Mr. Darin Labrenz reports
PURE GOLD ANNOUNCES POSITIVE FEASIBILITY STUDY FOR THE MADSEN-RED LAKE GOLD DEPOSIT
Pure Gold Mining Inc. has released results of an independent feasibility study (FS) on its 100-per-cent-owned Madsen gold project in the Red Lake mining district of Ontario, Canada. The feasibility study outlines a robust 12-year high grade, 800-tonne-per-day underground mining operation with low initial capital cost and strong financial performance.
"The Madsen-Red Lake orebody is an exceptional foundation on which to build a gold mining company. With access to existing infrastructure, a high-grade reserve, and exceptional growth potential, Madsen is one of the outstanding gold deposits in Canada," stated Darin Labrenz, president and chief executive officer of Pure Gold. "The completed study outlines a long-life high-margin mine, with low initial capital requirements and a fast timeline to production. In addition, specific exploration targets and satellite resources not considered in the feasibility study suggest an opportunity for near-term growth to potentially further enhance the economics of the project. With the completion of the feasibility study being one of the last derisking steps, we look forward to rapidly advancing Madsen-Red Lake to become Canada's next gold mine."
Feasibility study highlights
Base case parameters assume a gold price of $1,275 (U.S.)/ounce and an exchange rate (Canadian to U.S.) of 0.75:
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Probable mineral reserves of 3.5 million tonnes at 9.0 grams per tonne containing 1.0 million ounces of gold;
- Low initial capital requirement of $95-million including a 9-per-cent contingency;
- Mine life of 12.2 years with a 13-month preproduction period;
- Peak annual production of approximately 125,000 ounces with average annual gold production in years three through seven of approximately 102,000 ounces;
- Life-of-mine (LOM) direct operating cash cost estimated at $607 (U.S.) per ounce of gold recovered;
- LOM all-in sustaining cash cost (AISC) estimated at $787 (U.S.) per ounce of gold recovered;
- Pretax NPV5 (net present value at a 5-per-cent discount) and IRR (internal rate of return) of $353-million and 43 per cent, respectively, with a 3.0-year payback of initial capital;
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After-tax NPV5 and IRR of $247-million and 36 per cent, respectively, with a 3.4-year payback of initial capital.
Feasibility study overview
Study details
The feasibility study supports a high-grade 800-tonne-per-day underground mining operation with designed stopes containing 1.0 million ounces of probable mineral reserves. The project benefits from significant mining, milling and tailings infrastructure already in place, resulting in one of the lowest capital intensity, undeveloped gold projects in the world. Mining will be conducted from new ramp development utilizing a combination of cut-and-fill and long-hole mining methods. A new hoist house and double drum production hoist will use the existing shaft infrastructure to hoist ore and waste from the mine, commencing in year four of operations.
The Madsen implementation schedule spans a period of 13 months, with underground mine development commencing approximately nine months before the first gold pour. The project requires initial capital of $95-million (including contingency) to support the construction of an underground mine and associated infrastructure, including the expansion of existing milling capacity to 800 tonnes of ore per day. The mine is expected to produce peak annual production of 125,000 ounces with LOM all-in sustaining costs of $787 (U.S.)/ounce Au, which are below industry average.
JDS Energy and Mining Inc. led the Madsen gold project feasibility study, which included contributions from industry-leading consultants such as Knight Piesold Ltd., Nordmin Engineering Ltd., MineFill Services Inc., Integrated Sustainability, Lorax Environmental Services Ltd., Ginto Consulting Inc. and Equity Exploration Consultants Ltd.
BASE CASE OPERATING HIGHLIGHTS AND PROJECT PERFORMANCE
Assumptions
Gold price $1,275 (U.S.)/oz
Exchange rate (C$ to US$) 0.75
Production profile
Total tonnes milled 3.5 million
Diluted head grade 9.0 g/t Au
Total gold ounces mined 1,013,000
Mine life 12.3 years
Daily mill commercial throughput 800 tonnes per day
Gold recovery 96%
Total gold production 970,000 oz
Average annual gold production 80,000 oz
Peak annual gold production 125,000 oz
Average annual gold
production years 3 to 7 102,000 oz
Capital requirements
Preproduction capital cost $95-million
Sustaining capital cost (life of mine) $232-million
Operating costs
Unit operating costs (per tonne processed)
Mining costs $169/tonne
Processing costs $32/tonne
G&A $22/tonne
Average cash cost years 3 to 7 (1) $482 (U.S.)/oz Au
LOM average cash cost (1) $607 (U.S.)/oz Au
LOM all-in sustaining cash cost $787 (U.S.)/oz Au
Project economics
Royalties none
Corporate income tax/Ontario mining tax 25%/10%
Pretax
NPV (5% discount rate) $353-million
Internal rate of return 43%
Payback period (years) 3.0
Cumulative cash flows $537-million
Posttax
NPV (5% discount rate) $247-million
Internal rate of return 36%
Payback period (years) 3.4
Cumulative cash flows $383-million
(1) Cash cost includes mining cost, mine-level
G&A, mill and refining cost.
