Mr. Darin Labrenz reports
PURE GOLD'S NEW DISCOVERIES AT MADSEN-RED LAKE DEMONSTRATE ROBUST ECONOMICS
Pure Gold Mining Inc. has provided the results of a preliminary economic assessment (PEA) for its Fork, Russet South and Wedge deposits that demonstrate the potential to add approximately $51-million to the Madsen gold project after-tax net present value. As a result of high gold grades, near-surface resources and use of existing infrastructure, mining of these zones will yield an after-tax internal rate of return (IRR) of 39 per cent.
The results of this PEA highlight the tremendous prospective upside at Madsen-Red Lake, the economic viability of Madsen and demonstrate how Pure Gold would phase new discoveries into future mine plans. Based on the current resource, development of these new discoveries could add approximately four years of production at below-industry average cash costs while generating robust cash flows.
"Our PEA provides us with a blueprint of how we could expand our mine life and production profile at Madsen, and illustrates just how impactful and accretive new discoveries can be to the future of our district," stated Darin Labrenz, president and chief executive officer of Pure Gold. "We have deployed a modest amount of capital in discovering and delineating these new resources and the return on our investment is exceptional. This PEA represents the first conceptual expansion scenario for the future phased growth of the Madsen mine complex."
Preliminary economic assessment highlights
Base case parameters assume a gold price of $1,275 (U.S.) per ounce and an exchange rate (Canadian to U.S. dollars) of 0.75.
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Mine life extension of 3.7 years with total production of 210,000 ounces of gold;
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Life of mine (LOM) direct operating cash cost (1) estimated at $557 (U.S.) per ounce of payable gold;
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LOM all-in sustaining cash cost (AISC) estimated at $712 (U.S.) per ounce of payable gold;
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Pretax net present value (NPV) 5 per cent and IRR of $79-million and 57 per cent respectively with a 1.6-year payback of initial capital;
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After-tax NPV 5 per cent and IRR of $51-million and 39 per cent respectively with a 2.0-year payback of initial capital;
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Initial capital requirement of $57-million including a 14-per-cent contingency.
(1) Cash cost includes mining cost, mine-level general and administrative expenses, and mill and refining cost. This is a non-GAAP (generally accepted accounting principles) performance measure.
(2) The PEA is preliminary in nature and includes inferred mineral resources that are too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that PEA results will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability.
Overview
The PEA evaluated a range of mine plans from 400 tonnes per day (tpd) to 800 tpd, and considered ramping up throughput to concurrently process the material from the PEA with the Madsen reserve. However, unless the inferred resources from Russet South, Fork and Wedge are converted to indicated, the only scenario the PEA could contemplate is to conceptually mine the three deposits after the end of the feasibility mine plan. Pure Gold intends to continue work to upgrade and expand mineral resources so that further mine plan optimizations may be advanced.
Each of the PEA deposits will be mined from underground, with separate portal and ramp systems established to access the mineral resources in the mine plan. The PEA mine plan relies on the surface and milling infrastructure described in the Madsen feasibility study. Mining will be conducted concurrently from Russet South, Fork and Wedge to support a milling rate of 800 tpd. At Russet South, only the shallow portion of the mineral resource was considered to fit for the 800 tpd base case, excluding approximately 52,400 potential ounces from the base case plan.
The PEA implementation schedule spans a period of 12 months, with portal construction and underground mine development at the three deposits commencing approximately 12 months before the first gold pour. The project requires initial capital of $57-million (Canadian) (including contingency) to support the construction of the underground mines and associated infrastructure. The mine plan is expected to produce 210,000 ounces over LOM with all in sustaining costs of $712 (U.S.)/oz gold, which are below industry averages.
JDS Energy and Mining Inc. led the PEA, which included contributions from industry-leading consultants such as Knight Piesold Ltd., Lorax Environmental Services Ltd., Ginto Consulting Inc. and Equity Exploration Consultants Ltd.
BASE CASE OPERATING HIGHLIGHTS AND PROJECT PERFORMANCE
Assumptions
Gold price US$1,275/oz
Exchange rate (C$ to US$) 0.75
Production profile
Total tonnes milled 1.1 million
Diluted head grade 6.4 g/t gold
Total gold ounces mined 219,000
Mine life 3.7 years
Daily mill commercial throughput 800 tpd
Gold recovery 96%
Total gold production 210,000 oz
Capital requirements
Preproduction capital cost $57-million
Sustaining capital cost (life of mine) $43-million
Operating costs
Unit operating costs (per tonne processed)
Mining costs $92/tonne
Processing costs $32/tonne
G&A $20/tonne
LOM average cash cost (1) US$557/oz gold
LOM all-in sustaining cash cost US$712/oz gold
Project economics
Royalties Russet South -- 2% NSR capped at $2M
Corporate income tax/Ontario mining tax 25%/10%
Pretax
NPV (5% discount rate) $79-million
Internal rate of return 57%
Payback period (years) 1.6
Cumulative cash flows $100-million
Posttax
NPV (5% discount rate) $51-million
Internal rate of return 39%
Payback period (years) 2.0
Cumulative cash flows $68-million
(1) Cash cost includes mining cost, mine-level G&A, mill, and refining cost.
