The current rising gold price augurs well for Ontario-focused mine developer Pure Gold Mining Inc (CVE:PGM) (LON:PUR) (OTCMKTS:LRTNF) and the value of its exciting Madsen Red Lake Gold Mine, which isn't far off producing the precious metal.
A decision to advance to production is forthcoming.
For example, based on feasibility study numbers, an increase of just US$25 in the gold price generates a $23 million increase in the Ontario project's pre-tax net present value (NPV) and those numbers balloon when gold sees US$100 dollar increases as we have in recent months.
Notably, the Madsen project – which includes a past producing mine site - lies in the prolific Red Lake region, where in the last 90 years alone, more than 29 million ounces of the yellow metal have been churned out. The area also built mining titan Goldcorp, prior to its recent acquisition by Newmont, now Newmont Goldcorp Corp (TSE:NGT).
Madsen covers 47 sq kms and is host to two significant past producing mines, which together have already produced 2.5 million ounces of gold.
There is already a mill and tailings facility, paved highway access, power, a shaft, and ramp, among other vital infrastructure.
The company, listed in London and Toronto, is now on the cusp of producing; targeting first gold production in the second half of next year (2020).
So, what does all this got to do with the gold price? Well, it's been on a roll recently amid global economic uncertainty, safe haven asset buying and ideas of easier (looser) central bank monetary policies.
Gold recently came close to beating a six-year high and is currently off a tad but still around the US$1,417 level.
A feasibility study for Madsen, released this February, using a base case of US$1,275 for gold outlined a robust 12-year, high grade, 800 tonne per day (tpd) underground mining operation with low initial capital costs based on probable reserves of 1mln ounces at an impressive 9 g/t (grams per ton) gold. Madsen is the highest-grade underground development project in Canada and ranks 11th out of 132 projects globally.
The project's pre-tax net present value (NPV) was pegged in the February feasibility at an impressive $353 million, with a pre-tax IRR (internal rate of return - the higher the IRR figure, basically the higher the cashflow to investors) of 43% based on a gold price of US$1,275. The after tax NPV is $247 million based on gold at US$1,275, while the after-tax IRR was put at 36% at the same gold price.
But gold today is nearer the US$1,419 mark and as Pure Gold's metrics have -shown, using a gold price of US$1,400 an ounce, the after tax NPV at Madsen rises to $326 million ($79M more than at US$1,275), while the after-tax IRR moves to 45%. In other words, the high-grade nature of the deposit offers investors leverage to a rising gold price.
That's an impressive 32% increase in the after-tax net present value of the project with a rise of US$125 in the gold price.
"We’re in a really good position given that our project is located in Canada," Pure Gold's chief executive Darin Labrenz told Proactive.
"All of our costs are effectively in CAD. Gold is trading around US$1,410 per ounce, which pushes us closer to about $330 million in after tax NPV with an IRR of close to 50%. You can see the impact there with the improvement of more than $75 million on the NPV from that move in gold price."
Large gold system
Madsen enjoys undoubtedly a large gold system. There are 2.1 million ounces of the precious metal in the higher confidence resource category and 0.5 million in inferred. The life of mine cash costs were put at US$607per ounce and all-in-sustaining cash costs (AISC) of US$787 per ounce.
Total pre-production capital cost (capex) for the project is estimated at C$95 million (US$71M), inclusive of a C$8.1 million contingency.
In a new exploration program, Pure Gold is aiming to grow mineral resources on three new discoveries at Madsen: Wedge, Fork and Russet South.
In May this year, Pure Gold said it planned to drill up to 12,000 metres expected to focus primarily on the Wedge deposit. In addition to drilling, the program will also continue surface work to prepare another 24 targets that Pure Gold identified as high priority. Pure Gold’s previous drill intersections from Wedge, Fork and Russet South included:
- o 33.3 g/t gold over 8.3 metres from drill hole PG17-467;
- o 21.3 g/t gold over 10.3 metres from drill hole PG17-486;
- o 15.1 g/t gold over 5.4 metres from drill hole PG16-215;
- o 19.9 g/t gold over 3.3 metres from drill hole PG18-564; and
- o 354.0 g/t gold over 1.0 metre from drill hole PG18-540.
- o 76.0 g/t gold over 2.1 metres from drill hole PG16-233;
- o 27.1 g/t gold over 5.8 metres from drill hole PG17-364;
- o 39.1 g/t gold over 2.9 metres from drill hole PG15-031; and
- o 15.0 g/t gold over 5.0 metres from drill hole PG15-028.
Fork / Starratt:
- o 17.2 g/t gold over 3.5 metres from drill hole PG17-467;
- o 104.1 g/t gold over 3.0 metres from drill hole PG16-198.
The exploration program is expected to be complete by December this year.
So, it's easy to see why this company and project are gaining significant interest.
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