Pure Gold aims to pour first gold at Madsen in Q2 2020

With its recently completed feasibility study behind it, Pure Gold Mining (TSXV: PGM) expects to make a production decision on its Madsen gold project in northwestern Ontario’s Red Lake camp in the coming weeks, and could begin construction in April, with first gold poured as early as May 2020.

The project has significant mining, milling and tailings infrastructure already in place, as well as all major permits, so pre-production capital costs should not exceed $94.7 million, including a 9% contingency, the study found.

The sum is 87% higher than what was envisioned in the preliminary economic assessment completed in 2017, but the higher cost is due to expanding throughput from 600 tonnes per day to 800 tonnes per day, and moving to owner-operated mining from contract mining.

“The feasibility study allows us to fully assess the development rates, the number of working faces, and effectively allows us to optimize the production rate, and we think 800 tonnes per day is appropriate,” Darin Labrenz, the company’s president and CEO, says. “There’s room for expansion beyond that, but that would come after the mine is fully developed.”

As for switching from contract mining to owner-operated mining, Labrenz says, “it gives you more control and allows you to get better operating efficiencies, and ultimately lowers your operating costs over the life-of-mine.”

Total life-of-mine capex — including closure costs for the underground mine — are expected to come in at $327 million.

The study forecasts a 12.2-year mine life with a pre-production period of 13 months, and total gold production of 970,000 oz. for an average 80,000 oz. a year.

Operating cash costs and all-in sustaining costs for the 800-tonne-per-day operation over the mine life are estimated at US$607 per oz. and US$787 per oz., respectively.

Madsen’s after-tax net present value at a 5% discount rate is $247 million and the after-tax internal rate of return, 36%, which should result in initial capex recovered in just under three and a half years.

The mine plan in the feasibility study envisions a combination of methods from conventional cut and fill (59%), mechanized cut and fill (16%) and longhole mining (25%).

The feasibility study is based on Madsen’s indicated resource of 1.86 million contained oz. gold within 6.43 million tonnes grading 9 grams gold, and did not include mineralization from any of the project’s satellite deposits — Wedge, Fork and Russet South.

A truck hauls ore from test mining to the surface at the Madsen gold project. Credit: Pure Gold Mining.

The satellite deposits outcrop within 1 to 3 km of the Madsen mill, and will be the subject of an upcoming preliminary economic assessment that will incorporate ounces from these deposits as a mine-life extension. Wedge, the most recent discovery, sits on the south end of the same structures that control Madsen.

“The satellite deposits are discoveries we’ve made over the last several years,” Labrenz says. “Within them they have 206,000 oz. indicated resources and 226,000 oz. inferred resources and each of these zones is genetically and spatially linked into a common gold system, so they’re all related to the mineralization we see at Madsen, and it’s the recognition of these relationships that allowed us to make these discoveries — the most recent of which was Wedge.”

On Feb. 5, the company updated its resource estimate for Madsen and the three satellite deposits to 2.06 million oz. contained within 7.19 million indicated tonnes, at an average grade of 8.9 grams gold per tonne. Inferred resources were estimated at 467,000 oz. gold contained within 1.88 million tonnes of 7.7 grams gold per tonne.

As for exploration upside at Madsen itself, Labrenz says, there are several opportunities for expansion.

The deposit extends from surface down to a depth of 1,200 to 1,400 metres, and a 2017 drill hole returned 34.6 grams gold over 4.3 metres from 1,350 metres below surface — below any historic mining. A drill hole in 2011 intersected 14.3 grams gold over 2 metres from 2.1 km below surface.

“Madsen has a very pronounced north-plunge, and remains open to depth,” Labrenz says, “we’ve got two pierce points that span 800 metres that demonstrate that potential.”

Labrenz points out that the Red Lake mine is being mined at a depth of 2.5 km below surface. And while it’s costly to drill from surface, by year three of its operation at Madsen the company will be deep enough to set up in the hanging wall and drill some of the potential.

Pure Gold also plans to convert significant high-grade resources in the 8 Zone into a higher resource category, and that zone is open up and down-plunge.

Madsen is one of the highest-grade, undeveloped gold deposits in the world.

“These types of deposits are scarce,” Labrenz says. “We’ve got a feasibility study that shows strong economics and a long-life mine, and we think there’s real opportunity here for growth through our satellite resources and demonstrated exploration potential. We’re in Canada — it’s high-grade, short timeline to production.”

Assuming construction begins in April, the company would start project dewatering soon after the production decision. Construction would start in June, and mine development, in July.

The mine’s permits will need to be amended and updated, but Labrenz expects to finalize them in the fourth quarter of this year. “It’s a simplified process, and these are amendments, rather than new permits,” he says. “I’m confident those permits will be amended. The fact that we have existing permits and an existing footprint, and we really aren’t stepping outside of that, suggests we’ll have a fairly straightforward permitting process.”

Labrenz points out that Red Lake was borne out of mining, and Madsen was the first major mining operation there in 1936. As a result, “there is strong support in the local community and a large pool of skilled labour in the camp.”

Pure Gold’s 47 sq. km patented land position hosts two past-producing mines, including the Madsen mine. The two mines produced 2.6 million oz. gold over a 36-year operating history.

The project has power, paved highway access, a 1,275-metre-deep shaft and headframe, 27 levels of underground workings, a portal and ramp, and a mill and tailings facility. An existing environmental compliance approval allows for the operation of a 1,089-tonne-per-day mill and processing plant.

“The feasibility study really lays out phase one, but we see this as a stepping stone to a longer-life mine with attractive economics, and room for growth and scalability.”

Over the last year the company’s shares have traded within a range of 50¢ and 81¢, and at press time were trading at 70¢.

Pure Gold has 256 million shares outstanding for a $167-million market capitalization.