Pure Gold Mining Inc. [PGM-TSXV] shares lost over 80% of their value Monday after the company said it is suspending operations and immediately putting its Red Lake, Ont., gold mine on care and maintenance.
Pure Gold also warned that if additional outside financing is not obtained in the short term, it will not be able to meet its obligations as they become due, resulting in a default under its debt obligations.
The company said it is suspending operations in Red Lake following an evaluation of several potential alternative scenarios and has become necessary because the mine has not yet achieved consistent positive site-level cash flow, notwithstanding recent reductions in operating costs and sequential quarter over quarter increases in production. The suspension of operations has resulted in the company withdrawing its guidance for the fourth quarter of 2022.
Pure Gold shares cratered on the news, falling 81.25% or $0.098 to $0.022 on heavy volume of 25.6 million. The shares had previously traded in a 52-week range of $0.015 and $1.08.
The company recently became a gold producer when it delivered on a promise to build Canada’s newest gold mine in the heart of Red Lake. The first gold was poured on December 29, 2020.
That marked the return to life of the former Madsen mine, which is situated in the Red Lake area, an established mining district with more than 29 million ounces of high-grade gold production to date.
Madsen produced 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.
However, Pure Gold recently announced a series of executive management changes aimed at dealing with operational challenges at the mine site.
Among the key challenges was maintaining access to enough high-confidence, high-grade stopes to provide high-grade ore to the mill. “Shortages of high-grade ore at various times have led to blending of low-grade development material and stockpiles which has reduced the overall feed grade to the mill,” Fierro said recently.
On Monday the company said it has $2 million in cash and a net working capital deficit of approximately $13 million. In a press release, Pure Gold said it previously noted that it expected that at least some additional funding in 2022 could come from the exercise of warrants issued in connection with a May, 2022 financing.
The warrants are currently priced at 18 cents per share. Given current market conditions, the company said it no longer expects to receive any proceeds from warrant exercises prior to their expiry on November 25-27, 2022.