Six months after delivering a positive feasibility study for its Madsen gold project in Red Lake, Ontario, Pure Gold Mining (CVE: PGM) has landed a $90 million financing package to bring it into production.
The junior is targeting the end of 2020 for the first gold pour at the high-grade, past-producing underground project.
The financing, which consists of a $65 million loan and $25 million callable gold stream, is with Sprott Resource Lending Corp., which will hold 4.4% of Pure Gold. It follows a C$47.5 million equity financing in July that saw Eric Sprott invest $5 million for 10.2% of the company.
With financing now in place, the company has officially made a construction decision.
The project holds probable reserves of 1 million oz. gold hosted in 3.5 million tonnes grading 9 g/t gold
Darin Labrenz, Pure Gold president and CEO, noted that project construction is now fully funded, and that both components of the financing include some flexibility.
“The optionality of repayment of both the facility and the gold stream in a rising gold price environment provides an opportunity to refinance once in production and generating solid cash flows from the mine,” he said. “Combined with the recently completed equity financing, this package secures approximately C$90 million of immediate funding enabling us to initiate construction and puts us on track for first gold pour by late 2020.”
The term of the loan is seven years, and will be made available in tranches. Principal payments will begin in September 2022. The $25 million stream will be paid upfront in return for 5% of gold production up to 50,000 oz. and 2.5% after that point. Pure Gold has a full buyback option where it can terminate the entire gold stream by paying $35 million to $38 million.
Pure Gold also signed a project agreement with the Wabauskang and Lac Seul First Nations in July.
The February feasibility study outlines a $95 million capex for Madsen, with 12 years of production averaging 80,000 oz. gold per year. At a $1,275 per oz. gold price, the study projected an after-tax net present value of $247 million and an internal rate of return of 36%.
The project holds probable reserves of 1 million oz. gold hosted in 3.5 million tonnes grading 9 g/t gold.
Pure Gold sees the study as outlining a starter mine. A preliminary economic assessment released at the same time shows the potential for several nearby satellite deposits to add 3.7 years of additional production for a total of 210,000 oz. gold.
With the recent equity raise, the company has enough financial flexibility with the recent equity raise to continue exploration drilling through the year.
Madsen produced 2.5 million oz. gold between 1938 and 1976 and was briefly put back into production in the late 1990s before the collapse in the gold price.
(This article first appeared in the Canadian Mining Journal)