Perspective: Expanding the universe of exploration capital

Perspective Issue Twenty Six - November 3, 2017

The Flaws in a One-Size-Fits-All Approach to Tax Policy

Finance Minister Morneau – the bottom line – no immediate tax impact on resource / flow through investments.  Longer term concerns over re-introducing punitively high tax rates on passive investments made by private corporations which would result in materially less capital for resource and development.  Advice – keep communicating concerns to your local politicians advocating for evidence based policy.

Since 2011 PearTree has regularly  been actively engaged with industry advocates and government relations representatives that lobby federal and provincial governments and politicians advocating for evidenced based tax policies in the resource and philanthropic sectors.  In our experience politicians and bureaucrats alike perceive the flow through tax regime and the charitable sector as a tax drain on the economy.

The view of government is that the treasury loses tax revenue to flow through investors as an incentive to fund high risk often unsuccessful ventures and to generous Canadians by way of  donation tax credits in return for the provision of social benefits.  While there is tax revenue loss to the flow through investor and donor, that tax loss is recouped by the fiscal authority. Holistically, a flow through deduction by a high net worth investor in Toronto, Montreal or Vancouver is offset by taxable activities – largely payroll tax on labour in Timmins, Val-d’Or, Dawson City, and Stewart, BC. The investor does not get the resource expense deduction unless the issuer spends the money on taxable activities.  As far back as 2014 PearTree demonstrated to the federal government that the flow through regime is at worst tax revenue neutral and more likely positive.  Our submissions were based on a study commissioned by us with Deloitte. We invited government to replicate the study and satisfy itself as to the tax efficiency, fairness and considerable benefits resulting from the flow through regime.  Our submissions fell on deaf ears.  Please see: .  As for the charitable sector, tax loss is not traded for social benefits.  Tax loss in donor tax credits is offset by taxable income in the hands of those delivering the social benefit.  A donation to fund medical research funds individuals who conduct that research.  A donor deduction offset by a researcher’s payroll tax.

Recommendation:  In formulating tax policy it would be helpful if Statscan or CRA or Finance were to track tax revenue loss to flow through investors and charity donors with tax recouped.  It would also be helpful if government were to base changes to the tax regime only after determining through study that change is necessary rather than frenzied submissions (short submission window) showing that proposed ‘reforms’ were devastatingly ill-conceived.

Here is a very interesting view and insightful article written by Former Deputy Minister of Finance and PearTree Advisor, Stanley Hartt.

As seen in “Policy Options” ( on September 22, 2017:

By: Stanley Hartt, Former Deputy Minister of Finance, and Advisor, PearTree

The Liberal Party of Canada’s election platform in 2015 led with the theme of “growth for the middle class.” The goal was that everyone from the unionized worker putting in a meaningful amount of overtime to the successful small business owner could see himself or herself as part of this group or as close as an aspiration away from joining it.

Delving into the specifics of the program, voters who sought to learn how this appealingly broad policy approach would actually assist their pocketbooks found that they had strayed into a semantic debate (or, for the mathematically minded, a statistical one). For example, the platform promised to create a new maximum tax bracket (33 percent, up from 29 percent) for those earning more than $200,000, on the pretext that such an income puts the taxpayer in the prestigious category of Canada’s top 1 percent of earners. Does someone who makes $200,000 actually think of themselves as rich? It may well be that a very small proportion of Canadians achieve such a level of income, but that might only prove, as former finance minister Michael Wilson once said, that “Canada has an acute shortage of rich people.”

It is likely that the policy brain trust behind this measure sold it to the party leadership on the grounds that even if it infuriated the individuals whose ox was being gored, they were, after all, only a tiny minority of the voting public. However, once the new bracket was put in place, the “tax the rich” mentality turned out not to produce anything like the revenue gleefully anticipated by its proponents.

An ex post facto analysis of the flaws in this initiative probably revealed that its failure to raise big bucks was due to excessive tax planning, involving the use of private corporations. This conclusion inspired the tax-policy gurus to recycle a prescription they had tried on previous finance ministers without success. It is a tactic that, in quite another context, I had been taught to anticipate and resist.

A few days after I was named deputy finance minister in September 1985, one of my most illustrious predecessors, Simon Reisman, took me out to lunch and gave me some strong advice. “Watch out for the tax guys,” he said. “They’ll come to see you and present some loophole in existing law and/or enforcement policy that people are exploiting, and try to convince you that this or that loophole needs to be shut down. Once you agree that the practice in question seems to require some legislative correction and authorize them to spend time and resources on it, they will come back to you with a massive overkill in their solution, sideswiping hundreds or even thousands of parties who were never taking advantage of the system.”

