Pure Gold advances exploration at Madsen

Pure Gold Mining (TSXV: PGM; US-OTC: LRTNF) has started a mid-year exploration program at its Madsen gold project in Ontario’s prolific Red Lake gold district, after encouraging results from its 5,000-metre drill program.

The company’s wholly owned flagship project covers more than 50 sq. km, making it the third-largest land package in Red Lake. It hosts two past-producing mines; mine infrastructure, including a permitted mill and tailings facility; a 1,275-metre deep shaft; and a high-grade resource.

The resource lies within four zones: Austin, South Austin, McVeigh and Zone 8. It contains 928,000 oz. gold in indicated resources based on 3.2 million tonnes grading 8.93 grams gold per tonne, plus 297,000 oz. in inferred from 790,000 tonnes at 11.74 grams gold.

Rather than recondition the shaft and process the underground resource — which is what Madsen’s previous owner Claude Resources (TSX: CRJ; US-OTC: CLGRF) did, before it ran into financial problems — Pure Gold is focusing on exploration.

“What Claude was doing with the Madsen mine was really trying to fast-track it back into production. And what we are trying to do is take a different approach and discover more high-grade at surface, and build a resource from there. And then you tap into the permitted mill and the permitted tailings facility that we have,” the company’s director of investor relations Patrick Reid says.

Pure Gold is basing its exploration model on new geologic understanding of ultramafic contacts and structural controls at Red Lake that have led to large gold discoveries in recent years. Among them are Goldcorp’s (TSX: G; NYSE: GG) High Grade zone (HGZ) and HG Young at the Red Lake mine complex, and Rubicon Minerals’ (TSX: RMX; NYSE-MKT: RBY) F2 gold system at the Phoenix mine.

What spearheaded these discoveries in the more than 80-year-old district was an initiative led by former Goldcorp CEO Rob McEwen in 2000. The executive, looking to revamp the then-underperforming Red Lake mine, made all of the asset’s geological data available online to anyone who wanted to help uncover the next 6 million oz. deposit, in exchange for cash prizes. The “Goldcorp Challenge” resulted in over 100 new targets and ideas.

“That process really reinvigorated Red Lake in terms of new and modern exploration techniques,” Reid says. Pure Gold’s director Mark O’Dea placed second in the competition, while the junior’s chief geoscientist Christopher Lee was a semi-finalist.

Now Pure Gold — led by CEO Darin Labrenz, a former geologist at Placer Dome’s Campbell mine in Red Lake — aims to uncover its own high-grade gold deposit, using a new geologic model and modern exploration techniques to test Madsen’s 10 km long ultramafic contact near surface.

“No one has really looked at this property through an exploration eye lens, so to speak, in the last 30 years. So let’s take the Goldcorp challenge kind of aspect and the new exploration models that have been refined there over the last 10 years, and make another new discovery like what Rubicon did, or what Goldcorp is drilling off at HG Young,” Reid says.

While historic mining at Madsen focused on unconformity-related mineralization, the junior has shifted its focus to ultramafic-related mineralization.

Zone 8 — unearthed later in the mine life — sits in the footwall of the Madsen mine along the ultramafic contact, and hosts 50% higher grade than the historic run of mine, the company says.

As part of its 2015 winter program, Pure Gold has tested prospective geologic structures in the Russet South and Fork zone, with an objective of finding new zones of near-surface, high-grade gold mineralization, Reid notes.

It completed 4,000 metres at Russet South, which sits 1.4 km west of the Madsen shaft and 1.6 km up-dip from Zone 8. A recent highlight hole testing the Kappa target hit multiple, discrete high-grade zones, including 0.6 metre of 35.2 grams gold and 8 metres of 5.4 grams gold, with a 2.9-metre interval grading 12.3 grams gold.

Pure Gold says the mineralization at Russet South is similar to the Madsen deposit and other recent discoveries at Red Lake, such as Goldcorp’s HG Young, Cochenour and HGZ.

Drilling to date at Russet South has outlined “near-surface high-grade gold mineralization with a 600-by-350-metre target horizon,” and remains open to expansion, Pure Gold says.

The firm also recently completed 1,000 metres at the Fork zone, 1.7 km southwest of the Madsen mine, which extended the strike length of the zone by 350 metres southwest.

“Grades and thickness continues to be a challenge in this zone, but the exploration thesis for wider and higher grades at the intersection of an ultramafic unit remains,” Salman Partners’ analyst Kevin MacKenzie writes.

While the firm has better exploration luck at Russet South, MacKenzie cautions the company has hit “thin pockets of moderately high-grade mineralization peripheral to known zones of mineralization,” and that its exploration program “is set to lose some momentum,” given the mid-year program contains little to no drilling.

In response, Reid says it’s a tough market to raise funds for the extensive drilling needed to uncover large, high-grade gold deposits. “When you’re trying to target pretty narrow structures, your hit rate is not as high as if you were drilling off a porphyry, where you’ve got hundreds of metres of mineralized zone that you are drilling into. Here you are trying to tag into these kind of narrow structures that could be 3 to 5 metres wide. So if you are 10 metres off, you may get a little halo of gold, but you didn’t hit the right zone.”

Given the constrained market, the company is drilling the highest priority targets and waiting for the assays to come in before taking the next step, Reid says.

The mid-year program will compile data, refine 3-D modelling and incorporate drill results. It will also include surface work and mapping for a late-2015 drill program, which will focus on Russet South and test continuity between the Alpha, Beta and Kappa targets.

The junior recently closed at 15.5¢ per share with a $4.5-million cash position. Salman Partner’s MacKenzie has a 12-month target of 35¢ per share. “Although we feel that the Madsen gold project has lost some exploration momentum … the overall exploration and investment thesis has not changed. Pure Gold remains well-positioned for discovery, and benefits from a permitted mill and tailings facility, a safe operating jurisdiction and a management team with a track record of exploration success,” he writes.