Mining three satellite deposits that outcrop within one to three kilometres of the Madsen mill at its Madsen project in Red Lake, Ont., would add roughly $51 million in after-tax net present value to the Madsen project, Pure Gold Mining (TSXV: PGM) reports.
A preliminary economic assessment released today of the three satellite deposits — Fork, Russet South and Wedge — is based on their combined resources of 206,000 oz. gold in the indicated category and 226,000 oz. gold in the inferred and concludes that they could add nearly four years of production to the overall project’s mine life.
The deposits are high-grade and near-surface and would use existing infrastructure.
The PEA states that the deposits would yield an after-tax internal rate of return of 39% at a gold price of US$1,275 per oz., and could be brought into production at an initial cost of roughly $57 million, including a contingency.
The Fork deposit has 203,000 indicated tonnes grading 6.6 grams gold per tonne and 331,000 inferred tonnes grading 5.8 grams gold; Russet South contains 241,000 indicated tonnes grading 7.2 grams gold and 352,000 inferred tonnes grading 7.5 grams gold; while Wedge has 322,000 indicated tonnes grading 10.3 grams gold and 307,000 inferred tonnes grading 8.0 grams gold.
The PEA assessed a range of mine plans from 400 tonnes per day to 800 tonnes per day and evaluated ramping up throughput to concurrently process the material from the PEA with the Madsen reserve.
But the study concludes that unless the inferred resources were converted to the indicated category, the only scenario would be to mine the three satellite deposits after the end of the feasibility mine plan for the main Madsen deposit.
The company plans to continue to work to upgrade and expand the resources at the three deposits in order to advance further mine plan optimization. Pure Gold will make a production decision on its Madsen project in the coming weeks and construction could begin in April, with first gold poured as early as May 2020.
The main resource at Madsen measures 6.43 million tonnes averaging 9.0 grams gold for 1.86 million ounces of contained gold in the indicated category and another 889,000 inferred tonnes grading 8.4 grams gold for 241,000 contained ounces.
The project has significant mining, milling and tailings infrastructure already in place, as well as all major permits, so pre-production capital costs should not exceed $94.7 million, including a 9% contingency, according to a feasibility study released earlier this month.
That sum is 87% higher than what was envisioned in the preliminary economic assessment completed in 2017, but the higher cost is due to expanding throughput from 600 tonnes per day to 800 tonnes per day and moving to owner operated mining from contract mining.
Total life of mine capex, including closure costs for the underground mine, is expected to come in at $327 million.
The study forecasts a mine life of 12.2 years with a pre-production period of 13 months, and total gold production of 970,000 ounces for an average of 80,000 ounces a year.
Operating cash costs and all-in sustaining costs for the 800-tonne-per day operation over the mine life are estimated at US$607 per oz. and US$787 per oz., respectively. Madsen’s after-tax net present value at a 5% discount rate is $247 million and after-tax internal rate of return, 36%, which should result in initial capex recovery in just under three and a half years.
The feasibility study was based on Madsen’s indicated resource and did not include mineralization the project’s satellite deposits.
The deposit extends from surface down to a depth of 1200-1400 metres and a 2017 drill hole returned 34.6 grams gold over 4.3 metres from 1350 metres below surface — below any previous historic mining. A drill hole in 2011 intersected 14.3 grams gold over 2 metres from 2.1 km below surface.
Madsen is one of the highest grade undeveloped gold deposits in the world.
Pure Gold’s 47-sq.-km patented land position hosts two past-producing mines, including the Madsen mine. The two mines produced about 2.6 million oz. gold over an operating history of 36 years.
The project has power, paved highway access, a 1,275-metre-deep shaft and headframe, 27 levels of underground workings, a portal and ramp, and a mill and tailings facility. An existing environmental compliance approval allows for the operation of a 1,089-tonne-per-day mill and processing plant.
Over the last year the company’s shares have traded within a range of 50¢ and 81¢ and at press time were trading at 66¢ per share. Pure Gold has 256 million common shares outstanding for a market cap of $169 million.
Macquarie Research has an outperform rating on the stock and a 12-month target price of $1.35 per share.