Pure Gold Mining Inc. [PGM-TSXV] on Wednesday August 7 announced a construction decision for a mine in Red Lake, Ontario, after completing a US$90 million project financing package with Sprott Resource Lending Corp.
The company said the financing will fully fund the cost of developing an underground mine at the historic Madsen Gold Project. After signing agreements with Wabauskang First Nation and Lac Seul First Nation, the company said it will commence development activities immediately. It is now aiming for a first gold pour by the end of 2020.
Pure Gold picked a good day to make the announcement with the price of the yellow metal hitting a 6-year high of US$1,500 an ounce.
On Wednesday, the shares rose 3.28% or $0.02 to 63 cents on volume of 1.94 million. The shares are currently trading in a 52-week range of 49 cents and 81 cents.
The announcement of construction and a US$90 million financing package comes after Pure Gold recently completed an equity raise of $47.5 million that was backed by Eric Sprott and AngloGold Ashanti Ltd. [AU-NYSE; AGG-ASX; ANG-JSE]. AngloGold currently owns approximately 14.3% of Pure Gold on a non-diluted basis.
The former Madsen mine is situated in the Red Lake area, an established mining district with more than 29 million ounces of high-grade gold production to date. Interest in the region is being fueled by high-grade gold discoveries at the Great Bear Resources Ltd. [GBR-TSXV] 100%-owned Dixie Lake Project.
Madsen boasts production of 2.5 million ounces between 1938 and 1976. The project benefits from existing infrastructure, including a mill and tailings facility, paved highway access, and access to power, water and experienced labour.
In February 2019, Pure Gold achieved a key milestone at the Madsen Project, by announcing an updated mineral resource estimate. This resulted in an 18% increase in the indicated resource to 2,063,000 ounces gold at 8.9 g/t gold (in 7.2 million tonnes) and a 58% increase in the inferred resource of 467,000 ounces gold (in 1.9 million tonnes) at 7.7 g/t gold (in 0.59 million tonnes) at a cut-off grade of 4 g/t gold.
A feasibility study that was also released in February 2019 envisages a 12.2-year mine life based on 1.0 million ounces of probable gold reserves. The feasibility study also foresees peak annual production of 125,000 ounces, with average production in years three through seven reaching 102,000 ounces annually.
The initial capital requirement has been estimated at $95 million. On Wednesday, the company said the US$90 million financing package includes a US$65 million loan facility that Pure Gold said is structured in multiple tranches and features an interest rate of 3-month LIBOR plus 5.50% to 6.75% per annum.
The package also includes a US$25 million callable gold stream. The key terms include US$25 million as prepayment for 5.0% of the gold production until 50,000 ounces of gold has been delivered. The gold stream reduces to 2.5% of gold production thereafter.
In addition to the facility and gold stream, Sprott has subscribed for 11.8 million units as part of Pure Gold’s recently completed non-brokered private placement, which closed on July 18, 2019, for proceeds of US$5 million.
As the financing has closed, Pure Gold said it will issue to Sprott 3.84 million common shares, leaving Sprott with a 4.4% stake in the company on a non-diluted basis. “With access to the capital provided by the financing, construction of the Madsen Red Lake Mine is now fully funded,’’ said Pure Gold President and CEO Darin Labrenz.