West Red Lake Gold Mines (~100M market cap) plan for the Madsen Gold Mine, which was recently acquired out of bankruptcy for less than 3% of replacement cost.
Mike Wekerle (right) and Frank Giustra (middle) are suited up in mining gear, riding deep underground in an ATV, exploring the tunnels of the Madsen gold mine in Red Lake, Ontario, Canada.
Both shareholders of West Red Lake Gold (TSXV:WRLG), they’re excited to explore the further potential in a region that they both profited enormously from in the past.
The last time these two collaborated on a mining venture in Red Lake it became the world’s largest gold producer by market value.
They reminisce about when in 2005, Wekerle helped broker the merger between Frank Giustra’s Wheaton River Minerals, a profitable emerging gold miner, and Rob McEwen’s Goldcorp, the dominant gold producer in the area.
(I am a university student with a passion for mining and finance. I was on a tour of the Madsen mine the same day these legends were visiting, and when the opportunity arose to share a ride in their ATV, I eagerly leapt at the chance.)
Those earlier years were a frantic time in the gold mining sector, with companies vying for growth at all costs.
In December 2004, Glamis Gold made a predatory $3.4 billion bid to acquire McEwen’s Goldcorp.
Frank Giustra had founded Wheaton River Minerals, which was a multi mine producer and market darling at the time. Brokered by Wekerle, an advisor to GoldCorp, Wheaton River Minerals stepped in with a friendlier deal to thwart Glamis. Goldcorp and Wheaton merged, with Wheaton’s team leading the combined company.
Before the ink had dried, Goldcorp turned the tables on its would-be predator, acquiring Glamis Gold in a $8.6 billion coup, financed by offering up nearly 40% of its shares.
Goldcorp ultimately reached a market value of C$50 billion, and from it emerged Wheaton Precious Metals, today worth $27 billion.
As if scripting a sequel to an epic saga, nearly two decades later, the duo of Giustra and Wekerle are drawn back to Red Lake. This time, they've acquired the Madsen mine for pennies on the dollar.
The Madsen mine had a prosperous run between 1938 and 1972; nonetheless, it was under Pure Gold Mining (PGM)’s's initiative that the mine saw a resurgence in production. On December 16th, 2020, a significant milestone was achieved by PGM, the first ore from the Madsen mine was delivered to its mill.
That day, PGM reached a peak valuation of $1.2 billion, with the Madsen mine being their crown jewel. PGM was set to be Canada’s next major gold producer.
Yet dreams crumbled; Q1 production was 70% below expectation. Covid cost the company time and money in its production ramp up. Certain corners were cut as the previous management was betting on a sale of the company. With mounting debt, PGM turned to the market to raise money.
Three financings later, each gloomier than the last, the creditor axed Madsen in October 2022.
Madsen was for sale, but nobody dared to touch it. At least that was until Frank Giustra, legendary mining financier and Red Lake veteran swooped in and acquired it on May 18th for $6.5M cash and 28.46M shares (worth about $10M) through West Red Lake Gold Mines, where Giustra acquired an 18.1% stake. Wekerele soon stepped in as a significant shareholder.
Madsen was a massive failure in the eyes of most investors. Although, if the history of Red Lake has taught us anything, it's that mines in the area can deliver an upside surprise, they often get richer at depth.
Similarly, before GoldCorp became the largest gold company in the world, they were severely underperforming. That’s when Rob McEwan, in a feat of desperation, came up with one of the most creative strategies the mining industry had ever seen, the “GoldCorp Challenge.”
McEwen decided to share Golcorp's proprietary geological data with the public in the form of a contest. He believed that by opening up the data to a wider audience, talented individuals and experts outside the mining industry could potentially find untapped gold deposits on Goldcorp's land.
The Goldcorp Challenge invited participants from around the world, including geologists, mathematicians, computer scientists, and even students, to analyze the provided data and submit their exploration models. The competition offered a total of $575,000 in prize money.
The challenge garnered significant attention and participation, and the results were remarkable. Many participants discovered previously unrecognized gold deposits and offered valuable insights into the geological potential of Goldcorp's property. Some of the winning submissions identified gold reserves that had been overlooked by Goldcorp's own geologists. The result set Goldcorp on a path to become the most valuable gold miner in the world.
Although the Madsen Mine is still haunting investors, Giustra believes it too may hold immense turnaround promise.
Learning from the mistakes of PGM, West Red Lake Gold plans to restart the Madsen mine with caution and control.
On June 6th, they appointed Shane Williams as CEO. Shane formerly led the permitting and construction of the Lamaque gold mine in Quebec in just 18 months, today one of Eldorado’s best performing assets.
“I see a major opportunity here to establish a significant mining company,” Williams said. “Our goal is to build the premier growth-focused gold company. We will expand and de-risk the Company’s assets through comprehensive and modern techniques. Getting Madsen back up and running better than ever is just one part of our vision to create a world-class company and I will bring all of my energy to the role.”
As outlined by the newly appointed CEO Shane Williams’s vision for the mine restart is as follows:
De-Risk Resource: this involves identifying the near-term high-grade zones.
Restart Planning: complete necessary studies such as PEA, PFS, FS and evaluate optimal mining methods
Restart Execution: initiate full restart once the project is fully optimized. Invest in people and infrastructure. Focus on maintaining bottom-line profitability.
After completing over $27 million in financing, West Red Lake Gold Mines is now valued at $125 million, roughly 10% of its market value just two years ago.
“This is an amazing opportunity to create something substantial because all the pieces of the puzzle are here.” - Giustra
Watch Giustra, Wekerle and Williams describe the potential for Madsen in a new company video: https://www.youtube.com/watch?v=-IJUcunmq1w
Disclaimer: This is not financial advice, always do your own due diligence. I own shares in West Red Lake Gold. This is a not a sponsored article, I have not received compensation from West Red Lake Gold.
