On November 9th, NIA sent out an alert expressing its concerns about New Found Gold Corp (NFGC). To be clear, we have never suggested that NFGC is another Bre-X, we only brought up Bre-X because we were immediately reminded of Bre-X after we read NFGC's November 4th press release. NFGC has always staked its claims so perfectly that their extremely wide, high grade gold intercepts always seem to stop on their property and never continue onto the claims of directly adjacent gold explorers.
NIA said on November 9th, "Yes, we know that Sprott is a shareholder, but billionaires are not perfect... look at the Elizabeth Holmes situation and how many billionaires she fooled. He CAN'T be happy that this gets disclosed shortly AFTER he makes a $48 million investment!"
Knowing how egregious the situation at NFGC could potentially be in a worst case scenario, it certainly did not surprise us one bit when on November 11th only two days after NIA's alert, NFGC rushed out with a press release saying that they were, "pleased to provide an update regarding the previously announced non-brokered private placement with Mr. Eric Sprott of 5 million common shares of New Found, at a price of C$9.60 per Common Share, for gross proceeds of C$48 million."
Sprott renegotiated the terms of his private placement. NFGC said on November 11th, "The Company has agreed with Mr. Eric Sprott that the Common Shares will qualify as flow-through shares (within the meaning of subsection 66(15) of the Income Tax Act (Canada)). All other terms of the Offering remain the same."
NFGC rallied on this news, but we are sure the market reaction would have been much different if NFGC had announced that Sprott's private placement will occur at a 40% lower share price than what was previously announced. The average American investor has no idea what flow-through means, and how flow-through private placements often sell for a massive premium of 40% or more above the market price of a stock due to the huge tax advantages the Canadian investor receives at the detriment of the company.
It is not a good sign that NFGC suddenly reassured investors this past Wednesday, November 17th that the private placement is expected to close on November 24th, over one month after it was first announced on October 21st. In comparison, NFGC's last private placement that Sprott invested into was announced on August 17th and closed one week later on August 24th!
We have no reason to believe that NFGC is leading everybody on and the deal won't close next week, but if for some reason Sprott completely backs out of the deal at the last moment, NFGC could crash by 80% in a single day.
Preparing Americans for Hyperinflation
