Pure Gold (TSX-V:PGM) – Strong Fundamentals and Listing in London to Broaden Appeal

Pure Gold (TSX-V:PGM) – Strong Fundamentals and Listing in London to Broaden Appeal


Hello and welcome to CRUX Investor.
We’re going to be speaking with Darin Labrenz, the CEO of Pure Gold in just a
moment and catch up with him with regards to what they’ve been up to since
we spoke earlier in January and looking forward into 2019.
Hello Darin. How are you? Doing well. How are you? Not too bad, not too bad?
Good to speak to you again. We caught up in January to let us know
what you were up to then. A few things have happened since then, so maybe you
start off and give us a couple of minutes on where things are today and
then we can get stuck into your plans for this year. Sure. As a reminder our project is in the heart of Red Lake, Madsen Red Lake gold project. We have had a very eventful 2019 thus far. I’ll start out with a Resource
updates that the came out in early February. That Resource update outlined a
mineral Resource of 2.1Moz @ at 8.9g/t in the Indicated
category. And another 470, 000 oz at 7.7g/t in the Inferred category. So
a very robust strong Resource. On the heels of that, we released a Feasibility
Study (FS) for the core part of the Resource, the main part of the Matteson deposit if you will and that Feasibility Study (FS) outlined a robust long life of mine (LOM) with very low capital hurdle of CAD$95M and after-tax NPV about CAD$247M, after-tax IRR of 36%. Importantly
that Feasibility Study (FS) really is the base case over the first phase of our development plan to highlight the growth and scalability of
the project. We put out a preliminary economic assessment (PEA) on some of the discoveries we’ve made over the last several years,
those include Russet South, Fork & Wedge. And those those show an
additional four years of mine life (LOM). They’re shown as an end of mine life extension.
They add CAD$51M in after-tax NPV, but we think there’s a real
opportunity here to continue to grow the Resources in those areas and look at
potentially bringing forward into mine life and then looking at scaling up the
asset. Right okay so tell us… actually let’s just step back a little bit on some
of the numbers… so tell us what you picked these assets up for
when was that? So we’ve had the Madsen Red Lake project for five years.
We’ve consolidated the land position over the over that time period and our
net cost of acquisition was CAD$8.5M which is really remarkable when you look at what we acquired at the time. 47km2 of patented land, which means we own the surface rights and mineral
rights. At the time the Resource was 900,000 oz Indicated, 300,000 oz Inferred. We’ve effectively doubled it over the last
five years. And it came with infrastructure. There’s a mill on site,
tailings facility, underground access and is permitted as a mine. So really all of
those features really lend themselves towards the robust Feasibility
Study which put out. So I guess that PEA will kind of inform some
that some of the numbers I’m about to ask you about. You’ve spent CAD$8.5M on that, over the last five years you’ve doubled the Resource, you
know I guess there’s some rehabilitation costs in terms of what
you inherited in terms of infrastructure is there or is that is that all fully
functioning? For the most part, it’s fully functioning. We incorporate.. in the
Feasibility Study (FS) will be a improvement to the mill. We’re gonna take that from 600 tons per day to 800 tons per day. We’re going to
modernize it with instrumentation controls, introduce a gravity circuit. All to take advantage of some of the metallurgical results that
we saw as part of the Feasibility Study. So there is work to be done there but
it’s not just what I would call refurbishment, it’s actually improving
the mill to to improve the production profile of the the project. We’re looking
at effectively a new mine here. All of the developments that we’re putting in
is new and some brand new stopes and fresh Rock. So it really is a new mine
that we’re looking at. So tell me about some of the plans you’ve got for
this year. I do want to come back to some of the numbers but tell me about what’s
planned for this year, in relation to cash you have at the moment. I know you raised a little bit of money recently with as a Sprott Capital Partners, not to
be confused with Sprott Global. So why did you do that? And
what’s that money for? So that money was raised through the Flow Through
markets here in Canada, which provides benefit to shareholders and enables us
to to raise money at a premium. It is directed towards Exploration and so
despite the fact that we’re on the cusp of Production here at Pure Gold, we
have not in the past and we have no intention really of taking our foot off the
pedal. And we’re going to continue to drive things forward. That money will primarily be
spent on expanding the Resources that we see on these new discoveries, looking
to increase the confidence converted from Inferred to Indicated. And ultimately
really tie into our plan, which is to try and bring those two deposits
forward in the mine life and look at scaling up of the infrastructure once again. We’ve got a goal here of outlining a project that can
deliver 100-150,000+ oz a year over a 10 or more year period.
