WRLG 2.0: Two Strong Assets, Cash, & A Legendary Mining Promoter

The Red Lake gold camp is like a never-ending treasure hunt in a vast, untamed wilderness, where both seasoned explorers and enthusiastic newcomers are drawn to its promise of hidden riches. 

A new player, West Red Lake Gold (TSXV: WRLG) (or RLG 2.0 as I like to call it), has emerged in this exciting gold rush saga, boasting two strong assets, a mill, and the guidance of legendary mining promoter Frank Giustra.

Let’s dive in!

The structure

I want to start by talking about structure. This is a little confusing because West Red Lake Gold Mines did a business combination with a company called DLV Resources, while they are now calling the combined entity West Red Lake Gold Mines.

Except for one difference, the old West Red Lake used the title Incorporated, while the new one uses the title Limited.  But like whatever. This was really just a way to get cash into the old RLG and roll back the shares. 

Let me explain.

In this business combination, DLV Resources brought a $2.0 million cash position to the table, and the new entity was named West Red Lake Gold Mines Ltd. (WRLG). Following the transaction, West Red Lake shareholders received 0.1215 shares for every share they owned in West Red Lake Inc, resulting in 35 million shares being distributed to the original shareholders of RLG.

After factoring in the DLV ownership, the new company had 55.8 million shares outstanding with a fully diluted share count of around 61.6 million. 

What was DLV Resources’ value added beyond the $2.0 million they contributed? The expectation was that mining legend Frank Giustra would dedicate his time and effort to promoting the new vehicle. So now we have a new vehicle with $2.0 million cash and around 62 million shares out called WRLG.

WRLG wasn’t done there. Next, they went out to go grab an asset that at one time traded at a valuation north of $1 billion dollars. WRLG proceeded to acquire 100% of the Madsen Mine from PureGold and Sprott Resource Lending. To complete the transaction, WRLG paid C$6.5 million in cash, issued 28.5 million common shares, and granted a 1% secured net smelter royalty (NSR) on the mine.

The purchase price WRLG was paying for the Madsen Mine represented approximately 9% of the companies’ prior invested dollars and 2% of PureGold’s peak market cap. WRLG also committed to a deferred payment of up to $10 million to the former owners.

Of course, to move an asset like this along, you’re going to need some cash. As part of the acquisition, WRLG entered into an engagement letter with Canaccord Genuity for a “bought-deal” private placement of subscription receipts, amounting to $20 million at $0.35 per share, with an underwriter’s option for an additional $5.0 million. A source tells me that Canaccord’s book on this deal is already north of $50 million.

Back of the napkin math tells us the resulting entity’s share count is anticipated to be around 140-150 million shares outstanding, but don’t quote me on that! The new entity will possess roughly 2.8 million ounces of potential gold, with around 826,000 inferred ounces from RLG and approximately 2.0 million indicated and inferred ounces from Madsen. 

But that’s not all folks, we have to note that WRLG is acquiring a mill capable of processing up to 800 tonnes per day, along with over $200 million in future tax shelter. And my old pal Tom Meredith will be sliding over from the original RLG to be Chairman and CEO of the new outfit. 

What RLG brings to the table

Speaking of RLG, they are bringing to the table 100% ownership of the West Red Lake Project, a 3100-hectare property containing three former gold mines located 15km west of the Red Lake Mine Complex of Evolution Mining. 

The West Red Lake Project is situated on two key regional geological structures known as the PBS Zone and NT Zone. 

The key asset of this project is the Rowan property, which has a high-grade inferred resource of 827,462 ounces at 9.2 grams per tonne gold. The resource potential of the Rowan property is open at depth, and WRLG has planned over 17,000 meters of diamond drilling on high priority targets for 2023.

Let’s talk about PureGold

Let’s get into the historic Madsen gold mine from PureGold, which was purchased at a highly discounted price, despite its rich history and valuable assets.

