Pure Gold Mining Inc (TSX.V:PGM) (LSE:PUR) (OTCMKTS:LRTNF) has set itself up with a dream-team of key investors, the most recent of which is the founder of Sprott Capital Partners, billionaire investor Eric Sprott, who now has a 10.2% stake in Pure Gold, making him the second-largest shareholder behind Anglogold Ashanti (NYSE:AU) (ASE:AGG).
Anglogold Ashanti is a founding investor in the firm, it is also the third-largest gold mining company in the world, based on production.
Sprott joins a list of key investors in the project, which includes Bay Street financier and founding Pure Gold investor Rob McEwen and Newmont Goldcorp (NYSE:NEM), amongst others, alongside Anglogold Ashanti.
The firm just announced the closing of concurrent bought-deal and non-brokered private placements totalling C$47.5 million. The capital will allow Pure Gold to continue development work and aggressive exploration focused on resource expansion at its Madsen Red Lake gold project, as well as being used for general corporate purposes. Eric Sprott is leading the way, taking around C$20 million of the bought-deal private placement. Most importantly, these significant equity transactions leave Pure Gold fully funded.
Each unit in the placings consists of one share, and one-half of one share purchase warrant. Each whole warrant will entitle the holder to acquire one company share for three years from the closing for C$0.85.
Pure Gold is advancing the Madsen Red Lake Gold Mine in the historic Red Lake district. More than 29 million ounces of high-grade gold has been mined from the Red Lake mining district of northwestern Ontario, making it one of the largest gold-producing districts in Canada.
The mining company is aiming to put the project into production within the next year – an achievable goal given the scale of the project, amount of infrastructure already in place and the very low capital requirement of the project at just C$95m.
Brownfields are the recent success stories
The Madsen Red Lake Gold Mine is an advanced brownfield site with existing infrastructure in a proven jurisdiction.
And it is brownfields that have been the recent success stories in the latest sector wave, with examples that include Kirkland Lake Gold (TSE:KL), Integra Gold Corp (TSE:ICG), Wesdome Gold Mines Ltd (TSE:WDO), Claude Resources, which was acquired by SSR Mining (TSE:SSO).
Sprott recently made around C$1 billion on Kirkland Lake Gold in Ontario and is re-deploying C$200 million of that into other companies that appear to have potential. Pure Gold has made the list and the hope is Sprott can duplicate the success seen with Kirkland Lake Gold.
Economics of the project appear strong
With the rising price of gold (US$1,421.05 per ounce on Thursday), the economics of Pure Gold's Madsen Red Lake Gold Mine appear to be growing even stronger.
At a base case of US$1,275 per ounce gold, the firm's Feasibility Study in February projected an after-tax NPV (net present value) of $247 million (using a 5% discount rate) and an internal rate of return (IRR) of 36%.
If one uses a base case of US$1,400 per oz gold, the after-tax NPV is $326 million and an internal rate of return of 45%.
In short: these are compelling numbers, and even more compelling with a rising gold price.
The timing of Pure Gold's Madsen Red Lake Gold Mine is also promising, timed to deliver into a rising gold market, with the goal of reaping the rewards for shareholders.
For investors, Canadian gold is trading around C$1,900 per ounce, making it one of the more attractive and profitable gold producing countries in the world. It appears, Pure Gold's equity raise is the last one needed for the mine, according to the firm, representing a window of opportunity.
Shares in Pure Gold closed trading at C$0.62 on Thursday, up 10.7% on the day.
Contact Katie Lewis at [email protected]