GOLD PRICE SENSITIVITY
Gold price (US$/oz) $1,100 $1,200 $1,275 $1,300 $1,400 $1,500
Pretax NPV5 ($M) $192 $284 $353 $376 $468 $560
After-tax NPV5 ($M) $135 $199 $247 $263 $326 $390
Pretax IRR 28% 36% 43% 45% 53% 61%
After-tax IRR 23% 31% 36% 38% 45% 51%
SENSITIVITY AFTER-TAX NPV5 ($M)
% -15 -10 -5 0 5 10 15
Capex sensitivity $287 $274 $260 $247 $234 $220 $207
Opex sensitivity $304 $285 $266 $247 $228 $209 $190
SENSITIVITY AFTER-TAX IRR (%)
% -15 -10 -5 0 5 10 15
Capex sensitivity 45% 42% 39% 36% 33% 31% 29%
Opex sensitivity 42% 40% 38% 36% 34% 32% 30%
The feasibility study results show that the Madsen gold project has the potential to remain strongly profitable at lower metal prices, and is robust across a range of capital and operating cost sensitivities.
Mineral resource
The company's February, 2019, mineral resource estimate forms the basis for the feasibility study. The resource estimate, prepared by Ginto Consulting Inc. is based upon the mineral resource estimate disclosed on Feb. 5, 2019, which contains the results of 14,822 core drill holes. Of those, 13,258 drill holes informed the resource estimate with an overall average spacing of 6.4 metres in the high-grade domains.
The updated mineral resource estimate for Madsen is reported at a 4.0 g/t Au cut-off effective Feb. 5, 2019.
MINERAL RESOURCE STATEMENT FOR MADSEN GOLD PROJECT*
Resource classification Tonnes Grade Contained gold
(Au g/t) (oz)
Indicated 7,196,000 8.9 2,063,000
Inferred 1,880,000 7.7 467,000
Reported mineral resources are inclusive of mineral reserves declared elsewhere. Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the mineral resources estimated will be converted into mineral reserves. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing or other relevant issues. The CIM (Canadian Institute of Mining, Metallurgy and Petroleum) definitions were followed for the classification of indicated and inferred mineral resources. The quantity and grade of reported inferred mineral resources in this estimation are uncertain in nature and there has been insufficient exploration to define these inferred mineral resources as an indicated mineral resource and it is uncertain if further exploration will result in upgrading them to an indicated mineral resource category. All figures have been rounded to reflect the relative precision of the estimates. Mineral resources are reported at a cut-off grade of 4.0 g/t gold.
Mining and mineral reserves
The feasibility study mine plan utilizes a combination of conventional cut and fill (59 per cent), mechanized cut and fill (16 per cent), and long-hole mining (25 per cent) methods to extract mineral reserves. Preliminary mining shapes were developed using a minable shape optimizer (MSO) with a cut-off of 4.75 g/t gold, except in the McVeigh zone which was developed using a 4.0 g/t cut-off. These MSO shapes were used to guide development of the feasibility mine design plan. Final stope shapes and mine access development were individually modelled and evaluated to form the final minable reserve. A mining recovery of 95 per cent and a dilution of 10 per cent have been assumed for retained tonnes forming part of the mine plan. The total probable reserve mined over the course of the mine life is 3.5 million tonnes at an average diluted head grade of 9.0 g/t for 1.0 million ounces of gold.
The probable mineral reserves were based exclusively on indicated mineral resources from the Madsen deposit. Mineral resources from Russet South, Fork and Wedge were not considered for the feasibility study, but will be considered in the forthcoming preliminary economic assessment of these deposits, expected to be issued in February.
PROBABLE MINERAL RESERVES FOR THE MADSEN GOLD PROJECT
Zone Tonnes Grade Contained gold
(Au g/t) (oz)
Austin 1,847,000 7.9 466,000
8 zone 421,000 16.9 228,000
South Austin 791,000 8.6 219,000
McVeigh 386,000 6.7 83,000
A3 68,000 7.6 17,000
Total 3,512,000 9.0 1,013,000
All ramp and level waste development is to be performed by an owner-operated fleet of one and two boom electric hydraulic drill jumbos, 3.0-cubic-metre bucket LHDs, 20-tonne haul trucks, scissor lift/bolters and other rubber tired support equipment. Mining will be facilitated by a combination of diesel and battery-powered equipment, with diesel equipment being utilized for upper levels of the mine prior to refurbishment of the existing shaft and installation of a new double-drum production hoist. The use of battery-powered equipment in the mine will eliminate emissions associated with the movement of ore and waste and will result in materially reduced ventilation and heating requirements.
