Pure Gold Mining (TSXV: PGM) announced on Monday that it has entered into an agreement with West Red Lake Gold (TSXV: WRLG) and Sprott Resource Lending where it would agree to sell all of its issued and outstanding shares to WRLG.
The two Vancouver-based miners agreed that WRLG will pay $6.5 million in cash and issue 28.46 million common shares, which equate to around $12 million as of this writing. The agreement will also grant PGM a 1.0% secured Net Smelter Royalty (NSR) on the Madsen Gold Project, as well as make up to US$10.0 million in deferred consideration payments.
“The acquisition of the Madsen Mine is a major step, and positions us as a leader in Red Lake gold exploration and development,” said WRLG CEO Tom Meredith. “This includes conducting infill drilling, resource expansion, regional exploration, underground development, restart planning, engineering studies, and maintaining a strong focus on operability, community benefits, and investment in people and infrastructure.”
“With a wealth of targets near the Madsen Mine, alongside regional prospects and those within our existing Rowan Project, we are confident that the brightest days for our consolidated portfolio are just ahead.”
The Madsen Mine, as a flagship asset, had a peak market capitalization of more than $1.15 billion in 2021. In its last mineral resource estimate, the mine had indicated mineral resources of approximately 1.7 million gold ounces at 7.4 g/t and inferred mineral resources of approximately 0.4 million gold ounces at 6.3 g/t. The mineral estimate is currently being treated as historical by the company.
Existing infrastructure on site includes an 800+ tonne per day mill, double ramp access, significant underground mine development, a 1,275 metre shaft, tailings management infrastructure, a water treatment facility, all-season access, and perhaps most significantly, the required permits to restart production.
The mine is also located in the Red Lake mining district, strategically surrounded by major producers Evolution Mining (ASX: EVN), Kinross Gold (TSX: K) and Barrick Gold (TSX: ABX). This complements WRLG’s Rowan Project with current mineral resource of 0.8 million gold ounces.
On top of this, WRLG also said in March it has begun a drill program at its wholly-owned West Red Lake Gold Project.
In connection with the acquisition, WRLG has signed an engagement letter with Canaccord Genuity for a “bought-deal” private placement of subscription receipts for a total gross proceeds of $20 million, with an underwriter’s option of $5 million at $0.35 per subscription receipt. Mining investor Frank Giustra is expected to provide a lead order for the financing.
Sprott is expected to receive the shares and NSR payment because a fund managed by Sprott is the company’s senior secured lender. The firm may nominate and appoint a director to WRLG’s board of directors if Sprott or an associate owns 15% or more of WRLG’s issued and outstanding shares.
Following the completion of the acquisition and concurrent financing, Sprott is expected to own roughly 24% of the company’s outstanding shares.
In November, PGM announced that it had applied for creditor protection under the Companies’ Creditors Arrangement Act (CCAA) with the Supreme Court of British Columbia. This means that billionaire mining financier Eric Sprott, with a stake of 6.7%, second only to AngloGold Ashanti’s 16.5%, was the second biggest loser in the Pure Gold fallout. The billionaire, according to the Globe and Mail, “could very well” have lost $100 million.
On a post-transaction basis, West Red Lake is expected to be debt free and well capitalized with $19.9 million in the treasury. The transaction currently has a post-money valuation of $59.4 million.
The acquisition will be subject to several conditions precedent, including the negotiation and execution of a definitive agreement for the acquisition by no later than May 1, 2023. It is also dependent on British Columbia Supreme Court approval, WRLG shareholders’ approval, and all necessary regulatory approvals, including TSX Venture Exchange approval.
West Red Lake Gold last traded at $0.42 on the TSX Venture.
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