Pure Gold Mining sell-off smells of an opportunity…
Few junior mining companies in the world today have an opportunity like Pure Gold Mining (PGM.TSXV), first covered by Lawrence in the July edition of this newsletter.
Pure Gold is an approx. $30 million market cap company that owns the historic Madsen mine in the prolific Red Lake gold district of Ontario, Goldcorp’s backyard, that is fully permitted, has a mill on site, and 1.2 million ounces of high-grade gold.
That’s not the focus of the company however. They are out to find the next multi-million ounce high-grade gold deposit in Red Lake. To give you an idea of what success in the area is worth, Goldcorp paid $1.8 billion for Gold Eagle in 2008 before the company even released a resource.
The Red Lake district opened up in the late 1990’s when then Goldcorp CEO Rob McEwen publicly released data from the camp on the internet and solicited some 1,500 responses from geologists worldwide. The runner up in the Goldcorp Challenge was a young geologist named Mark O’Dea who is now one of the mining industry’s most successful entrepreneurs. Note, Mr. McEwen owns roughly 16% of Pure Gold on a fully diluted basis, according to INK Research.
O’Dea and partner Darin Labrenz (current President and CEO of Pure Gold) acquired the Madsen project this year from Claude Resources on attractive terms (roughly $11 million in cash and shares) and are bringing innovative geological techniques to the project. Management are focusing their exploration efforts where mafic and ultramafic rocks meet, a contact that runs over 10 kilometres on Pure Gold’s Madsen property. This contact has resulted in many of the recent discoveries in the area, including Goldcorp’s Dickinson mine, Gold Eagle, and Rubicon’s Phoenix F2 deposit. The theory has never been fully tested at Madsen, where the project previously had a production focus, rather than exploration.
Pure Gold recently started a 9,000 meter drill program and expects to start testing some of its most prospective targets this winter. They intend to spend $4 million of the roughly $5 million in the till currently on planned exploration programs.
The company’s shares went on a tear in the late summer, hitting $0.58, but have fallen back to the $0.28 range, reflecting an attractive entry point (roughly $26 million enterprise value).
Note I am long PGM shares as a speculation.
Here’s the SIS presentation transcript and video:
Darin Labrenz, President and CEO of Pure Gold Mining October 9, 2014 Subscriber Summit Presentation
Recorded October 9, 2014 – 10:50AM PST
Darin Labrenz: Thank you to the organizers and ladies and gentlemen, this is Pure Gold.
Pure Gold is a new company, we started out this year, and really grew out of a conversation I had two years ago with Mark O’Dea.
I was managing a small junior that was struggling to get any attention in a declining market and we talked about various opportunities that were out there and really declining markets are often where you find opportunities. Mark suggested the Red Lake district in Canada.
I’m a geologist and I worked in Red Lake for the Campbell mine as an underground geologist, went on to act as chief geologist, which gave me a fantastic appreciation for the camp, and for what high grade gold really looks like.
Mark suggested the Madsen gold project and I was immediately interested and attracted to it.
We went out to discuss the possibility of acquiring the project two years ago. The initial valuation that was thrown out was dramatically different than what we were willing to pay at the time, but we watched the market continue to decline, and work in our favour, and in March of this year we closed an acquisition acquiring the Madsen gold project for approximately $10.9 million in cash and shares.
I will tell you a little bit about what we intend to do. Our tagline is dream big and that is exactly it. With the Madsen gold project, we have acquired 50 square kilometres of land in the Red Lake project, and it’s not just land that we have acquired, it’s land that’s centred on a major structural feature, it cuts across the belt, 12 kilometres, multiple past producers, including the Madsen gold mine, which is the second largest past producer in the district, producing 2.5 million ounces at about 10 grams per ton.
We also acquired a 500 ton per day mill, and that mill is currently on care and maintenance, and the project is fully permitted, those permits have been transferred to our name. So its a fantastic foundation to build a company on. Resource currently, 1.2 million ounces at 10 grams per ton, but we are setting that aside for the moment, and we are dreaming big. So our stated corporate objective is to go out and make the next million ounce discovery in the Red Lake district.
We surrounded ourselves with good people, strong technical and capital markets expertise and deep roots in Red Lake. When you look at the board and management team, collectively we have been involved in over $4 billion in mergers and acquisitions in the last four years, so this really is a fantastic team that we are moving forward with and applying to the Madsen gold project. We are 100% focused on the Madsen project and making a new discovery.
The shot here shows the land position. As you can see we sit on the south end of the camp, of course the major operator in the district is Goldcorp, Goldcorp has operated the Red Lake mine for decades. This is a mature district. The Madsen mine went into production in 1935. There has been a succession of new discoveries in the district that continues until today. For a district that is very mature, it continues to deliver outstanding results in terms of discovery.
Just a shot here of the infrastructure in place here, we have a headframe in the foreground and a mill in the background. It’s not the original mill from the Madsen mine, it was purchased in the late 1990s from Dona lake, and moved across on site, assembled on site. It’s currently on care and maintenance, five compartment shafts under the headframe, to 1275 meters depth, 27 levels of underground workings, again it’s a permitted project, but we are setting aside for the moment.
