Pure Gold taps market as bullion hits six-year high

By Peter Kennedy

Pure Gold Mining Inc. [PGM-TSXV; LRTNF-OTC] said Friday June 21 that it is raising $32.5 million in a bought deal financing, a move that coincides with a buoyant gold price and renewed interest in the Red Lake, Ontario gold camp where its advanced 100%-owned Madsen Gold Project is located.

News that Pure Gold is doing a bought deal private placement came as the price of gold traded above US$1,400 an ounce on Friday, the highest level in six years, a move that was attributed to rising tensions in the Middle East.  In this case, U.S. President Donald Trump approved and then backed down on retaliation against Iran following an attack on a U.S. drone.

Pure Gold said an underwriting syndicate led by Sprott Capital Partners LP has agreed to purchase on a bought deal basis 59.1 million Pure Gold units at 55 cents per unit, generating gross proceeds of $32.5 million.

Pure Gold shares fell on the news, easing 5.26% or $0.03 to 54 cents. The shares are currently trading in a 52-week range between 81 cents to 49 cents.

The units being sold in the private placement consist of one common share and one-half of one common share purchase warrant. Each warrant is good to buy one common share of the company for three years after closing at 85 cents per share.

The underwriters have been granted a greenshoe option to purchase additional units equal to 15% of the units sold in the private placement. That option remains open at any time up to three days before closing of the private placement.

Net proceeds are earmarked for the company’s exploration and development activities.

Pure Gold is tapping the market for financing after recently announcing the results of a test mining program at its flagship Madsen Mine, where the company recently launched a 2019 exploration program that is expected to include 12,000 metres of diamond drilling.

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 Great Bear Resources Ltd.‘s [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 is estimated at $95 million.

Last year, Pure Gold reopened and reconditioned the Madsen underground ramp, installing new ground support, water line, mine air heating and ventilation, power line construction and commissioning and communications infrastructure.

During the test mining program, which was launched in the second quarter of 2018, Pure Gold extracted 7,096 tonnes of mineralized material from three distinct stoping areas.

“Results have exceeded expectations, with tonnes, grade and mining widths greater than predicted from the resource model,” the company said.

The company said the test mining program returned an estimated 56% more gold than predicted from the resource model.

“Overall, an average grade of 10.2 g/t gold was returned from 1,555 muck samples collected during mining of the bulk sample. The average grade of 10.2 g/t gold is a capped, diluted mined grade, which comprises all muck samples from 70 rounds of freshly blasted rock, each of which averaged above cut-off of 4.0 g/t gold.

Underground drilling conducted during test mining defined a third stoping area, resulting in the mining of an estimated 400 additional ounces of gold from 1,575 tonnes at grade 8.7 g/t gold.

Madsen President and CEO Darin Labrenz recently said the test mining program was a resounding success, checking each of the boxes that the company laid out prior to launching the program.

“From the first round blasted in the ramp, to the completion of the program in November, our team has demonstrated it can visually identify, and easily follow gold mineralization underground, providing a strong validation of our geologic model,” Labrenz said.

“With test mining now complete, delivering a strong validation of both geologic model and resource, we look forward to finalizing our definitive feasibility study as the next step to building a modern, scalable mining operation at Madsen,” he said.