Dual-listed Pure Gold has kickstarted development of the Madsen underground mine and has set a target of producing its first gold from the Ontario operation by the end of next year.

The construction decision, announced on Wednesday, comes as Pure Gold secured $90-million in project financing from Sprott Resource Lending. The financing, which is enough to fully fund the cost to develop an underground mine, comprises a credit facility of $65-million and a $25-million callable gold stream.

“With access to the capital provided by the financing, the construction of the Madsen Red Lake Mine is now fully funded,” said Pure Gold CEO Darin Labrenz in a media statement.

In addition to the financing, Sprott purchased $5-million of units in Pure Gold’s recently completed non-brokered private placement which closed on July 18. 

Pure Gold would issue to Sprott 3 841 000 common shares, which would give the financier about 4.4% of the issued and outstanding common shares of the mining company on a nondiluted basis.

“We are very pleased with the financial commitments that Sprott have made towards the development of the project.  We have achieved our objective of securing a flexible financing package on terms that are competitive and protect the upside for our shareholders. The optionality of repayment of both the facility and the gold stream in a rising gold price environment provides an opportunity to refinance once in production and generating solid cash flows from the mine,” said Labrenz.

The Madsen mine will be an 800 t/d underground operation with a 12-year mine life. The feasibility study estimated capital cost of $95-million. The mine has historical production of 2.6-million ounces of gold, a current indicated resource of 2.06-million ounces of gold at 8.9 g/t gold and an inferred resource of 467 000 oz gold at 7.7 g/t gold.

Pure Gold said that the financial flexibility provided by the Sprott financing and the recent equity raise of C$47.5-million would allow it to continue to pursue a growth strategy, with exploration drilling expected to continue through the balance of the year.