Pure Gold cuts Red Lake resource base by 20%

Pure Gold Mining (TSXV: PGM) has released an updated mineral resource estimate for its namesake operation in Ontario’s Red Lake gold camp, reporting 20% fewer ounces in the resource categories.

A new technical report completed by SRK sees the mine’s global resource base falling to 2 million oz. from 2.5 million oz. and the average grade reduced to 7.2 grams gold per tonne from 8.7 grams per tonne.

The new resource estimate comprises 8.7 million tonnes grading 7.2 grams gold per tonne for 2 million oz. of metal, down from 9.1 million tonnes grading 8.7 grams per tonne, or 2.5 million oz. estimated in 2019.

While the decline is material (20%), Laurentian Bank Securities mining analyst Barry Allan had been concerned the actual drop would be worse, given SRK’s history of taking an overly conservative approach to revised resource estimates, he wrote a in a research note Wednesday.

The analyst points out a revised mine plan for the ailing operation is yet to be completed. However, the bank’s internal model shows a reduced number of recoverable gold ounces to 1.3 million oz. from 1.9 million oz. previously.

Allan attributes the lower production profile to a reduced overall grade profile, from 7.2 grams per tonne to 8.7 grams per tonne, and slower start-up to initial capacity at indicated reserve grade (delayed one year to a 7.2 grams per tonne mill feed grade), but also due to a three-year reduction in mine-life (fewer tonnes mined).

“In our opinion, PGM falls from being a 150,000 oz. per year producer to a 120,000 oz. per year producer (in 2026 at an indicated capacity of 1,000 tonnes per day),” said Allan.

“The combined impact of about 32% decline in estimated recoverable ounces in our model, and a one-year slower start-up to the initial nameplate capacity, had a materially negative impact on underlying NAV, causing a 42.7% drop in estimated NAV (at US$1,750 per oz.). This is all before any unit cost adjustments or additional capital estimates that SRK may make in a revised mine-plan (due Q4/22),” said the analyst.

Held under the umbrella of Mark O’Dea’s Oxygen Capital group of companies, PureGold’s Toronto-quoted shares have cratered 92% in the past year.

The Vancouver-based miner poured its first gold at the end of 2020 and announced the start of commercial production in August 2021. Its PureGold mine, however, has struggled to consistently produce at its nameplate capacity of 800 tonnes a day, despite mill upgrades that intended to increase capacity to 1,000 tonnes a day.

Construction delays, lousy scheduling, problems with equipment, and “strategic misalignments, were quoted by the miner to explain production shortfalls. The mounting issues triggered a change in leadership early this year.

The company has kicked off a strategic review process that could involve a potential sale or merger. It also has re-arranged financing with its lender Sprott Resource Lending Corp., which provided around $12 million of additional liquidity within the next 15 months.

The two firms agreed on temporary reductions to the minimum cash and minimum working capital ratio covenants to US$5 million for the months ending June 30 and July 31, 2022.

Production at the mine has continued to fall, with head grades falling to 4.27 grams per tonne in the quarter ended Mar. 31. The company has suspended production guidance in the interim.

At press time, the equity last traded at 10.5¢ per share, giving Pure Gold a market capitalization of $72.9 million.