Red Lake gold miner seeks to climb out of financial hole

Pure Gold Mining’s path to “Operational Excellence” begins with a shovel full of pink slips.

Buried in an April 22 press release from the financially troubled Red Lake miner, 20% of its workforce – 65 employees – were laid off in February to reduce the workforce from 340 to 275.

It is one of several cost-cutting measures taken by the Vancouver-based gold miner to break even on the cash flow side of underground mining in northwestern Ontario. But the management promises better results on the road.

The first four months of 2022 have been extremely challenging for the company’s sole mining operation, which is now on its third chairman in less than a year, amid a flurry of senior management and operational changes.

Company director Mark O’Dea is the new interim president of Pure Gold. He replaces Troy Fiero who resigns for health reasons. Fiero came on board in January to replace Darin Labrenz who was ousted.

The Pure Gold mine only entered commercial production last August on the site of the former Madsen mine.

In the year-end financial statements, Pure Gold reported a loss of $34.9 million for its fiscal year.

The company has failed to meet its gold production targets, particularly on the high-grade ore side, accusing it of delays in the construction of underground mines, poor timing, “insufficient geological information ” for sites about to be exploited, equipment problems and “strategic misalignments”.

The company further reported a COVID outbreak in January which it said could reduce production.

These days, the relatively nascent operation is being touted in recent press releases as a “turnaround” project with new expertise being brought in to “accelerate” a plan to put the operation in the black and to build a “culture of operational excellence”. .”

The purpose of the press release was for Pure Gold to borrow US$6 million in cash and set up a line of credit with Sprott Resource Lending.

But the company warned it was not out of the woods just yet. Additional capital is needed to achieve a “positive cash flow statement at the site level” and complete a new life of mine plan to be released later this year. To do this, Pure Gold said it is “evaluating a range of strategic and potential financing alternatives to raise this capital.”

“The additional credit facility and support from our lending partner Sprott provides the business with the liquidity and time needed to maintain the positive momentum of the operational turnaround and optimization initiatives currently underway while, in parallel, we continue to work on updating our life-of-mine plan and evaluating a wide range of strategic and potential financing alternatives,” said Chris Haubrich, Chief Financial Officer and Vice President of the commercial development of Pure Gold, in a press release.

Among other cost-cutting measures, the processing plant will operate two weeks out of four. He will return to a full-time schedule when production at the mine increases.

Exploration drilling has been ‘reduced to two rigs’, which the company says is enough to continue an ‘aggressive’ campaign of building more ounces at ‘high confidence stopes’ ahead of the mining activity.

The construction of a main access ramp, plunging to a current depth of 500 meters, has been interrupted. The company said it was several hundred meters from an area of ​​the mine where it is currently located. The resources allocated to this development are best used in the areas where they expect to exploit soon.

All of these cost metrics combined will save the company $4 million, or about 30%, in the second quarter of this year compared to the first quarter.

Additional savings of $1 million per month will be realized by setting up an on-site camp, renegotiating agreements with suppliers and finding solutions to better utilize the workforce and better manage overtime.

Management has launched a six-month plan, running through September, to bring the mine to the point of consistently mining 615 tonnes of ore per day, at an average grade of 5.4 grams per tonne, producing 2,500 to 4,100 ounces of gold per month, then, midway through this year, increase the mining rate to 800 tonnes per day, on its way to hitting the 1,000 tonnes per day mark.

A new life of mine plan will be released by the fourth quarter of this year, including an updated estimate of gold reserves and resources. The plan will be based on 60,000 meters of closely spaced definition drilling around its gold zones.

The mine currently contains a mineral reserve of 1.0 million ounces grading 9.0 grams per tonne with an additional 2.1 million ounces in the pipeline as an indicated resource, grading 8 .9 grams per ton.

Pure Gold management has “great confidence” in the coming months to see the fruits of its exploration labor and is optimistic that its inventory of mineralization material will increase in the months ahead.

The company reported earlier this year that underground and surface drilling crews were finding high-grade gold in areas of the mine where mining will soon begin.

Pure Gold owns 47 square kilometers of highly prospective gold property in the Red Lake camp.

But not everyone buys the company’s line.

Pure Gold is the subject of a civil suit in the Supreme Court of British Columbia over whether the company misled the investing public about the state of its financial affairs and operational issues.

Rosen Law has launched an investigation. KND Complex Litigation is proceeding with a class action against the officers and management of Pure Gold and the underwriters of the financing between 2021 and 2022.