Processing
The existing mill and tailings management facility will be upgraded to achieve mill production of 800 tonnes per day. Upgrades include modernization of controls and instrumentation, installation of new pumps, two new batch gravity concentrators as well as expansion of the grinding circuit through replacement of the existing ball mill to achieve forecast productivity.
The process plant will include one stage of crushing and two stages of grinding to achieve a final grind size of 75 micrometres. Based on recent metallurgical testwork, the optimized flowsheet will include gravity concentration followed by cyanide leach, carbon adsorption/desorption and electrowinning with an overall recovery of 96 per cent expected on a mill feed that will average 9.0 g/t gold over the life of mine. The product from electrowinning will be refined in an induction furnace to produce gold dore bars. Leached slurry from the carbon-in-pulp (CIP) circuit will be treated with the SO2/air (sulphur dioxide) cyanide destruction process, and the final tailings will be processed and utilized underground as hydraulic fill or pumped to the tailings management facility (TMF).
Capital costs
The Madsen mine benefits from significant existing infrastructure resulting in a very low-capital-intensity project. Total preproduction capital cost (capex) is estimated at $94.7-million ($71.0-million (U.S.)), inclusive of an $8.1-million contingency. The total life-of-mine capex is $327-million ($245-million (U.S.)), inclusive of closure costs.
Underground mining and haulage are anticipated to be completed using an owner-operator development model operating 365 days per year. Life of mine, purchased equipment results in higher capital expenditures but offers lower long-term operating costs, greater flexibility and better cash flows.
LOM sustaining capital costs are estimated at $232-million with the majority of the costs associated with underground mine development.
Capital costs Preproduction Sustaining Total
($M) ($M) ($M)
Mining 31 209 240
Site development 1 - 1
Mineral processing 17 - 17
Tailings management 4 8 12
Site services 18 1 18
Closure (less salvage) - 12 12
Indirects 6 - 6
EPCM 7 - 7
Owner's costs 3 - 3
Subtotal 87 230 317
Contingency 8 2 10
Total capital costs 95 232 327
* In millions, numbers may not add due to rounding.
Unit and total operating costs were estimated for the Madsen gold project over the life of the project. Operating costs were developed from first principles for mining, processing and administration using the mine plan, incorporating development rates, labour, materials, consumables and certain contract services.
Mine operating cost is estimated at $169/t processed. Primary operating costs for mining include labour ($98/t) and consumables ($38/t). Processing costs are estimated at $32/t, general and administrative costs at $22/t processed.
OPERATING COSTS
Operating costs $/t processed US$/oz Au
Mining cost $169 $458
Processing cost 32 88
G&A cost 22 59
Refining and transport 1 2
Total cash cost (1) 224 607
Sustaining capital (including closure) 66 180
All-in sustaining cash cost 290 787
(1) Cash cost includes mining cost, mine-level G&A,
mill and refining cost; numbers may not add due to rounding.
Project enhancement opportunities
The feasibility study, focused exclusively on the Madsen deposit, outlines a high-grade, low-capital mining operation with 1.0 million ounces of probable mineral reserves. Exploration by the company to date has demonstrated that the Madsen gold project has outstanding potential for growth and opportunities for scalability. Key opportunities include:
- Feasibility study does not consider mineral resources at Russet South, Fork or Wedge. A preliminary economic assessment of these additional resources is nearing completion and is expected in the coming weeks;
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Expansion of the Madsen mine resource, through application of the company's geologic model to target extensions to the known resource, including potential:
- Conversion of the inferred resources in the Madsen deposit to measured and indicated, currently totalling 241,000 ounces (900,000 tonnes at 8.4 g/t gold);
- Extensions to the high-grade 8 zone which remains open for expansion and is scheduled to commence mining in year four of operations;
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Depth extensions of the Madsen deposit which remains open as supported by drill hole PG17-456 which intersected 34.6 g/t gold over 4.3 metres at a depth of 1,373 metres below surface, and AD-11-01 which returned 14.3 g/t gold over 2.0 metres at a depth of approximately 2,100 metres below surface;
- Continue exploration at Russet South, Fork, Wedge and across the plus-five-kilometre mineral system in place at Madsen, where strong potential exists for continued growth;
- Review and optimization of the mine plan with an opportunity for additional mine flexibility, potential for increased milling rates and annual gold production.
