Interview with Darin Labrenz, President & CEO of Gold Developer Pure Gold Mining (TSX-V:PGM). If you want to invest in mining or invest in Gold you need to be sure about the company’s strategy and the management team’s ability to deliver. Pure Gold recently closed a debt financing agreement with Sprott for $90M. This follows closely on from an equity raise in July for $47.5M. This means that they are fully financed through to production by the end of 2020. The company is hoping that their story will mean investors invest in Gold in Canada.
Investing in mining has slowed down in Canada in the last two years. Investing in stocks such as PGM has been slow too, especially compared to its peers. Darin Labrenz explains why now is a good time to look at Pure Gold Mining and mining stocks in general. He tells us why investors should not be nervous about their mine plan following the Feasibility Study. This is a large area play which needs planning and investing in Gold mines is expensive so investors need confidence.
- Overview of the Company
- Sprott Debt Financing and Company Financials
- The Market: When is the Share Price Going to Move and Why?
- Feasibility Study, Resource Risk & Assets: What are They Focusing On?
- Why Should You Invest in Pure Gold?
- Entry into the LSE, Share Price and Shareholders
Click here to watch the interview.
Matthew Gordon: We spoke at the end of April. A lot of good things have happened since then. So why don’t we kick off, just give people new to this story, one-minute summary and then we’ll get into some of these exciting developments.
Darin Labrenz: We are Pure Gold Mining. Our flagship asset is the Madison Red Lake Mine, located in Northwest Ontario. In February of this year we completed a Feasibility Study that outlines an 800tpd underground mine with 1Moz Reserves at 9g/t, which makes it today the highest-grade development projects in Canada. Recently we announced a $90M a debt project finance package, which puts us in a position today where we’re fully funded for construction and anticipate for pour by the end of 2020.
Matthew Gordon: Well, let’s kick off with one of those things you just mentioned. I think it’s the big news of the days, the Sprott debt financing. Can you tell us a little bit about how that breaks down? In fact, how did it come about because you listed on the LSE recently. You were going to talk to both markets about raising some capital. However, Sprott has come along and are giving everything you want.
Darin Labrenz: We listed in London in May, looking to satisfy the equity component of our project financing ideally with a raise that was going to be supported by both the UK audience and the North American audience. In the end, Sprott did come along with the Bought Deal proposal and the lead investor in that was Eric Sprott himself. So Eric took down $20M of the $47.5M that we raised, putting them as a 10.2% shareholder of the company. We were able to draw in some UK participation. It wasn’t as much as we obviously had hoped for, but certainly did see some support from UK as well. Our listing in UK is still part of a broader plan to increase liquidity exposure for the company. So $47.5M raised in equity. And then we followed that up with a $90M financing package, which is broken down to $65M debt facility and a $25M US Callable Gold stream.
Matthew Gordon: That’s a lot of moving parts. You’re fully funded now. Is that correct?
Darin Labrenz: We’re fully funded. In fact, when you look at our initial capital requirement for the mine, it’s a $71M. We raised $90M in our facility, plus the $47.5M equity raise and so the fantastic thing is we’re sitting in a position right now where we’re set to pour first gold in the end of next year, but we’re still continuing to drill and continue to pursue growth strategy for the company and in the financing that we’ve done is enabled us to be able to pursue that.
Matthew Gordon: Why $47.5M equity? Why not less? It would be less dilutive? Is that because you didn’t know at the time. Were you engaged with Sprott at the time with regards to this debt facility?
Darin Labrenz: We were well down a path, with respect to a project finance facility, but at the end of the day, we didn’t really know what the final outcome would be in terms of the quantum that we would raise, the breakdown of how it would be raised. And so the $47.5M gives us the most flexibility moving forward. One of the things we want to be able to do and will be able to with this is, as I mentioned, to pursue a fairly aggressive growth strategy. And so we do continue to drill on the property and we’ll do so through the balance that you’re looking to increase Resources and areas, our new discoveries, that weren’t incorporated in the feasibility plan, we’re looking to ultimately incorporate them. The other thing is with this financing as it gives us a lot of flexibility moving forward with respect to the project build. No need for cost overrun facility, given that we have a fair bit of room in there with respect to the equity and debt components of the project finance package.
