West Red Lake Gold Gearing Up For Near Term High-Grade Gold Mining
West Red Lake Gold has gone through a transformation by changing leadership, and they have legendary mining investor Frank Giustra as a key backer. They added their key asset the failed Madsen Mine (for pennies on the dollar of sunk costs) with a goal to bring it back into production.
In my recent homework on the company I wanted to clearly understand what went wrong when Pure Gold was operating the Madsen Mine. What immediately stood out when I looked at the underground workings and the zones that had been identified, was that it looked like their underground workings were not well placed to mine the highest grade portions of the known zones.
In the image above (from West Red Lake Gold’s presentation), you can see the underground workings in black. As you can see the underground workings at McVeigh it only got to a little bit of the high-grade gold.
A little of South Austin caught some of the high-grade, mostly in the lowest part of the workings. The North Austin workings caught very little of the high-grade. Only a small portion of the working at Austin zone touched a small portion of the high-grade gold.
Looking at the underground workings and the zones, it looks like Pure Gold was trying to avoid the high-grade gold. In addition, it stands out how much of the high-grade material is available to mine.
I would also add that orogenic gold systems have very deep roots. A perfect example is not far away at the Red Lake Mine. Goldcorp went down 1000 metres to hit the bonanza-grade portion of the mine and it just kept going.
When Goldcorp got down to the bonanza-grade they mined at low costs with exceptional margins. It made them one of the lowest cost gold miners in the gold mining business and one of the best performers amongst their peers.
They have a lot of high-grade gold to mine, and the depth potential is open to keep drilling deeper once they get the underground workings deeper. It will be a lot cheaper to reach the depth potential from deeper underground workings.
A recent news release that West Red Lake Gold put out about running material through the mill caught my attention. It shows the past production also had recovery issues in the mill. Mining gold in the lower grade portions of the zones and having gold recovery problems are key reasons why the mine failed.
Other key issues were that they had a lot of debt taken on to build the mine, plus they rushed into production without having tight spacing between their drill holes. The debt was a big issue. But, the lack of tight drill hole spacing to clearly understand the controls on the high-grade gold mineralization was also a huge issue.
Obviously, West Red Lake Gold clearly understood the issues that Pure Gold had and that is why they were willing to buy the mine out of bankruptcy at pennies on the dollar. Considering the sunk costs in drilling and the mill, it looks like they got it for a tremendous bargain.
Upon getting their hands on the project they immediately went to work. Actions speak louder than words and looking at their actions shows a clear plan to address the past operational problems and get on top of them.
Their first order of business was extensive drilling that is ongoing and has yielded excellent results. Earlier this week they reported a highlight hole of 13.40 g/t gold over 10 metres. It was from close to the surface and near existing underground workings.
I’m not going to go over all their drill results, I would recommend you go to their website and have a look at their various drilling news releases. What you will find is they are hitting a lot of high-grade gold, which suggests the gold mineralization is predictable and their team has a very good handle on where to drill.
They are cashed up for aggressive drilling, they have more holes pending as well. In addition, they are about to embark on test mining. They really are covering all their bases to make sure when they get it back in production, they won’t have problems like Pure Gold.
Their drilling is focused on delineation to further define the high-grade gold mineralization in anticipation of restarting production in the second half of 2025.
Frank Giustra has had a long and successful mining career utilizing the buy and build method to grow his past mining companies. West Red Lake Gold will use that same strategy with their Madsen Mine to launch from to build the company.
They have plenty of potential for organic growth at both their Madsen Mine property as well as at the nearby Rowan project.
At Rowan, most of the drilling was focused near the historical mining and fairly shallow for Red Lake orogenic gold systems. The previous management, focused on a resource that had some continuity issues which is why it sat around for many years without putting economics around it. The depth potential still remains open.
One of the best high-grade hits they had at the Rowan project was significantly to the east of the historical resource. It was located in an area where a couple structures come together and a possible hinge zone. That hole was never followed up at depth, so the eastern part of the Rowan property remains open.
Their drilling is focused on tighter drill hole spacing at Madsen, as it should be, to better understand the controls of the high-grade gold in anticipation of successfully bringing the mine back into production.
They have a very talented mine builder and operator running the company and a strong team that is doing great work. Ultimately, I like their chances to make the Madsen Mine a low cost, high-grade gold mine, with healthy margins.
Once they get Madsen back into production, it will be the platform to launch their buy and build strategy upon.
The gold mining business needs more high growth gold miners. The key reason is that there are projects that are not big enough for the mid-tiers or majors. Those kinds of projects can be fantastic growth engines for a junior that wants to grow into a much bigger company.
Of course, another key catalyst for all gold companies is a powerful bull market for gold. Plus, the second quarter of 2024 had the highest average price for gold over a quarter, ever.
Plenty of gold miners are about to report windfall profits during the second quarter. This will likely prove to be the catalyst that brings the gold miners into the gold bull market.
The windfall profits quarter for gold miners is going to bring generalist investors into the gold miners. First, they will go after the majors and mid-tiers, then will move down the gold miners food chain. When they look for high growth juniors, they will find a small menu to choose from.
Which puts West Red Lake Gold in a unique position, by bringing a gold mine into production during the early days of a gold bull market.
All the best,
Allan Barry Laboucan
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