PureGold, originally known as Laurentian Goldfields, had purchased the Madsen mine in 2014 for approximately $12.1 million in cash and stock. This mine had a prolific production history, generating 2.5 million ounces of gold at an average grade of 9.7 g/t gold between 1938 and 1999. After the 2014 acquisition, PureGold raised over $100 million in equity and took loans exceeding $80 million, pushing the company’s accumulated deficit to just under $300 million, as shown in their last filed financial statements.

In December 2020, PureGold achieved its first gold pour at the Madsen Gold Mine and commenced commercial production in August 2021, marking a significant milestone. However, the mine commissioning faced numerous setbacks, with Q1 production falling 70% below expectations. Costs doubled as the company constructed additional stops to access higher grade areas, forcing them to raise money through lower-priced financings.

Unfortunately, in October 2022, PureGold suspended operations and placed the mine on care and maintenance due to the inability to achieve consistent positive site-level cash flows after evaluating several alternative scenarios.

Frank Giustra: “The juice is on the loose”

As we said before, there are three parts to this transaction.

RLG’s assets, PureGold’s assets, and of course the magic dust of legendary junior mining promoter Frank Giustra, who’s shell with $2.0 million cash has earned over 14% of the combined entity. At today’s market price, assuming 140 million shares out, that shell position is worth around $14 million.

But if you look at Frank’s track record. Well, he’s earned the right to a large promote.

Frank began his journey in 1978 with Merrill Lynch, eventually establishing a resources-financing group in Europe for Yorkton Securities, which he transformed into a major force in international mining finance. As chairman and CEO of the merchant banking firm Endeavour Financial from 2001 to 2007, Giustra financed numerous mining companies.

His success in merging Wheaton River Minerals with Goldcorp in 2004 led to Goldcorp becoming the world’s fourth-largest gold producer by 2014. He’s been a major part of various successful takeout’s in the mining world. But is also known as one of the founders of Lionsgate Entertainment, who’s productions include Hunger Games, John Wick, Mad Men, and Abduction.

Why Red Lake is considered great

The Red Lake Gold Camp in northwestern Ontario has been a cornerstone of Canada’s gold production for over a century. As one of the largest gold-producing regions in the country, the camp has a rich history of high-grade gold deposits and challenging geology, leading to both spectacular successes and stunning failures.

In over 80 years of production, the Red Lake Camp has produced more than 30 million ounces of gold, often found at depths of 1,000 meters or more. The gold deposits in the region are typically high-grade and consistent, located in quartz veins with low production costs, making it an attractive location for gold mining companies.

Major mining companies such as Goldcorp and Placer Dome have operated in the Red Lake Gold Camp, with Goldcorp’s Red Lake mine being one of the richest in Canada. Placer Dome’s Campbell mine was another significant operation in the area. Campbell Red Lake Mines, a joint venture between Placer Dome and Goldcorp, managed the Red Lake mine and produced over 25 million ounces of gold over its lifetime.

While the Red Lake Gold Camp has been a productive mining region, it has also experienced setbacks, such as Rubicon Minerals’ bankruptcy in 2015. However, recent successes, like Kinross’s US$1.4 billion acquisition of Great Bear Resources, underscore the camp’s continued potential for high-grade gold discoveries.

In conclusion

My final thoughts on this transaction are that if the buzz on the street is correct and the book on this deal is that high, then gold juniors are coming back strong.

From an investment standpoint, I’m not sure what this new group will be able to figure out that PureGold couldn’t. But hey, if you think gold is going to over $2300, that changes the economics a lot.

Alright everyone, that wraps it up. It looks like gold might be about to embark on its next run, and with the names involved here I am certain that we will be hearing a whole lot more about this name.


FULL DISCLOSURE: West Red Lake Gold Mines Inc is a client of Canacom Group, the parent company of The Deep Dive. The author has been compensated to cover West Red Lake Gold Mines Inc on The Deep Dive, with The Deep Dive having full editorial control. Not a recommendation to buy or sell. We may buy or sell securities in the company at any time. Always do additional research and consult a professional before purchasing a security.

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