West Red Lake Gold is Ready for the Summer Rally
I am of mixed emotions over the medium-term future for the world’s financial system. In just over a year we have seen interest rates around the world rocket higher from zero or near zero to over four percent in multiple countries. In the US the Fed tells us they intend to keep raising rates to combat inflation. At some point they will blow the entire system sky high. So I see great danger in stocks and in bonds. I see a lot more banks collapsing and we have already lost bigger banks than in 2008.
That said, I also see a near-term rise in precious metals and resource stocks. A company called Sanu Gold (SANU-C) had some big shareholder or fund dumping shares over the past six weeks. The stock went from $.165 at the start of June to $.055 ten days ago before bouncing to $.105 in two days. Cartier Silver (CFE-C) went from $.43 a month ago to $.93 on Friday. West Red Lake Gold (WRLG-V) jumped 12% on Friday and they are the subject of this piece. Clearly it appears we have seen the low in late June and resource stocks are prepared for what could be a nice move higher.
But remember that we are seeing the faint tremors of an approaching earth quake. Determine what you would do in the case of a major crash because come September-October I see great danger. If you make some nice gains in the next six weeks think about taking some money off the table.
Pure Gold Mining put $350 million into a mine and mill in Red Lake called the Madsen Gold mine with a 2.1 Moz gold resource from 6.3 g/t to 7.4 g/t after their purchase in 2014. The mill actually went into production in 2020 but frankly was poorly managed from the start. There is a better discussion of all the issues in the WRLG presentation so I’m not going to go into it.
The Madsen mine has produced over 2.5 million ounces from discovery in 1938 until today. It is considered one of the highest grade undeveloped gold mines in Canada. Pure Gold put the mill and mine into care and maintenance in late October of 2022.
Since the issues Pure Gold ran into were loan covenants and financial issues the remaining hulk of the Madsen Mine and mill proved exceptionally attractive. Sprott Lending was the primary creditor and the company was in a position to pick and choose an operator. In mid-April of this year Sprott Lending, Pure Gold and West Red Lake Gold announced a binding agreement where WRLG would pay $6.5 million in cash and issue 28.5 million shares to Sprott along with a 1.0% NSR along with a $10 million CAD in deferred compensation in the case of a change in control.
Frank Guistra participated in a major private placement ending up with about 10.5% of the shares. Sprott Resource Lending is holding 19.9% with other major shareholders owning about 43% and leaving a tiny 27% for retail investors.
At today’s price this is the deal of the century for Canadian investors. Remember that at one point Pure Gold was valued at $1 billion. Today WRLG is valued at a market cap of about $125 million with over $20 million in the kitty. Ten days ago the company announced a non-brokered PP of 8.5 million flow-thru shares at $.70 to raise up to $6 million. That doesn’t help American investors but for Canadians it is pretty close to a license to steal.
The Madsen Mill consists of a new 800 TPD mill capable of operating at up to 1,500 TPD with some minor upgrades. The nearby Rowan Gold mine also owned by WRLG has a 43-101 resource of 800,000 ounces of gold at 9.2 g/t. WRLG management intends to improve the grade and quality of the resource prior to restarting the mill. They are professionally managed and well financed. Pure Gold was always under the gun to produce and they rushed into production. It blew up in their face. WRLG is not going to make that mistake.
WRLG has the Rowan Gold Mine with a high-grade resource only 31 km distance on a haulage road. The company is busy drilling off a larger resource with the possibility of using the Rowan feed to jump-start the Madsen mill once they have optimized the operation. Recent results from a 7,000-meter drill program at Rowan show 113.74 g/t Au over 0.5 meters, 104.98 g/t Au over 0.4 meters and 74.36 g/t Au over 0.5 meters.
Some of the biggest names in the industry are behind WRLG. They are not going to blow it. Madsen will go back into production at the right time and will become a mid-tier producer. At a profit. If you can learn how to fall off a bike, you can invest in this company and be pretty confident of making a profit, perhaps a large profit.
Something I haven’t seen in any press release but was hinted at before is the tax loss carry forward of about $250 million from Pure Gold. I intended to follow up and ask about the status but frankly I forgot to. But it seems to me that with the purchase of Pure Gold, WRLG would also have picked up the tax losses. That would be of big value in the first couple years of production.
West Red Lake Gold is an advertiser. I owned WRLG shares before the purchase and I participated in the first placement so naturally I am biased. Do your own due diligence. It’s your money after all.
West Red Lake Gold