When you only have ten minutes, its an opportunity to tell a story. So this is really trying to wrap up the Red Lake district in a chart. It is a very mature district, and I worked there in the mid 1990s at the Campbell mine. If you look at that timeframe, it was a very different place. At the time, really only the Campbell mine was operating. The Campbell mine and the Dickinson mine are a single operation under Goldcorp now but they were distinct at the time. We were producing at Campbell about 350,000 ounces per year at 17 grams per ton. Across the fence, Dickinson was producing about 50,000 ounces per year and they were losing money. It was a unionized mine, they launched the largest strike in Canadian history. While it was a horrible time to be there, from that perspective, it was the best thing that ever happened to Red Lake.
They took that time to sit back and think about the geology and think about where the next discovery is going to come from. Rob McEwen who was managing Goldcorp at the time launched the infamous Goldcorp challenge, put all of the data on to the internet, and asked the world’s geologists to think about it, 1500 entries from 50 different countries, and ultimately the high grade zone was discovered out of that.
Four years later, when Goldcorp started up the Dickinson mine, 616,000 ounces were produced at 82 grams per ton. And that’s what I mean about Dream Big, this camp can really deliver. Goldcorp was grown out of that discovery into the company it is today. Ultimately they acquired Campbell mine, so they really had the last laugh there.
You look at what that discovery did, it’s really changed the Red Lake district. The discovery came along the contact of two important rock units, Mafic volcanics and ultra-mafic volcanics. That understanding provided a fresh perspective on the camp, and people started to look at the older producers and say, we have ultra-mafic, what about here? So what you saw is for instance the Gold Eagle acquisition of the historic Gold Eagle mine. Really it’s the down plunge extension of the Cochenour mine, started to drill along that contact, made the Bruce Channel discovery. Goldcorp acquired Gold Eagle in 2008 for $1.8 billion dollars and there was no resource at the time.
If you look at what Rubicon is doing, they acquired the old McFinley mine, that was actually a failed venture that went bankrupt, they were drilling along the mafic-volcanics, the vein system there, they shifted the attention into the ultramafic-mafic contact and they discovered the Pheonix F2 deposit, now fully funded going into production next year.
We look at the Madsen Mine and we feel that has not had any sustained exploration focus. Discovered in the mid 1930’s, it’s really been an operating mine since that time. Our predecessor for the last 20 years was focused on bringing it back into production, building another 50,000 ounce per year producer, but we think there’s potential to make a new discovery there. We look at 8 Zone there, shown as a star, in 1969 it was discovered by accident along the mafic/ultramafic contact, and we think that points toward the future.
We have a cross section here, sliced through the earth, on the right side you see the Austin zone labeled, that’s where all the past production came from. The 8 zone sits at depth in the ultramafic. It’s a quartz carbonate vein system, its about 50% higher grade than the typical run of mine for the Madsen mine, and it has the look and feel and similar environment to the high grade zone up to the North. We think that is our proof of concept, it proves, without a doubt, that at Madsen, you have the potential for high grade mineralization along the ultramafic contact. So what we are trying to do is bring that contact back up to surface, and look for a new discovery.
We are really only looking at 2 dimensions there, that contact runs for over 10 kilometres on our property.
I wouldn’t be a geologist if I didn’t put a cartoon up here. Really just a conceptual model showing again the Austin mineralization, the Main Madsen Tuffs, as its labelled here, focus of past mining. The 8 zone sits along the ultramafic at depth, It’s controlled by the way those rock types interact along that contact. We are looking for bends, wiggles, disruptions, bringing it back towards surface, and again, looking to make a new discovery on that contact.
We acquired the property in March. We acquired a significant historic data set that we have been working with to generate targets and generate a conceptual for the belt. We have started drilling, we started surface drilling in mid August, and we have about a 9000 metre program planned for this year. It’s really just the early stages.
On the left side you see targets along the unconformity, close to the mine, and then moving out into the winter, we will be targeting more aggressively some of the targets along the ultramafic contact. About a $4 million exploration program for this year, we currently have $5 million in the treasury, so we are well funded to conduct our exploration.
This again steps back and speaks to the excitement that we have for this property. The Russet South target sits actually directly up plunge of that 8 Zone that we talked about earlier, at depth. The Russet South is at surface, it’s along the ultramafic contact, it was actually explored in the 1940’s when the property was less consolidated than it is now. It was held by a different operator, they were targeting mineralization along the contact, and you can see some results along the bottom left of the slide there, again from less than a meter at 63 grams, up to 4 meters at 14.4 grams, this all pre-dates the 1980’s, and really has not been followed up on. So again, conceptually here, what we are trying to do, is take that discovery at depth, and bring it back up towards surface, to make a new discovery, to ultimately drive a development story forward.
Cross section really highlights that potential again. You see the shaft on the right, the Austin Tuff, focus of past mining, the 8 zone at depth, sitting about 1000-1500 meters below surface. If you follow that ultramafic unit back up to surface, you have 1.6 kilometres there. Russet South sits directly up plunge of that mineralization at depth. 1.6 kilometres has really been poorly exposed, because recall, this has always been under an operational focus.
That’s only two dimension, again flip it back into that third dimension, and you’ve got 10 kilometres of the ultramafic contact lying at surface there relatively under-explored.
In summary here, we have stepped out into a difficult, declining market for the precious metals exploration industry. We have acquired an asset in the heart of Red Lake, a Canadian jurisdiction. High grade, the Madsen deposit is the 14th highest grade undeveloped deposit in excess of 1 million ounces in the world, that puts it in the top 2% worldwide. We have a history in the past 20 years of major discoveries in the camp that really have driven value, and we are out to dream big and make the next big discovery in Red Lake, thank you very much.
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