Precious Metals

TSXV:PGM

The updated PEA more than doubles Madsen’s mine life, and highlights a pre-tax NPV of $365 million and an IRR of 54 percent.

Pure Gold Mining (TSXV:PGM) has taken another step toward restarting production at a former gold mine in Northwestern Ontario. 
The Vancouver-based company announced the results of an updated preliminary economic assessment (PEA) for its Madsen project on Thursday (September 14). The PEA was prepared by Nordmin Engineering, and is based on the Pure Gold’s latest resource estimate, released on August 2.
The company’s share price rose over 3 percent on the PEA update and has received praise from equity research firm Raymond James. In a note, analyst Tara Hassan says the updated PEA shows “notable upside from our assumptions, while still presenting further opportunities for optimization.”


She highlights that the new PEA more than doubles the mine life laid out in the original 2016 PEA; Madsen is now seen operating for approximately 14 years with a 12-month preproduction period. Average annual output has increased by 40 percent, and from years three to nine Madsen is expected to produce about 75,500 ounces; peak annual production will come in at around 85,000 ounces.
The project’s IRR has decreased compared to the previous PEA, but Hassan says it remains “attractive” at 47 percent and was not unexpected considering Madsen’s mine life is now longer. The amount of upfront capital has increased from the previous PEA, and is above Raymond James’ estimate, but “remains manageable” because the company will be able to use the existing Madsen facilities with limited modifications. That will allow the company to keep its start-up capital low relative to most of its peers at an estimated $50.9 million; that includes a 15-percent contingency.
Life-of-mine direct operating cash costs at Madsen are estimated at $595 per ounce of gold recovered, and at $714 per ounce of gold recovered with sustaining costs included. Life-of-mine sustaining capital costs are estimated at $134.7 million, including a 5-percent contingency.
“We continue to believe that Pure Gold is attractively positioned in the developer space given its potential for low capital intensity and nearer term production, exploration potential, and relative valuation, particularly in the context of recent acquisitions of Canadian assets,” Hassan concludes. She believes a planned satellite resource estimate in Q4 will incorporate drill results from targets beyond the McVeigh and Austin zones, which could drive further gains for the company.
Darin Labrenz, president and CEO of Pure Gold, said Madsen is “one of the outstanding gold deposits in Canada,” with an expanded resource, access to infrastructure and exceptional growth potential.
The Madsen mine complex has been on care and maintenance since 1999 and once produced 2.4 million ounces of gold. The property has 27 levels of underground workings, a 1,275-meter-deep shaft, headframe and a 550-tonne-per-day mill.
“We look forward to rapidly advancing the Madsen Gold Project to become Ontario’s next gold mine,” Labrenz said.
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.

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