GOLD PRICE SENSITIVITY
Gold price (US$/oz) $1,100 $1,200 $1,275 $1,300 $1,400 $1,500
Pretax NPV5% ($M) $37 $61 $79 $85 $108 $132
After-tax NPV5% ($M) $22 $39 $51 $55 $71 $88
Pretax IRR 31% 46% 57% 60% 74% 88%
After-tax IRR 20% 31% 39% 41% 52% 62%
SENSITIVITY AFTER-TAX NPV (5%)
($ millions)
% -15 -10 -5 0 5 10 15
Capex sensitivity $65 $60 $55 $51 $46 $42 $37
Opex sensitivity $65 $60 $56 $51 $46 $42 $37
SENSITIVITY AFTER-TAX IRR (%)
% -15 -10 -5 0 5 10 15
Capex sensitivity 54% 49% 43% 39% 34% 30% 27%
Opex sensitivity 47% 45% 42% 39% 36% 33% 30%
Mineral resource
The company's mineral resource estimate, prepared by Ginto Consulting Inc. and disclosed on Feb. 5, 2019, forms the basis for the PEA. Indicated and inferred mineral resources from the Fork, Russet South and Wedge deposits were considered for the PEA.
The updated mineral resource estimate for Madsen is reported at a 4.0 g/t gold cut-off effective Feb. 5, 2019.
MINERAL RESOURCE STATEMENT FOR MADSEN GOLD PROJECT*
Zone Indicated Inferred
Tonnes Grade (g/t gold) Ounces gold Tonnes Grade (g/t gold) Ounces gold
Madsen 6,429,000 9.0 1,857,000 889,000 8.4 241,000
Fork 203,000 6.6 43,000 331,000 5.8 61,000
Russet South 241,000 7.2 56,000 352,000 7.5 85,000
Wedge 322,000 10.3 107,000 307,000 8.0 79,000
Total 7,196,000 8.9 2,063,000 1,880,000 7.7 467,000
* 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 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 grams per tonne gold.
Mining
Multiple scenarios from 400 to 800 tpd were completed to evaluate and schedule the mineral resources of the PEA into a mine plan. A 400 tpd scenario considered ramping up throughput to concurrently process material from the feasibility mine plan, Fork, Russet South and Wedge, however the PEA considers inferred resources and unless they are converted to indicated and until future study work is completed, any potential processing must occur after the end of the feasibility study mine plan. As such the 800 tpd scenario was selected as the base case mine plan as it optimizes the Madsen feasibility study design plant capacity.
Deeper portions of Russet South included in the 400 tpd case were not considered in the 800 tpd case, due to the timing to develop this area. A total of 52,437 ounces (196,289 tonnes grading 8.31 g/t gold) was excluded from the 800 tpd mine plan. Ramp access was selected due to the near-surface nature of these deposits. The PEA mine plan utilizes a combination of development on mineralization (17 per cent), mechanized cut and fill (15 per cent), and longhole mining (68 per cent) methods to extract mineral resources. Mineral resources forming the selected base case 800 tpd schedule comprise 58 per cent indicated and 42 per cent inferred, and are sourced from Wedge (50 per cent), Fork (34 per cent) and Russet South (16 per cent). Both the 400 tpd case and the selected base case 800 tpd mine plan are shown in the attached tables.
