In an Aug. 8 research note, Echelon Wealth Partners analyst Ryan Walker reported that Pure Gold Mining Inc. (PGM:TSX.V; PUR:LSE) negotiated a $90 million financing package with Sprott Resource Lending to fund development of an underground mine at the explorer's Madsen gold project in Red Lake, Ontario.
Composed of a $65 million credit facility and a $25 million callable gold stream, the financing will fully cover building the mine. Pure Gold plans to start development work immediately and anticipates pouring first gold there by year-end 2020. The company already started hiring and is currently formalizing plans for detailed engineering and procurement.
Walker explained the terms of the credit facility and callable gold stream. The credit facility is for seven years and collects interest at a rate of three month LIBOR plus 5.5% during construction, which increases to three month LIBOR plus 6.75% during construction, post completion (defined by successfully completing an agreed completion test).
Sixty-five percent of the total amount advanced must be paid before the facility matures. The principal is to be paid in quarterly installments starting in September 2022. There is the option to repay the outstanding principal and interest without incurring a penalty after August 2022.
As for the callable gold stream, noted Walker, it constitutes 5% of gold production (up to 50,000 ounces) and decreases to 2.5% afterward in return for $25 million upon closing. "The stream includes ongoing payments of 30% of the prevailing spot gold price." Pure Gold may buy back the stream for $35 million on June 30, 2021 or for $38 million on June 30, 2022.
Sprott also will receive a fixed $10 per ounce payment on the first 500,000 ounces of production. Pure Gold may do away with that payment at any time by paying an early termination fee.
Walker highlighted that while the Canadian gold company advances Madsen, it also intends to continue exploring elsewhere on the property until this December, highlighted Walker. It will concentrate its activities on the Wedge discovery to upgrade Inferred resources there and test along strike and downplunge extensions. It plans limited drilling at Fork and Russet South, including initial drilling at the Fork EXT Target, which is downplunge of Fork. Further, Pure Gold will "continue to advance another 24 high-priority exploration targets across the property," added Walker.
Echelon trimmed its target price on Pure Gold, which it rates Buy, to CA$1 per share from CA$1.05, primarily to reflect the "higher than previously modelled interest on the recently arranged credit facility plus the introduction of the gold stream," Walker indicated. Shares are currently trading at around CA$0.65 per share.
Walker concluded his report by noting, "We continue to highlight Madsen's high-grade nature, potential for solid near-term, high-margin production, and substantial exploration potential—all situated in a prolific Canadian mining camp."[NLINSERT]
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Disclosures from Echelon Wealth Partners, Pure Gold Mining Inc., August 8, 2019
Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.
I, Ryan Walker, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
Is this an issuer related or industry related publication? Issuer.
Does the Analyst or any member of the Analyst’s household have a financial interest in the securities of the subject issuer? No
The name of any partner, director, officer, employee or agent of the Dealer Member who is an officer, director or employee of the issuer, or who serves in any advisory capacity to the issuer. No
Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? No
Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of common equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer? No
During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer? No
During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? No
Has the Analyst had an onsite visit with the Issuer within the last 12 months? Yes. July 31, 2018 - Madsen Mine Site – Underground and Surface Infrastructure and ancillary buildings
Has the Analyst or any Partner, Director or Officer been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months? No
Has the Analyst received any compensation from the subject company in the past 12 months? No
Is Echelon Wealth Partners Inc. a market maker in the issuer’s securities at the date of this report? No