Armed with this advice, I made it my business to read the Ways and Means Motions that were the product of these efforts to stop overly aggressive tax planners, with the goal of paring back the excesses in legislative drafting. It was with this experience in mind that I approached my reading of the discussion paper published in July by the Department of Finance Canada: Tax Planning Using Private Corporations. The paper raises three areas of concern: income “sprinkling,” holding passive investments inside a private corporation and converting income into capital gains.

The “sprinkling” the policy-makers object to is the practice of employing immediate family members (spouses and children) and/or making them shareholders, eligible to receive dividends or capital gains from a private family corporation. This enables the head of the household to spread the tax burden among several taxpayers, all of whom benefit from the progressive rate structure of our system, thus reducing the family’s overall tax burden. The premise of the paper is that tax sprinkling violates the principle of horizontal equity: it is unfair that the family that has a business can arrange to pay less tax on a given dollar amount of aggregate income from the business than an employee who earns the same dollar amount in salary would owe. The subsidiary premise is that the income paid to a family member “may exceed what would have been expected, having regard to the family member’s labour and capital contributions” had the arrangements been made with persons dealing at arm’s length with the corporation.

The small business deduction in our corporate tax system was not invented by tax planners. It was meant to encourage the establishment of new enterprises and assist in their survival during their early-stage growth periods. It was never intended that the use of the corporate form of business organization would provide a tax dodge. The dividend tax credit — which integrates the tax imposed on the corporation with the tax collected a second time when profits are distributed by way of dividends — is not a loophole. The business owner was never intended to pay the same amount of tax as his neighbour who was an employee.

And if the business owner introduces his wife to the operations of the business, so that she can succeed him if he predeceases her, or if he trains his children in the intricacies of the family’s commercial venture to give them a taste of what would be involved if they decide to carry on the family business instead of going on to other careers, who can say whether the appropriate wage or “skin in the game” in the form of share ownership is comparable to an investment of money or effort by a stranger? Can an income tax auditor truly determine the fair market value of the labour or investment contributed in this context?

The paper attempts to invoke the existing rules on attribution of investment income received by a minor child and the “reasonableness” tests already found in the Income Tax Act to lead the reader to believe that the proposed measures represent a mere extension of existing principles. In fact, the rules to address the perceived ills raised in the paper would involve the extension of the existing “tax on split income” provisions to a huge number of adult taxpayers. The proposed measures would also extend the current reasonableness test to a universe of taxpayers that would make Big Brother blush: in effect, any adult connected to an individual having a certain measure of influence over the corporation. The Canada Revenue Agency will never have enough personnel, market data or insight into the purpose and value of every corporation’s circumstances to adequately and fairly enforce such a subjective standard of compliance.

So, for example, a mother may reorganize the capital of her company so that she becomes a holder of non-participating preferred shares with a redemption value of 100 percent of the undisputed current worth of the business. She conveys to her two children, one a minor and the other age 18, for a nominal sum, the common shares representing all of the future growth in the enterprise, as a means of encouraging them to take over the business and keep it in the family when she retires. Morneau’s proposed new rules could completely nullify this perfectly well-intentioned plan, since no one would ever make such an arrangement with a stranger.

The second section of the discussion paper takes aim at the practice of retaining passive investments within a private corporation. The complaint of the paper’s authors seems to be that, if profit from a small business is invested in passive (meaning, in this context, unrelated) entities or instruments, it can produce greater after-tax returns than if the money were invested by a taxpayer who is a salaried employee, because it can grow within the corporate entity and benefit from the lower tax rate on small business income . Again, the insistence on the appearance of horizontal equity is misplaced. If the small business owner is, say, a franchisee who is growing his capital as part of a plan to acquire a second, third or fourth franchise outlet, what possible benefit to the Canadian treasury would outweigh the cost of having him abandon or slow down his growth plan? The proposed reforms would force him to distribute the income by way of salary or dividend and then invest his capital personally instead of within his corporation (or would tax him as if he had done so). He would end up paying more tax but delaying or giving up his intended job-creating investment. The paper proposes a number of ways to achieve its goals, all of which are punitive and rest on the premise that an unfair advantage is gained by allowing private corporations to continue to earn passive investment income at small business rates of taxation.

The third section addresses a practice known as surplus stripping, whereby the disposition of a corporation’s shares in exchange for shares in a non-arm’s-length corporation can be used to “step up” (that is, increase the fair market value of) the cost base of the sold shares. The result is that on a further sale, even to a non-arm’s-length entity for cash, the surplus that would otherwise have to be paid out as taxable salary or dividends can be converted to a capital gain. An anti-avoidance measure already exists in the Act to address surplus stripping; the Canada Revenue Agency has found it to be less than totally effective and now hopes to extend and reinforce it, even in the face of objections to the existing rule from shareholders of family businesses, who see this provision as an impediment to intergenerational transfers of their companies. In response to these objections, the paper suggests an approach that would require that the vendor (in family businesses, the parent) not have any financial interest or participate in the management and operations of the business.

