The needle has barely moved on the Pure Gold Mining (LSE:PUR) share price despite the Vancouver outfit posting positive results from its flagship operation on 28 January.
When PureGold was admitted to London’s Main Market in May 2019, it noted in a feasibility study that 1 million ounces of gold could be available from its 100%-owned Masden Red Lake mine, 150 miles north-east of Winnipeg.
Probable reserves were hosted in rock rated at 9 grams per tonne (“g/t”), Pure Gold said, adding that it was targeting the second half of 2020 for first production.
Red Lake is historically one of the world’s largest gold-producing mines.
Pure predicted an initial capital outlay of C$95 million would be sufficient to take advantage of the gold available in Masden. It said the mine could produce a potential net present value (“NPV”) of US$247 million for a 36% return rate, based on a gold price of US$1275 per ounce.
In the eight months since Pure Gold’s shares came to market, gold has climbed to a spot price north of US$1,570, which puts the company in an even better position than it originally thought. The current gold price is some way off September 2011’s all-time high of US$1892.54 but is now at the highest position since November 2015’s multi-year low of $1,097.61.
And yet investors do not seem to have taken a shine to Pure. As of 3 February 2020, shares were still trading in a tight range around the 46.6p to 48p mark.
Watch the big money
Institutional fundraisers have certainly shown more interest in Pure Gold than private investors to date.
The organisation raised US$32.5 million in a June 2019 private placement with specialist mining finance firm Sprott Capital Partners LP, and a month later added US$13.04 million to their operating capital by selling 11.85 million shares to major shareholder AngloGold Ashanti Ltd. Before the deal AngloGold held 14.3% of Pure Gold’s total issued shares.
The results
Chief executive Darin Labrenz noted on 28 January 2020 how:
“[U]nderground development is approximately four months ahead of the feasibility schedule, construction is moving forward at a rapid pace, and first gold pour is expected in Q4 2020.”
Labrenz comes to the project with great bona fides: he is an experienced geologist and was former Chief Geologist at Campbell Mine. Together, Campbell and Masden form the principal sites of the Red Lake Mining District.
Drilling “continues to produce significant, high-grade gold drill intercepts”, Labrenz said, noting that results across four drill holes had turned up 24.9 g/t gold over 1 metre, 34.1g/t over 2.2 metres, 33.1 g/t over 3.4 metres and 13.2 g/t over 6.3 metres, with the “positive results suggesting strong mine continuity.”
Building on the early success of summer 2019, testing is key if Pure’s share price is to gain significant momentum.
2019 testing focused on a five-kilometre long gold system at the Wedge deposit, three miles south of Masden.
July 2019 surface drilling revealed several bonanza grade gold intercepts across three drill holes, with results of 13.8 g/t, 94.6 g/t and 108.5 g/t over 1 metre. Labrenz said at the time this exploratory drilling served to “demonstrate the size and strength of the overall gold system” at Red Lake.
The upshot
Certainly, I would expect Pure to break out of its current range if the operation can do as it has claimed, and deliver first production into a rising gold market in Q4 2020.
If the early part of 2020 is anything to go by, wider geopolitical events suggest gold will continue to deliver for investors as a traditional safe haven that is broadly uncorrelated to equity markets.
Gold mines on average take at minimum several years to turn a profit, and more normally the best part of a decade. So Pure Gold’s apparently rapid progress should be a source of intensely good news for the Vancouver company. And yet the market has not reacted with the vigour Darin Labrenz may have been expecting.
If Pure is to achieve its stated aim: “to use smart science to unlock Masden Red Lake’s potential” and “to become Canada’s next iconic gold company” then more work needs to be done to communicate their successes to the world.