400 TPD MINE SCHEDULE
Year Waste tonnes Resource tonnes Contained gold (oz)
Preproduction 342,555 - -
Year 1 418,183 144,000 29,098
Year 2 261,193 144,000 37,943
Year 3 69,546 144,000 35,025
Year 4 3,857 144,000 39,041
Year 5 2,214 144,000 39,353
Year 6 1,961 144,000 32,926
Year 7 675 144,000 22,863
Year 8 7,254 144,000 19,646
Year 9 2,073 81,927 10,429
Year 10 9,438 15,334 2,771
Year 11 2,122 10,414 2,213
Total 1,121,071 1,259,675 271,308
BASE CASE MINE SCHEDULE -- 800 TPD
Year Waste tonnes Resource tonnes Contained gold (oz)
Preproduction 350,767 - -
Year 1 351,605 288,000 62,499
Year 2 251,867 288,155 62,088
Year 3 40,222 288,000 69,726
Year 4 1,560 199,232 24,557
Total 996,022 1,063,386 218,870
BASE CASE 800 TPD MINE SCHEDULE BY ZONE
Zone Waste tonnes Grade (g/t gold) Contained gold (oz)
Fork 357,074 4.5 51,606
Russet South 174,918 7.6 42,483
Wedge 531,395 7.3 124,782
PEA total 1,063,386 6.4 218,870
Processing
The PEA will utilize the same flow sheet developed for the Madsen feasibility study, and will accommodate additional tailings with lifts of two to four metres to the polishing pond dams. Overall metallurgical recoveries for the mine plan are expected to be 96 per cent, based on new test work conducted on recent drill core from the Russet South, Fork and Wedge deposits.
Capital costs
Total preproduction capital cost (capex) is estimated at $57-million ($42.9-million (U.S.)), inclusive of a $7.1-million contingency. The total life of mine capex is $101-million ($76-million (U.S.)), inclusive of incremental closure costs.
Underground mining and haulage are anticipated to be completed using an owner-operator development model operating 365 days per year. LOM sustaining capital costs are estimated at $43-million with the majority of the costs associated with underground mine development.
Capital costs Preproduction ($ millions) Sustaining ($ millions) Total ($ millions)
Mining $42 $42 $85
Site development 1 - 1
Mineral processing - - -
Tailings management 1 - 1
Site services 3 - 3
Closure (less salvage) - 1 1
Indirects 1 - 1
EPCM 1 - 1
Owner's costs 1 - 1
Subtotal 50 43 93
Contingency 7 0 7
Total capital costs 57 43 101
* Numbers may not add due to rounding.
Unit and total operating costs were estimated for the PEA over the life of the project. Operating costs were developed 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 $92/t processed. Processing costs are estimated at $32/t, general and administrative costs at $20/t processed.
OPERATING COSTS
$/t processed US$/oz gold
Mining cost $92 $351
Processing cost 32 122
G&A cost 20 77
Refining, transport and royalties 2 7
Total cash cost (1) 146 557
Sustaining capital (including closure) 41 155
All-in sustaining cash cost 187 712
(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 PEA confirms that Russet South, Fork and Wedge have the potential to be economically viable. While the PEA is based on a subset of the 206,000 ounces indicated and 226,000 ounces inferred at Russet South, Fork and Wedge, Pure Gold's exploration success to date demonstrates potential to add additional resources in each of these areas. Additionally, if existing resources were upgraded to indicated, it would allow the company to study an opportunity for concurrent mining through an increase in throughput, though there is no certainty that resources will be upgraded to indicated or converted into reserves. Specific opportunities include:
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Exploration drilling with the goal of converting inferred resources to indicated and expanding the mineral resource including;
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Expansion of the mineral resource at Russet South, where drilling in 2018 expanded the resource to a vertical depth of 330 metres below surface, including 19.0 g/t gold over 2.0 metres from drill hole PG18-504 and 35.9 g/t gold over 1.0 metre from drill hole PG18-537 (1);
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Continued exploration and growth at Wedge, where strongly mineralized zones have been intersected at a vertical depth of 500 metres, and where recent results include 32.9 g/t gold over 1.7 metres from PG18-600 and 23.1 g/t gold over 2.0 metres from PG18-616 (2);
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Evaluation of concurrent mining with an opportunity to improve the production profile at Madsen and to allow for opportunities to mine the deeper resource at Russet South where 196,289 tonnes at a grade of 8.3 g/t gold were excluded from the 800 tpd mine plan.
(1) See news release dated July 12, 2018, for additional information.
(2) See news release dated Aug. 16, 2018, for additional information.
Qualified persons and National Instrument 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 preliminary economic assessment in this press release is accurate and approve the written disclosure of such information.
The qualified persons who will prepare the technical report are as displayed in the table.
Michael Makarenko, PEng JDS Energy & Mining Inc. Mineral reserve estimate, mining methods
Michael Levy, PE, PEng JDS Energy & Mining Inc. Underground geotechnical
Kelly McLeod, PEng JDS Energy & Mining Inc. Metallurgy, recovery methods
Richard Boehnke, PEng JDS Energy & Mining Inc. Infrastructure
Marc Jutras, PEng Ginto Consulting Inc. Mineral resource
Alan Martin, PGeo Lorax Environmental Water management
Daniel Ruane, PEng Knight Piesold Ltd. TMF, waste rock management
Dave Stone, PEng Minefill Services Ltd. Mine backfill
Darcy Baker, PGeo Equity Exploration Consultants 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.
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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