Eric Sprott's Pure Gold Investment Raises Mine's Profile
Pure Gold Mining (TSX-V: PGM and LSE: PUR), the company focused on advancing the Madsen Red Lake Gold Project to become Canada’s next major gold mine, received a huge endorsement in the eyes of investors this week, as mining money guru Eric Sprott poured his millions into the gold developer alongside key, strategic cornerstone investors; AngloGold Ashanti, the third largest gold mining company in the world, measured by production.
Sprott’s investment came in the form of a bought deal financing in which Pure Gold raised C$47.5M financing. The Canadian billionaire personally took approximately $20 million of the available units, with the others placed with an enviable set of institutional co-investors and cornerstone investor Anglogold Ashanti. This puts Mr. Sprott at 10.2% ownership of Pure Gold.
Rob McEwen, Newmont Mining and AngloGold Ashanti are among Pure Gold’s other large backers. This latest raise puts over 30% of Pure Gold’s float, now in the hands of strategic investors. The question some observers were left asking is quite why the junior miner chose to raise funds now, as it was already relatively well funded and had just kicked off the latest phase of its exploration of Madsen.
The company recently raised $4.5m flow-through funds through a private placement which are allocated to the company’s current exploration drilling program, and a further $1m from its own management team exercising options and acquisitions in the open market. (See Pure Gold News Release April 15th, 2019). But a measure of president and CEO Darin Labrenz’s ambitions is that the company added a listing on the main board of the London Stock Exchange.
The 2019 exploration programme, which started at the end of May, consists of about 12,000m of diamond drilling as part of a phased program designed to focus on the Company’s Wedge, Fork, and Russet South discoveries. The ultimate goal is to grow the current mineral resource and define additional targets.
Pure Gold’s previously released drilling highlights from Wedge, Russet South and Fork include:
Wedge:
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.
Russet South:
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.
Crucially, the deal brings in Sprott as a new major shareholder. The terms he and others received this time around - C$0.55 per share and a 3-year half warrant at C$0.85/share thrown in for good measure - have been described as generous by some, but this is in the context of an emerging bull market for gold. Most importantly, Pure Gold is now fully funded, with no need for additional equity.
Already there are indications that other investors see Sprott’s major investment as a signal that he’s looking to Pure Gold to replicate his $1bn success on Kirkland Lake Gold. He is known to be re-deploying $200m of that billion into other companies. Many smaller investors will conclude that all they must do now is follow the obvious leader.
Certainly, the Madsen project has great potential for profits to soar if gold continues to climb above US$1,400 an ounce. But its fundamentals are based on a $1,275/oz assumption: at that rate the company’s own projections suggest After-Tax NPV of $247m and After-Tax 36% IRR. At $1400, the After-Tax NPV would be projected to hit $326m with After-Tax IRR at 45%.
Pure Gold therefore ticks the boxes for gold bugs and canny mining investors alike, and Sprott’s backing will be like a red rag to thousands of bulls. The obvious cautionary note is that they are following someone who can nowadays afford to make risky investments, even if he enjoys a reputation for always seeking out value, and who companies are more than willing to roll out the red carpet for.