Matthew Gordon: If I look at the share chart it makes for a kind of sober reading. As I said when we spoke last time, you guys had got some great numbers in there, but the market didn’t really care and you are up from, I think we when we spoke at $0.55, but at $0.62 today, but it’s not a lot of movement. Obviously, you’ve had a bit of dilution recently, but do you think that this has just been about timing in terms of the equity raise, the way the market was going. Obviously in the last two months, Gold has moved considerably. We’ll see where it goes. If this had happened 3 months later where it clearly would have been better for you? How do you assess what’s gone on in the last three months re. around the financing?
Darin Labrenz: We can’t really predict what direction the markets are going to go. We were happy to receive a proposal from Sprott that included the equity investment by Eric Sprott. I see this as another sign of validation. When you look at the company, we have 4 cornerstone investors. You’ve got AngloGold Ashanti, which participated in equity financing, maintaining their pro-rata position so they’re a 14% shareholder. You’ve got Eric Sprott now at 10%, I’ve got Rob McEwen at 5%, and you’ve got Newmont Gold Corp in there. So a strong validation from two senior producers and two mining Titans. I can say when you look at Sprott and you look at Rob McEwen, they didn’t buy Pure Gold to come in for the mine that we’re trying to build. They bought with the anticipation that it could be much larger. And that’s certainly our view. You look at some of the opportunities that those two gentlemen have been an integral part of Gold Corp. Rob McEwan, founder of Goldcorp, that company was launched really by the discovery of the high-grade zone, deeper down in the Red Lake Mine. And similarly, when you look at Kirkland Lake, which has been highly successful, led by Eric Sprott, the Fosterville mine has really rekindled itself with deeper down, high-grade discoveries. We think that that same potential exists at Madison and the financing we raised allows us to pursue a plan to demonstrate that.
Matthew Gordon: But coming at it from the perspective of a retail investors, high net worth’s, family office investors, we’re looking at where the shares have been doing. You’ve been busy. You’ve got a great grades, great project, it’s cheap in terms of the cap backs component to this, but the market just hasn’t reacted in the way that you’d hoped. With Eric Sprott coming in now and Sprott themselves coming into this, do you think that’s good for the institutional players or do you think there’s room for retail to actually do well as well? When’s the share price going to move, and why?
Darin Labrenz: We clearly think that we’re undervalued. I have no doubt that there was a bit of an overhang with respect to project finance. So when you look at that typical mining investment curve, often companies will stall as they go into a period of project finance, into a construction period and ultimately start to generate cashflow where you tend to rerate. We think we’re really unique in this scenario in that our project build is very short. And so we made it a decision to construct last week and we’ve got a 13 month project build and anticipate pouring Gold by the second half next year. And we see this as the best of both worlds because not only are we moving towards the cashflow positive, but we have sufficient financing and funds in the treasury today to continue to drill in team to generate that growth interest.
Matthew Gordon: Let’s talk about the Feasibility Study. Because if I look at chat rooms and forums, people are nervous about the plan, can you tell them why they shouldn’t be in terms of the deep watering access, rehabilitation…those sorts of things? Why should they not be nervous about the plan that you guys have laid out here? Because if I look back, a lot of Gold companies, their prices have popped. Gold at over $1,500. Yours has moved a little bit, but not a lot. Do think there’s this nervousness in the market about your plan?
Darin Labrenz: Let’s talk about the Resource first and Resource risk. When you look at our project, we’ve got more than 1M meters of drilling that has gone into defining the Resource. In fact, the average spacing between drill holes within the feasibility reserve is 6.5m which is absolutely incredible. I mean, I’ve never worked on a project with that kind of density of drilling. So from that standpoint the Resource itself is very well-informed. This is a brand new mine that we’re building, all of the development is new. So when you look at the initial capital requirement $95M million. We’ve got about $31M going into preproduction underground development that’s putting in new openings to access the ore body. With respect to de-watering well that’s a natural phenomenon that every underground mine has to go through and I don’t see any particular risks associated with that. At the end of the day, we’ve got a very high-grade reserve, 9g/t, 1Moz in what I would call the starter mine and a huge opportunity here for additional Resource and reserve development as we push forward.
Matthew Gordon: But what is the plan? This is a very big area you’re dealing with here. This isn’t one small asset, you know where everything is because you’ve done a lot of drilling. You’ve got a plan for a development of a whole entire area. What are you focusing on?
