Skip to main content
A scary good deal on trusted journalism
Get full digital access to globeandmail.com
$0.99
per week for 24 weeks SAVE OVER $140
OFFER ENDS OCTOBER 31
A scary good deal on trusted journalism
$0.99
per week
for 24 weeks
SAVE OVER $140
OFFER ENDS OCTOBER 31
// //

Vancouver-based gold miner Pure Gold Inc. has experienced a slew of issues underground since starting up its Madsen mine in Red Lake, about 550 kilometres northwest of Thunder Bay.

Handout

Pure Gold Inc. is struggling to produce gold at a profit, the latest junior to encounter technical problems in Ontario’s notoriously tricky-to-mine Red Lake region.

The Vancouver-based gold miner, which is backed by industry heavyweights such as Eric Sprott and Robert McEwen, has experienced a slew of issues underground since starting up its Madsen mine in Red Lake, about 550 kilometres northwest of Thunder Bay.

The company poured its first gold in December of last year, but initial production and ore grade at the mine has been dramatically lower than expected. In the first quarter, Pure Gold produced about 4,000 ounces, compared with the 13,700 ounces the company’s feasibility study had predicted. The company has since been forced to build more stopes – discrete areas excavated within a mine – to try to access higher-grade ore, which has driven up its expenditures. Its costs to mine an ounce of gold are running at about US$1,700, more than double what was predicted and not far off the metal’s current trading price near US$1,800.

Story continues below advertisement

Red Lake renaissance: After a decade of decay, historic Ontario gold district bouncing back

Pure Gold has also needed to tap the equity markets on a number of occasions for new capital, diluting existing shareholders’ value. On Sept. 8, the company announced that a syndicate of underwriters had agreed to purchase $20-million worth of units at $1.05 in a bought deal. (Each unit comprises one common share in Pure Gold, and half of a common-share warrant. One warrant allows investors to acquire a Pure Gold share at a price of $1.36 for 18 months after the close of the financing). If bought deals go well, they usually sell out within 24 hours. However, the stock has consistently traded below $1.05 since the announcement of the financing, suggesting it hasn’t been a hit with investors. After reaching $2.98 a share late last year, Pure Gold’s shares, which trade on the TSX Venture Exchange, have swooned by 68 per cent.

“From an investor standpoint, it’s been a challenging year absolutely,” Darin Labrenz, chief executive officer of Pure Gold, said in an interview. “I appreciate the patience of our investors who have stuck around.”

Pure Gold is the latest junior to trip up in Red Lake, a region that has claimed its fair share of mining casualties over the years. While gold deposits in Red Lake tend to be high grade, they are often erratically dispersed, meaning companies need to do exhaustive drilling to ascertain the exact location of the ore. In the past, insufficient study has resulted in commercial disaster. In 2015, Rubicon Minerals Corp. rushed its Phoenix project in Red Lake into production with only an early-stage engineering study in hand. When Rubicon attempted to mine the deposit, it found no gold. The company quickly collapsed, wiping out about $1-billion in shareholders’ money.

Unlike Rubicon, Pure Gold did a lot more engineering work ahead of the development of Madsen. The company had conducted a full feasibility study on the project, and did extensive drilling. There was also decades of historical data available about the mine, as it has been previously in production for about 40 years, producing 2.5 million ounces, until the 1970s.

Mr. Labrenz and Mark O’Dea, a well-known mining executive and financer, acquired the property in 2014, and subsequent drilling showed Madsen contained another million ounces of gold reserves. Much of the basic infrastructure was already in place from the legacy mine, which meant the capital investment to put it back into production was relatively cheap at around $100-million. Still, Mr. Labrenz acknowledged that more could have been done to stave off the current start-up issues. In particular, more capital should have been put into the underground development infrastructure.

Among Pure Gold’s biggest investors are South African gold miner AngloGold Ashanti Ltd., mining financer Mr. Sprott, and Mr. McEwen, former CEO of Goldcorp. At one point, Mr. McEwen owned as many as 18 million shares, but sold down most of his stake earlier this year. Mr. McEwen, who now owns only 2.6 million shares, says he sold not because he foresaw the problems, but based on a personal investment decision; he thought the government was going to increase the capital gains tax. While Mr. McEwen said he of course would like to see Pure Gold trading at a higher level, he isn’t surprised the company is struggling. “Start-ups can be difficult,” he said. “They don’t always go as planned.”

Adding to Pure Gold’s woes is that the gold sector has fallen out of favour this year, with investors preferring industrial metals, such as copper, which has rallied to record highs partly owing to its increased usage in cleaner-energy applications, such as electric-car batteries.

Story continues below advertisement

Mr. Labrenz acknowledged the weakness in the share price of Pure Gold makes it vulnerable to a takeover. In the past, Australia’s Evolution Mining Ltd. has been mentioned by analysts as a possible buyer of Pure Gold. Over the past few years, the Sydney-based miner has invested heavily in the Red Lake region. In 2020, Evolution paid US$375-million to acquire the Red lake gold complex from U.S.-based Newmont Corp., an asset that was previously owned and operated by Canada’s Goldcorp Inc. Earlier this year, Evolution acquired Battle North Gold Corp. for $343-million, further consolidating the Red Lake region.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies