Additionally:
The Changing Code: Zen, and the Art of âŚâŚ.
I have a rather neutral view on the Kirkland Lake /Novo marriage and recent divorce. I am not going to comment so much upon the positive or negative aspect to the relationship, because we all know that all divorces are not necessarily negative, just as all marriages are not always positive. They all are complex and changing arrangements between partners.
What is most important to me is understanding the underlying relationships, and the resulting Code of Conduct between the parties involved. And expect the Code to change, along with all things in an investmentâs life. I derive my opinion on this investment by the events and character profiles that have shaped this story over the last 5 years or so. It sure has developed in very interesting ways.
Over 3 years ago, I wrote a piece called Player Pattern Recognitions at the NVO Game Table that spanned back to early 2014. It ended with a summary as follows:
I think junior investors have to realize that the process above is a practiced formula in building a Major through investment, acquisition, and calculated strategy. And the assumption that a player like Eric Sprott poses a threat to Quinton Hennigh is misplaced. These two individuals are not opponents â THEY ARE PARTNERS. They have worked together very successfully in the past. And one needs no further proof than to look at Irving Resources that operates in my own adopted home country of Japan.
And to this day, the Pattern Recognition trajectory continues with the Novo and ES forays into new SE Australian prospects close to Fosterville, and the New Found Gold play in Canada.
But instead of the patterns above continuing to manifest themselves into corporate mergers centered around a KL Jovian, significant changes have occurred to the gaming table itself that resulted in alternate outcomes. The largest being the core changes at Kirkland Lake itself, and the other being the shift in Novoâs focus into unilateral mining decisions driven by their own business needs.
If one reads the Player Pattern Recognitions above, there is an interesting exclusion: The introduction of Tony Makuch into the growth timeline as Kirkland morphed from a junior into a Major under the stewardship of The Accountant. The exclusion existed because Tony Makuch ⢠was actually irrelevant in the broader game being played out.
TM came into the picture as the CEO of Kirkland back in June of 2016. ES being the Accountant Svengali and major shareholder in Kirkland, who was already well underway to building Kirkland into a Major producer â increasing his personal stakes in both Kirkland and Newmarket Gold which he was stickhandling. TM was not brought in to offer added vision or strategic inputs into constructing the new Major. He was brought in to manage the operations of the Kirkland Lake Gold company, and to âbring home the baconâ.
I am not going to speculate on the opinions that TM may have held with regards to Newmarket and Kirkland Lake merging. Only that I believe that based on the timing of events, his opinions were unlikely to be sought or considered relevant. All that mattered to ES was growing the âHoneypotâ and the numbers behind it. Why would TM have any real say on it? He was never the architect behind the union in the first place.
So, how does a dynamic and speculative Accountant in Chief like ES satisfy his game? Thatâs simple: Find the âHoneypotsâ. He is not the type of character to be mired in the daily grunt work of mining operations. He has always sought (and still does) those golden pots in the ground. And thatâs why he maintains such close bonds to his star geologists. Based on their speculative inputs, ES steered Kirkland into what it had become at the day of his retirement - a $multibillion gold producing Major. Here is TMâs send-off to ES upon his retirement in early 2019:
âI consider myself very fortunate to have had the opportunity to work with Eric over the last 2.5 years. Not only is he a great business leader with an accurate and informed view of the market, he has been a mentor and confidant to me, providing solid advice and direction. I will certainly miss our early morning calls and meetings. During his tenure as Chairman, Kirkland Lake Gold has emerged as a top performing gold company, one that is well positioned for continued growth and value creation in the years to comeâŚ.â
Based on that send-off speech, who do you think was in charge of things up to that that period? The power that comes with being the corporate visionary, as well as the largest and controlling shareholder. So, throughout this time from his onboarding we have TM in the background running operations while ES and his geo-stars went forth to build and shape the company that he was tasked to manage. Like a loose diick at a wedding, I would think a certain frustration (possibly resentment) would set in as each year passed by.
Now, we reach the subject of Novo Resources. The nature and timing of the play back in 2017 was destined to once again unite ES and QH on yet another grand adventure: The potential of the Pilbara. The ingredients were all there for both these men to take Novo Resources to a new stage, with Kirkland Lake in tow. However, this was something that I could not see TM embracing. Not based on his operational and pragmatic mining operations background. Kirkland Lake was going to invest in Novo, and there was not much TM could do about it while ES ran the roost. Once again, he would be sidelined by the Accountant in Chief.
But the status quo was not to remain as such. And TM was to have his day. Never underestimate the tenacity and pragmatism of an excellent Ops manager, in spite of their bland demeanor.
Two events ensured the ascension of Tony the Tiger:
- The early 2019 retirement of ES from Kirkland Lake, and his subsequent divesture in the company.
- Novo Resources tedious and arduous growth into an unconventional gold producing operation on its own.
Both these events would lead to some unescapable outcomes. TM would dominate the next chapter of Kirklandâs growth which would be anchored in a more conventional business model. Despite all that âmentoringâ, he would remain the stuttering bland conventionalist, and revert back to surrounding himself with familiar faulty kitchen appliances and the landscape of The Gulch with which he is most familiar. TM is not the type to âGo Hollywoodâ, and he would also make sure that neither would Kirkland Lake under his tenure.
Considering that KL is now a Major producer catering to institutional investors, TM is most likely the right man for the job when it comes down to it. But I have stated this previously, and I will state it again: I highly doubt that the construction of todayâs KL would have been possible under the current management. No way would they have successfully taken on and navigated the needed risk / reward decisions to pull it off.
So, as the top decision maker in Kirkland Lake Gold, I cannot envision TM continuing to support involvement in byzantine projects like Novo Resources. And he has the authority to disengage KL from whatever he considers speculative, risky, and unconventional. Subsequently, we can also expect that ES would become impatient on the increasingly protracted focus by Novo on mining operations and new technologies. But, unlike Kirkland Lake, ES would still continue to seek out involvement with Novo and QH with regards to new exploration and discovery plays. The love affair with his star-geos and the relentless quest for greater âhoneypotsâ will never die. Itâs a pattern.
This is why todayâs âLady Janeâ Novo is essentially alone in framing its own picture, and placing itself in the center.
Novo is Alone, itâs Grown Up
Novo chases its own unique vision of building a gold exploration and production business. You either agree with it, feel uncomfortable with it, or you completely despise it. The story has most certainly tested its strongest supporters and surprised its harshest critics. And speaking of some of the critics, they never seem to exhaust their ability to offer up some of stupidest and most superficial perspectives, revealing little understanding of Corporate Culture, how it can be formed under strong individuals, and the nature of the men behind it all. Actually, that goes for some of the bulls as well.
I have message for those types that confuse the Codes of Conduct with animosity âŚâŚ Grow Up, donât be so sensitive to change, and learn from the Past. Message from Tx:
In the end, judging situations such as Novo against a backdrop of a changing Kirkland Lake leadership and the priorities of a departed ES is actually pointless. And so is seeking opinions from other sources completely unfamiliar with the corporate cultures behind this Novo story. Every situation is to be analyzed and judged as a âstand-aloneâ, inclusive of Novo that has remained much more consistent in its unique vision and mission statement than the ever-changing relationship with its partners.
There is no right or wrong, no good and bad characters, and no corporate failings in the larger view. There are only shifting relationships and investor expectations that will always impact all involved. Understand the core of the Novo investment. If the impact of external forces poses no significant threat to the prime Novo mission statement âŚ. then simply ignore the noise.
And donât get obsessed on the irrelevant. Try and think for yourself. Be at Peace, and donât get stuck in the minor leagues.