Darin Labrenz: I mean it is a big area, but we’re talking about a mine that’s going to last for 12 years, in the base case. So we’ve got new discoveries near surface that we think have the potential to impact the mine as we move forward and we continue to drill in those areas. Ultimately, we’re looking at establishing all of the access required to develop the min. We’ll start with the existing ramp, which goes down 150 meters and we’re going to push that ramp downwards. We’ll eventually start moving into access development for the first stoping areas that’ll form the first part of our mine plan. And then in year three, we’re going to incorporate the shaft. And so what you ultimately see here is meta-materials accessing the mine via a brand-new ramp system and then all of the ore will be hoisted out of the shaft, which gives you a real operational benefit. So this is a reasonable size area but it’s an area that’s going to be developed over the course of 12 years and we think has potential to go for much longer than that.
Matthew Gordon: So the plan will evolve over time the more data you gather. And so do you feel for right now, you’re fully funded. You’ve got enough margin in there for error to make sure that this thing gets into production towards the end of next year, you’re good?
Darin Labrenz: That’s right. And let’s not forget that our project has a history. It operated successfully for 36 years, generated 2.6Moz Gold over that period at a grade of 10g/t. So we have the benefit of a successful mining history and we also conducted a test mining program last year were also achieve plus 10g/t in test mining. Within the two areas that we had planned in mine. Reconciliation was fantastic. We were within 1% on our expected tons. We overachieved our grade and at the end of the day we realised 13% more ounces out of those two areas. But one of the things that test mine showed us, is that with drilling hang wall and foot wall we were able to see better continuity in a lower grade portion of the model and ultimately, we were able to extract another 1,575t out of the area of grade of 8.7g/t, such that we actually achieved better than 50% more ounces than we expect in that area with that additional discovery. So, those all go along when you’re de-risking the existing infrastructure that we have in place. The 1M meters of drilling, very close density of drilling, it’s all brand-new development, fresh rock. This is a newer body that sits well away from any historical mining. And, then we’ve mined ourselves and achieved what we expected.
Matthew Gordon: And, so remind me again some of the numbers, the IRR is 35%-36% sort of level. What was the AISC on this?
Darin Labrenz: It’s $787 per ounce.
Matthew Gordon: A great AISC. So that all the figures that one we typically look at on this project are good. You’ve just been in this rather boring period waiting for project finance to come through. But you think people should start paying attention now, because you’re moving to production and it’s quick production too. Let’s not forget there’s a very small CapEx required for this.
Darin Labrenz: Exactly. And our project obviously is very highly levered to Gold. All of our costs are in Canadian dollars. One of the things that quietly happened last week was when Gold hit $1,500per ounce in Canadian dollar terms across $2,000, which was an all-time record high in Canadian dollars. So when you look at our IRR and after tax NPV of the project, and our base case, which was $1,275 grounds. Our NPV is $250M. Today it’s $400M, so you can see the impact of the rising Gold price., And we think that we’ve got a project here that perfectly timed to deliver into the market.
Matthew Gordon: Well, you and a lot of other Gold companies at the moment feel that way and we need Gold to sustain. That’s really interesting. Can we just finish off on the entry into the LSE? Obviously, you did that for a purpose to get out there and start talking to and have new investors see the story because the Canadian market was slightly frozen. How’s that gone for you?
Darin Labrenz: We’re really excited about our secondary listing on the main market of the London Stock Exchange. We’ve got a bit of work ahead of us to continue to broaden the exposure, generate interest and generate liquidity. We’ve traded 500,000 shares on the London market today, which is a new milestone for us and we’re committed to it. We’ll continue to do to try and develop the exposure for Pure Gold and our project.
Matthew Gordon: So that’s great about what’s going on with the LSE? How’s trading overall?
Darin Labrenz: We’ve been trading a lot of volume here over the last couple of weeks. In fact, we’ve created about 25M shares. So, I think we’ve had a bit of an overhang with respect to the financing, but I think we’re setting a new floor here and we’re really ready to break out.
Matthew Gordon: You’ve got marketing in Canada and marketing in London, and you’re committed to that?
Darin Labrenz: Absolutely.
Matthew Gordon: So, Retail’s important to you?
Darin Labrenz: All of our shareholders are important to us. Retail is a key component of our shareholder base and will continue to be so in the future.
Matthew Gordon: Thanks very much for today. Really enjoyed that conversation. Thanks for the update.
Darin Labrenz: Thank you very much. I appreciate the opportunity to talk about our project and I appreciate the line of questioning. You’ve taken a lot of character to go in depth and ask questions about our project that might not otherwise be brought to light so I appreciate the opportunity to respond. Thank you.
Company page: http://puregoldmining.ca/
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