Environmental and permitting
The company benefits from existing environmental authorizations and permits which allow for operation of a 1,089-tonne-per day mill and CIP circuit with discharge of treated tailings to the existing tailings facility, dewatering via the existing shaft, and a mine closure plan. Certain permits will require updating or amendments prior to the commencement of new mining activities including the existing certificate of approval (C of A) for industrial sewage works (tailings and effluent), the C of A for air and noise, and the mine closure plan. Baseline studies and documentation for these amendments are well advanced, with the first amendment filed in August of 2018 (C of A for air and noise). No environmental assessment is anticipated and the company anticipates having all of the required permits for production in place by the fourth quarter of 2019 or earlier.
Development schedule
The proposed project development allows for 13 months for the project execution, which includes dewatering, preproduction mine development, procurement, construction and commissioning. Assuming the project execution starts in April of 2019, the first gold production would be expected in May of 2020.
Key project execution schedule milestones include those shown in the associated table.
Start shaft dewatering month 2
Construction start month 3
Begin mining development month 4
Permit amendments in place month 7
Processing plant expansion complete month 12
First gold production month 13
Next steps
With the feasibility study now completed, Pure Gold will advance the project toward development. In August, 2018, the company announced that it had appointed Endeavour Financial as its financial adviser to provide advisory services with respect to debt financing for the construction and development of Madsen. This process is well advanced and discussions are under way and advancing with multiple potential financiers.
Over the coming months, the company will be focused on:
- Continue working with first nations to promote a co-operative and mutually respectful relationship concerning Pure Gold's development plan, and to finalize an agreement to facilitate this relationship;
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Finalization of the preliminary economic assessment of the company's satellite resources including Russet South, Fork and Wedge, expected to be issued in the coming weeks;
- Advancing project finance opportunities;
- Optimization of the project execution schedule, including procurement and permitting;
- Continuing environmental studies and documentation to support the update and filing of existing permits and filing for additional permits that may be required;
- Commencement of detailed engineering and design activities.
Qualified persons and 43-101 disclosure
Ken Donner, PEng, vice-president, operations, for the company, is the designated qualified person for this news release within the meaning of National Instrument 43-101 and has reviewed and verified that the technical information contained herein is accurate and approves of the written disclosure of same.
The technical report summarizing the results of the feasibility study is being prepared in accordance with NI 43-101 and will be filed under the company's profile on SEDAR within 45 days of this press release. The qualified persons have reviewed and verified that the technical information in respect to the feasibility study in this press release is accurate and approve the written disclosure of such information.
The qualified persons who will prepare the technical report are:
- Michael Makarenko, PEng, JDS Energy & Mining Inc., mineral reserve estimate, mining methods;
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Michael Levy, PE, PEng, JDS Energy & Mining Inc., underground geotechnical;
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Kelly McLeod, PEng, JDS Energy & Mining Inc., metallurgy, recovery methods;
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Richard Boehnke, PEng, JDS Energy & Mining Inc., infrastructure;
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Marc Jutras, PEng, Ginto Consulting Inc., mineral resource;
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Alan Martin, PGeo, Lorax Environmental, water management;
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Daniel Ruane, PEng, Knight Piesold Ltd., TMF, waste rock management;
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Dave Stone, PEng, Minefill Services Ltd., mine backfill;
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Darcy Baker, PGeo, Equity Exploration Ltd., geology and data verification.
Mr. Baker has reviewed the results of database validation and data verification and quality control and quality assurance studies; statistical analysis and comparisons of data; underground test mining and sampling results; drilling of 918 holes by Pure Gold and is of the opinion that the historical sampling, sample preparation, security and analytical procedures were in line with best practices for their time and that the sampling, sample preparation, security and analytical procedures undertaken by Pure Gold meet or exceed modern best practices. The qualified person has verified that the Madsen gold project data compiled and generated by Pure Gold and its consultants are of sufficient quality for resource and reserve estimation.
Conference call and webcast
Pure Gold will host a conference call and webcast today, Feb. 11, 2019, at 10 a.m. Eastern Time.
Pure Gold will provide an overview of the results of the feasibility study before opening the call to questions from participants. To join the call please dial:
Toll-free: 1-800-319-4610
Local/international: 1-604-638-5340
A replay of the teleconference will be available for seven days at 1-604-638-9010, access code 2949.
About Pure Gold Mining Inc.
The company's mandate is pure and simple. To dream big. To colour outside the lines. To use smart science and creativity to unlock the Madsen gold project in Red Lake, Ont.
We seek Safe Harbor.
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