. I think once they get to drilling, I think that'll be a very exciting discovery, but look, there's other companies too. Like, the whole area is ripe for these high-grade discoveries.

Craig: Fascinating. And it's really, again, the patience required, you know, to watch this play out. How backed up are the assay labs at this point, right? I mean.

Dr. Hennigh: You know, look, the fact of the matter is, with, like, New Found, I think we have, like, 30,000 meters or something in queue right now. And the backlog is partly just due to the fact that they wanted to check out the laboratory and its protocols and make sure and QA, QC and stuff, and all of that's now checked out. In other words, there's no issues that have been identified.

So we're very content to go ahead and get these samples through. They're also trying the crisos [SP] machine over in Australia right now. It took forever to get those samples through customs which is just bloody annoying. But they got the samples through customs, and as I understand it, they're processing those right now, and that will give us good data. The company's gonna have a whole huge pile of assays come out in Q1 of 2022.

So sit tight, don't worry about the story. The gold's there. I remember when Kirkland hit, you know, some of the high graded fossil, my gosh, everybody's scratching their head going, how do we verify this? How do we reconcile this, you know, dah, dah, dah, because it's the same type stuff. It's simply, you know, nuggety gold, and it ended up being a wonderful story. Okay. So I'm not worried about New Found any of the companies operating in Newfoundland. It is what it is, and these assay protocols, they work. So we're back on track and we'll have lots of numbers here soon.

Craig: Terrific. All right. Quinton, one last question to wrap up, heck to wrap up the year of Ask The Experts, so this is the last one. This gets to that homework we were talking about and people trying to decipher on their own what's good and what's bad. And this might be too broad of a question, so just answer it however you can. How does someone quantify what is a good or bad drilling result or a promising versus a disappointing drilling result? Is it easily quantifiable by, you know, grams per ton, that sort of thing.

Dr. Hennigh: Look, I'm gonna give you two answers here, okay? There's the kind of high-level approach, and then there's the, you know, we'll call it the 401 level approach, like, you know, the advanced class level approach. Now your first level is this, and quite frankly, a lot of the major mining companies use this as a rule of thumb. They watch drill results come in from many, many companies. You look at news releases every morning and when the drill results come in, you simply multiply your grams of gold times the length of the intercept and you determine how many, what we call gram meters there are.

And look, statistically, when you start to see drill projects in which they're hitting 100-gram meter holes or above, they don't all have to be that, okay. But as long as some of the holes are, say, 100-gram meters or above, those systems tend to deliver an economic discovery. It's just, you know, purely empirical. Those kind of results tend to forecast the likelihood there's gonna be an economic discovery.

You might only need, you know, a handful like maybe three or four holes out of a list of 50 might have 100-gram meter, but still that's a good omen, okay. And yes, major mining companies use that as kind of a threshold, you know, to understand the success of various exploration projects around the planet.

Now, the second answer I'm gonna give is look, well, that's a very high-level view. You also have to do the deeper dive at some point, you can't just go, "Oh, you know, I see 100-gram meter holes here, this is a winner," and just take it, you know, for granted at that point, like this is a winner. Okay. You also have to then start doing a bit deeper dive and watching the story over time. Look, a great example, Great Bear, okay. They drilled many holes, I don't know how many holes, but hundreds of holes between 2017 and 2021. Now they're being taken out by Kinross. Okay.

If you go back and look at that story, if you're a passionate investor, a long term investor, you would systematically go through news release by news release and look at all the results and keep a table, put a spreadsheet together, like put in your computer, take all the results. It might take a little typing, but, you know, put them into your own spreadsheet and keep track of this stuff, okay?

You can actually start to come up with, on your own, you can start to come up with volumes of rock that are mineralized. You know, you can start to get an understanding of geometry. You know, these are not complicated things. They're, you know, what's the volume of a tabular shape, you know, like a box. Okay, well, you can figure that out. And the density, you know, about 2.7 is average density. You know, there's not rocket science here, okay?

And then what you do is you start looking at the drill assays within that volume that they're targeting and you say, okay, I've got you know, 120 holes here, and the average interval, you know, the average width is this and the average grade is that, and you can start to actually rationalize things and truly keep, you know, build your own model. You can keep track of things.

And you have to do that over time. You can't just, you know, if you're a short-term investor like we were talking about earlier, where you want instant gratification, you trade on news, you know, whatever, this isn't a message for those people. This is a message for quality investors who want to stick with the story and keep track of it from news release to news release. Build your own database, okay? Understand the geometry and sit there and progressively calculate what the deposit is. You can actually forecast, I guarantee it, 99% of the people who listen to this broadcast and invest in this base can forecast their own resource by doing simple math.

Craig: It reminds me, I first was a stockbroker 30 years ago. Kind of reminds me of what it was like to be a stockbroker 30 years ago and earlier. You know, you'd contact the company, you find out how they're set. Like, the old Peter Lynch strategy. Remember with the Magellan fund, you go actually eat at the restaurant and see what it's like and talk to the customers. I mean, you can do your own homework, but now, you know, it's not like that anymore, but that's kind of what it's like, Quinton.

Dr. Hennigh: Yeah, it is. We need to get back into that mindset. I love it when investors are well educated. Okay. I do not like money that's kind of flaky and fly by night. I would rather see investors in the mining space who have a really good handle on what the actual goal, what the, you know, the geology and the goal of the company is, and they invest for the right reasons not just a quick buck. So, you know, if we wanna see a sustained rally in the gold space, smart investors are what are needed.

Craig: Yep. No doubt. And as you said, it's not rocket science but it's rock science, right?

Dr. Hennigh: It's a good way to put it, yep.

Craig: See what I did there, Quinton?

Dr. Hennigh: There you go. Very funny.

Craig: All right. Again, we've been speaking with Dr. Quinton Hennigh, renowned geologist and advisor, and director at Crescat Capital in Denver.

I think you probably found this very helpful and interesting if you've been listening, so be sure to send a thank you to Sprott Money. Check them out, go there at sprottmoney.com. If you have maybe some last-second gift ideas. Sign up for the newsletter so that whenever there's new content, you're immediately notified.

Oh, and do us one last favor, wherever you're listening to this, you know, YouTube or some podcast channel, give us a like or even subscribe. That'll help us cast a wider net and get more of this great information out there to the public. Quinton, thank you so much for your time. This has been fascinating.

Dr. Hennigh: Always a pleasure, Craig.

Craig: It's great stuff. Merry Christmas to you and all of your family. And from Sprott Money News, happy holidays. A peaceful, relaxing holiday season to everybody, all of our Sprott Money customers, everybody that listens to this podcast. It's been a crazy 2021, who knows what 2022 has in store, but we'll keep cranking out this information for you, and we hope between now and the start of 2022, everybody gets a chance to relax and slow down and have a great holiday season.

Quinton, thanks again for your time. Thanks again everybody for listening to Sprott Money News at sprottmoney.com, and we'll talk to you again in 2022.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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