In an Aug. 8 research note, Echelon Wealth Partners analyst Ryan Walker reported that Pure Gold Mining Inc (LON:PUR) negotiated a $90 million financing package with Sprott Resource Lending to fund development of an underground mine at the explorer's Madsen gold project in Red Lake, Ontario.
Composed of a $65 million credit facility and a $25 million callable gold stream, the financing will fully cover building the mine. Pure Gold plans to start development work immediately and anticipates pouring first gold there by year-end 2020. The company already started hiring and is currently formalizing plans for detailed engineering and procurement.
Walker explained the terms of the credit facility and callable gold stream. The credit facility is for seven years and collects interest at a rate of three month LIBOR plus 5.5% during construction, which increases to three month LIBOR plus 6.75% during construction, post completion (defined by successfully completing an agreed completion test).
Sixty-five percent of the total amount advanced must be paid before the facility matures. The principal is to be paid in quarterly installments starting in September 2022. There is the option to repay the outstanding principal and interest without incurring a penalty after August 2022.
As for the callable gold stream, noted Walker, it constitutes 5% of gold production (up to 50,000 ounces) and decreases to 2.5% afterward in return for $25 million upon closing. "The stream includes ongoing payments of 30% of the prevailing spot gold price." Pure Gold may buy back the stream for $35 million on June 30, 2021 or for $38 million on June 30, 2022.
Sprott also will receive a fixed $10 per ounce payment on the first 500,000 ounces of production. Pure Gold may do away with that payment at any time by paying an early termination fee.
Walker highlighted that while the Canadian gold company advances Madsen, it also intends to continue exploring elsewhere on the property until this December, highlighted Walker. It will concentrate its activities on the Wedge discovery to upgrade Inferred resources there and test along strike and downplunge extensions. It plans limited drilling at Fork and Russet South, including initial drilling at the Fork EXT Target (NYSE:TGT), which is downplunge of Fork. Further, Pure Gold will "continue to advance another 24 high-priority exploration targets across the property," added Walker.
Echelon trimmed its target price on Pure Gold, which it rates Buy, to CA$1 per share from CA$1.05, primarily to reflect the "higher than previously modelled interest on the recently arranged credit facility plus the introduction of the gold stream," Walker indicated. Shares are currently trading at around CA$0.65 per share.
Walker concluded his report by noting, "We continue to highlight Madsen's high-grade nature, potential for solid near-term, high-margin production, and substantial exploration potential—all situated in a prolific Canadian mining camp."