Again the Feasibility Study (FS) is the first phase of that development plan. The
PEA we put on the various discoveries is the next phase. And tremendous
exploration upside remains on the property.
Understood so you say in terms of the elements which are gonna cost money
this year, what are those? Just in a bullet point form. Yes, so we’ve got our
Exploration program. CAD$5.1M, that we just raised and that’s going to
be directed towards Exploration, as I described. We are out right now looking
to finance the project. It’s a CAD$95M, initial capital requirement, which when you look around the world of projects, it’s
really one of the lowest capital hurdles out there and that’s because we are able to
take advantage of some of that existing infrastructure. So just quickly what’s
what’s your NPV in relation to the CAPEX. CAD$147M on the base case. Right and the CAPEX. CAD$95M. So
that’s okay, that’s that’s a nice ratio right there and giving what an IRR
of 36%. So you’re well over 30%, those are
good numbers… okay sorry please carry on with the rest of the activity. So
we have Endeavor Financial engaged. They’ve been working with us on the
project finance front. And there is significant interest in
financing the project. Likely looking in a combination of debt and equity. The ability to leverage more debt on the project is a
possibility given the infrastructure that’s on site there. With that project
financing solved, we would look to construct. And it’s a very short
implementation schedule we’re looking at about 13 months from go point to to producing
gold. And so conceptually, if we have our finances arranged
mid this year, we’d be pouring gold but second half of next year. What sort of rates? What sort of volume? And how does that scale up in terms of cash? It it scales
up from initial production in and around the 75,000 oz range, up to Year 5 we’re
producing 125,000 oz and so we’ve got a core five-year window in there where we’re about 100,000 oz a year. We’re generating over CAD$50M in cash flow on an annual basis and so it’s a very strong core part of the production plan.
Those are quite interesting numbers, so it comes to the question then ‘so
so what’s happening with the share price at the
moment’ because it’s been fairly static? You know high of $0.54, low of $0. 53. It’s steady. Are people not interested in the story? The numbers would suggest they
should be, so what’s happening? Yeah absolutely, I think there’s a bit of a
market disconnect there. And clearly we ‘re a little bit frustrated by the
share price as it currently stands. I think we’ve suffered from from a few
things here in recent weeks. One is a perception that we’ve entered into a dull quiet period where we need to go out and permit and construct and
there’s not a lot of news flow and that’s quite typical of a mining project where you see those doldrums, if you will.
Ours is very different. We have a low capital requirement, very short to
execution schedule, as I’ve described, and we’re not slowing down. As I indicated
we’ve got a CAD$5.1M Exploration program that will be
commencing here in the near term and will continue to advance our
discoveries and look to grow those Resources. And so it’s going to be an
exciting period as we move forward. So I think we suffered a bit from that. There
was some opportunistic profit taking from from some shareholders, people who had been in in the early days, and had seen a rise
from $0.20 up into the $0.70 range. And so we suffered there a little bit
from that as well. And then the perception that we’ve got to finance the
project. I think those all play into where the share price is… And what do you
mean by that, what perception? Dilution. Really looking at the the potential for dilution down the road. Obviously
as a board & management group, we’re concerned about that. We’re all
shareholders, and our key is to maximize value and minimize dilution as
much as possible. And do you think the Canadian market is
bored of your story? I don’t think. So I mean when you look at the markets in
general, I think unfortunately they’re bored with the sector and we’ve all
suffered from that. But when you look at Pure Gold, we acquired this
project, we think in…..we perfectly timed the market. There’s there’s no way
conceivable that you could acquire a project like this for CAD$8.5M in a more buoyant market. And so we were acquiring it at a low
point, our cost of entry was quite low. We’ve been able to successfully
raise money across the five year period to drill and advance the project. We’ve
drilled over 200,000m. We’ve seen the Resource double over that
period. We’ve now got first-time disclosure of Reserves with 1Moz @ 9g/t so I wouldn’t say the markets bored. We’ve
been one of the few that have successfully raised money and moved the project forward. But you know we do suffer to this with the broader market to an
extent. So why are you looking at an AIM listing. Yeah it’s not
an AIM listing, it’s an LSE. LSE, pardon me. Really it is to broaden
the global exposure and so we think this is it’s an important opportunity. When
you look at the landscape there’s 1,200 companies listed
on the TSX or the TSX V. You move across to the LSE, you’ve got 155 companies. If
you look at market caps, $2Bn of less, you’re
down to 42 companies so will be one of 42 companies. It’s a real differentiator.
