Taylor Dart’s New Seeking Alpha Article – Pure Gold Mining: An Up And Coming Gold Junior
In a gold sector that’s full of depressed valuations, M&A activity is finally beginning to heat up. We’ve seen Mariana Resources (TSXV:MARL) get bought out for an 80% premium in late April by Sandstorm Gold (TSX:SSL). Newmont Mining (NYSE:NEM) took a large stake in Continental Gold (TSX:CNL) at a 35% premium to their share price in mid May. But the biggest deal came last week when El Dorado Gold (TSX:ELD) set its sights on Integra Gold (TSXV:IGC) in a deal valued at nearly $600 million CAD. Integra was one of my top takeover targets mentioned a few times over the past year, but I’d be lying if I said I wasn’t a little surprised. For months we’ve seen no M&A activity in the sector, and there was little reason to believe this would suddenly change. Fortunately for investors in the junior gold space, it seems that the majors that have been sitting back and licking their chops at the discounted valuations are finally pouncing.
In my quest to find another junior to add to my portfolio, I was looking for one that fit the above criteria. Fortunately I managed to come across one that not only met this criteria, but also shared some similarities with Integra Gold. The junior miner I’ve decided to add to my portfolio is Pure Gold Mining (TSXV:PGM), an exploration company in the well endowed Red Lake District.
As we can see from the above table, both companies are located in Canada, have high-grade underground resources, have completed their preliminary economic assessments, and have very modest initial capex to build the project. Pure Gold’s after-tax internal rate of return is actually substantially better than Integra’s, despite using a gold price more than 5% lower ($1,175/oz vs. $1,250/oz). Pure Gold also has slightly higher grades and an enterprise value oz that is much lower than Integra Gold at their time of acquisition. The only area where Integra has Pure Gold beat out is in after-tax NPV, projected AISC and resource size. Both after-tax NPV and resource size go hand in hand as it would not be reasonable to expect Pure Gold to have a similar NPV at Madsen with a resource that is less than half the size. While Integra does have Pure Gold beat in all-in sustaining cash costs, both companies are still in the lowest quartile in the industry ($634/oz vs. $692/oz). We can see below that Pure Gold’s PEA sensitivity is very favorable to higher gold prices. Using a gold price of $1,250/oz increases the after-tax NPV (5% discount rate) to over $66 M US. – READ MORE
So what separates Pure Gold Mining from other juniors with 1 million ounces of high-grade gold? One word – infrastructure. Pure Gold has an estimated $200 million worth of infrastructure on their property and this is precisely why the PEA is so impressive. The initial capex to put the mine into production for a small scale operation (50,000 ounces annually) is only $20 million, one of the lowest capex I’ve ever seen in the industry. They have a portal to the underground ramp, a mill, the Madsen Shaft with 27 levels of working and a 1,275 meter deep shaft, and a permitted tailings facility. Given the fact that Red Lake has never seen permitting issues before, I see no issues with the company getting the rest of the permits if they do make a production decision. – READ MORE
1. Pure Gold Mining has the 3rd largest land package in one of the best mining addresses in North America.
2. The company has already delineated a resource of over 1.2 million ounces of high-grade gold and in the midst of a very aggressive drill campaign for 2017.
3. The company is trading for an enterprise value of less than $70 million US despite an after-tax NPV of $66 million based on less than 1/3 of their current resources.