BootstrapTechnicalBuy Investment Blog

Novo Resources Buying Opportunity

Novo Resources (NVO.V) will pull back tomorrow, and this will be a chance for most of us coming late to the party to buy more shares. Why am I so certain that the stock price will pull back? Well, some 27 million shares bought at $0.66, in the last private placement, will be free trading starting tomorrow. It is hard to imagine that a lot of those buyers won’t be taking a handsome profit. In addition, Newmont resources, one of Novo’s major shareholders, announced on Friday that it disposed of nearly 12 million shares at an average price of $1.60, bringing its stake in the company to 5%, down from 14.9%. This news was a shock to many as Newmont’s investment was seen as a validation of Novo’s work. It is scary to think that Newmont discovered something that reduced their confidence in the company, and caused them to sell their shares at a huge discount.

Since the announcement has come out, we’ve learned that the actual transaction was negotiated in July, when the stock was trading around $2, so the $1.60 selling price sounds reasonable. Also, Newmont has been trying to reduce its stake for a long while now, they just happened to have found a buyer only recently. The flipside is of course is that there was an investor with deep pockets eager to take a 9.9% interest in the company. I view this as a positive development.

I expect the private placement investors, plus the skeptics who are spooked by the Newmont news, to sell their shares on Tuesday. To me this presents a great buying opportunity and I will look to add to my investment in Novo Resources. Remember, Novo is working on what could turn out to be the biggest gold discovery of the century. Sky’s the limit to the potential stock price, and $50 or even $100 valuation is not out of the question. This is all speculation of course, so trade accordingly. I only invest a minor portion of my portfolio in speculative stocks.