There is a structural shift in the funding dynamics here in Canada and
really that is a move from what I would call ‘active management’ into ‘passive
management’. And so you’ve seen the growth of ETF’s, Fund Managers, Generalists who said well I want some exposure to the
industry. I’m not gonna go out there and pick my companies. I’m gonna put 8% into an ETF. And what that’s done is it’s drawn funding away
from those active managers. So we’ve seen that pool of capital decline. At same time
as we’ve seen the management… assets under management (AUM) for ETF’s has grown to over $14Bn. So that dynamic has played into
the ability to raise funds. Our story is near term production, it’s
Canada, its high-grade, one of the highest grade development projects in the world,
tremendous growth opportunity, organically, tremendous exploration
upside, and we think that will play very well, to not just the UK market, but the
broader exposure that gives you across the Asia markets and elsewhere. So
you think LSE opens up not just Northern Europe but also Asian market as
well. So why not why not Singapore listing then? This is a natural evolution for us. The last couple financings that we’ve conducted, we’ve seen
significant involvement over in UK and in Europe. And so it’s a
natural evolution for us. And have you got institutional… I mean you’ve been
in road shows in Europe… I’m guessing have you?….was this a
precondition from some of the institutions? Is that is that what driven
your thinking as well? No, it’s not a precondition. Again this really
is about broadening that global reach. Ideally increasing liquidity and
increasing our exposure. Obviously we will be a company that
would be available for a UK only fund to to invest in. And so that that’s an
opportunity, it’s not a precondition of any kind. So let’s let’s look forward to this year. Talk to me about why
investors should believe that you’re going to deliver a shareholder value.
ie: you’re going to drive the share price. I mean are we going to be looking at more
institutional investing or you also gonna be talking to retail, High Net
Worth (HNWI’s) and Family Offices. How do you drive that share price for people
this year? We’ve got a broad mix on our register now between the
institutional ownership, high net worth, retail ownership. We’ve got some
strong strategic investment including Anglo Gold Ashanti and Rob McEwen,
founder of Gold Corp. And we will continue to reach out to all markets moving
forward. We think we’re fundamentally undervalued here. When you look at even our price to NAV basis. We look quite strong. We’re in Canada, not only
that were in Red Lake which is a… it’s one of the birthplaces of
mining in Canada, highest grade gold camp in North America. We’ve got 1Moz Reserves now @9g/t that shows a very robust
mine that will operate, in our base case, for 12 years. I have no doubt it
potential much beyond tha. So we think that we’re going to drive real value by
executing on our base case, building at that first phase
of development. But also I point to the ability to continue to grow those
satellite discoveries to incorporate them into a future mine plan and the
tremendous exploration upside we see on our property. I think those are all going
to be value drivers and having that low capital requirement,
having that significant permitting in place, and a real short to
implementation schedule is all going to make that value generation move fairly
quickly. I guess the access to capital and the cost of that
capital going forward. I mean you mentioned Rob McEwan. Obviously
well-known in the industry, perhaps not so much this side of the pond. Has he
been part of this thinking and in terms of your strategy going forward? I mean
how involved is the guy? I mean we have conversations with with all of our
significant shareholders to keep people updated and so forth. in
terms of active involvement, they are they are passive, from that perspective
but clearly that we want to keep a relationship with all of our
shareholders. Do you expect them to keep investing going forward in terms the new rounds or are they gonna sort of
dilute out? I would expect you’re gonna see a mix in there. You know some
of the significant shareholders are clearly going to continue to invest and support the
project. And you’ll probably see some of them turnover as well, which we’ve seen over
the last last month. Are you buying at the moment? We, the management has been buying. You look at our reporting and we’ve all been buying, not only the market but we’ve exercised a number of options to
hold as well. Very encouraging. So let’s finish off. Give me
those five every give me those five reasons again, in bullet point form so people can remember why they should be investing in you. Absolutely. A
very strong mining jurisdiction. We’ve got a …what I would argue is the lowest
capital intensity project out there from a development standpoint. When you look
globally at that pool of 132 Development projects that have an economic study (PEA) completed we’re the 11th highest grade. So we’re in that top percentile by
grade. So we’ve got a really strong fundamental first phase of development
here. We going to move very quickly into production and start generating cash flow. The satellite
discovery shows the ability to layer on additional production and beyond that
we’ve established a mineral system that spans 5km that’s wide open
at depth, and I think that this has the potential to grow for a very long
time. So it’s it’s an exciting time to be a shareholder Pure Gold. Perfect. Thanks for the quick summary. I do appreciate catching up with you again. We’ll speak
to you in the next a couple of months and see how things progress. We look
forward seeing the share price being driven with some of that news and your outreach programs. So thanks again for your time Darin and
we’ll speak again. Thank you. Thank you very much for watching
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