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Pure Gold approves Madsen Red Lake mine development, secures US$90M funding

Pure Gold Mining Inc. approved the decision to build the Madsen Red Lake mine and secured funding to fully develop an underground mine at the company's Madsen gold project in Ontario.

The company said Aug. 7 that it will immediately kick off development and is targeting first gold pour by the end of 2020.

To fund the development, Pure Gold closed a US$90 million project financing package with Sprott Resource Lending Corp. The package includes a US$65 million credit facility and a US$25 million callable gold stream.

The credit facility has a seven-year term and will accrue interest at a rate of three-month London interbank offered rate plus 5.50% to 6.75% per annum. The company will receive an initial US$10 million at closing.

Additionally, Pure Gold will receive the US$25 million as prepayment for 5% of the gold output until the delivery of 50,000 gold ounces, after which the stream will reduce to 2.5% of gold production.

The company can terminate the gold stream by either paying US$35 million June 30, 2021, or by paying US$38 million June 30, 2022.

Pure Gold noted that the recent increase in gold price increased the estimate for Madsen's after-tax net present value, discounted at 5%, to C$369 million, with a 49% internal rate of return and initial capital expenditure of C$95 million.

A February feasibility study for the Madsen Red Lake deposit generated a posttax net present value of C$247 million, at a 5% discount rate, with a 36% internal rate of return and a 3.4-year payback period.

The company has a cooperation agreement in place with the First Nations on whose land Madsen is located.