In the real world, businesses are not transferred to children in one fell swoop. There is a transitional period of passing the torch and handing down the accumulated knowledge and wisdom, which would not fit into the tidy categories of the proposed “solution.” The assumption that family relationships are all directed toward shortchanging the tax collector is what is wrong with this entire paper.

The measures proposed in the paper are being vigorously opposed by many groups: doctors and lawyers who use professional corporations not only to limit personal liability but also as part of the current, legitimate tax regime under which they set up their practices; small business owners everywhere; associations representing investors in innovative, breakthrough technologies; and others. Some of the arguments are less than convincing, such as the assertion that members of the medical profession were induced to accept, from the provinces, lower fees than they wanted, in exchange for being given the right to incorporate. That view is being widely dismissed because it presumes that federal tax policy should be used to make up for provincial lack of funds. The successful opposition will emerge only when it becomes clear that, in essence, the finance minister has declared war on the middle class.

The May 1985 budget delivered by Michael Wilson contained a provision related to the federal government’s attempt to end the country’s “inflation is inevitable” mentality. In order to ensure that every citizen had a stake in maintaining price stability, it was proposed that Old Age Security cheques continue to be adjusted for inflation only after the first 3 percent increase in the price level, which would be absorbed by pensioners. A 63-year-old Ottawa resident named Solange Denis confronted Prime Minister Brian Mulroney as he emerged from his car on Parliament Hill one morning and shouted, “Touche pas à nos pensions, ou c’est Goodbye, Charlie Brown.” The measure was dropped soon after. What this discussion paper needs is a Solange Denis moment, when some affected citizen, in a poignant, personal way, captures what is wrong with statistical assumptions about where the middle class begins and ends. Such assumptions, based on theories about taxing every dollar the same way, undermine thoughtful tax policy.



PearTree Spotlight

Agnico Eagle’s Meadowbank Mine

PearTree is proud to feature the Agnico Eagle METC Meadowbank case study video. The Meadowbank open-pit gold mine in the Kivalliq region of Nunavut – approximately 300 km west of Hudson Bay and 110 km by road north of Baker Lake – is Agnico Eagle’s first Low Arctic mine. This Canadian success story originated as a result of METC / flow through financing.

To learn more about the Meadowbank mine, click here.

Equity Research

By Gary Baschuk, Managing Director, Mining and Senior Geologist

We’ve spent quite a bit of time on the road conducting site visits and attending conferences the past few months. Highlights of the season were trips to Yukon, Northwest Territory, Red Lake and Val-d’Or. The North American conference schedule has wrapped up and the European events have commenced. The mood at the conferences was positive, even though the precious metal equity markets performance of late has not lived up to expectations. On year-to-date performance, gold is up 11%, silver up 6%, platinum flat and palladium is up 42%! On the equities side, the GDX is up 7.6% YTD while the GDXJ is up only 2.5%. The out-performance of the physical commodity may indicate that the equities are undervalued and poised to catch up. A common theme at the conferences was the lack of exploration funding by the majors and lack of new discoveries. Instead we’ve seen the majors taking equity positions in quality juniors helping to support their exploration programs… and securing a position for potential new discoveries.

In this Perspective, we discuss our recent site visits to Red Lake, Ontario and Val-d’Or, Quebec. Both Pure Gold Mining and Probe Metals have quality projects that we expect will continue with more positive exploration results.


Probe Metals Inc. (PRB-TSX.V)

Val-d’Or East Property Site Visit – Plenty to Expand and Explore!

We recently attended an analyst site visit to Probe Metal’s Val-d’Or East Property which hosts the past producing underground Beliveau Gold Mine and the open-pit Monique Mine.

Figure 1. Probe’s Eastern Val-d’Or Property Positions

Source: Probe Metals Inc.

Our key conclusions from the site visit:

  • Large property is under-explored
  • Property hosts high-grade gold mineralization within long, lower-grade intercepts
  • Potential for open-pit and/or underground mining
  • Probe is re-evaluating the entire property while also focussing on expanding the defined resources
  • the company continues the search to expand the property size
  • Probe is looking at the region with different geological models – traditional view of mineralization sub-parallel to the Cadillac/Larder Lake Fault and also perpendicular to the trend
  • Probe is actively exploring with five drills in a 75,000m drill program
  • Personnel are experienced and open to new geological ideas
  • Strong Institutional and Corporate support (Goldcorp Inc. (G-TSX) with ~14%)
  • Well financed with approximately $30 mln in cash and securities
  • Great location (Val-d’Or) near infrastructure – expected to keep capital and exploration costs low
  • Great jurisdiction – Quebec, Canada (Fraser Institutes ranks Quebec as #6 of World’s Most Attractive Jurisdiction for Mining Investment, 2016)

Probe Metals Inc. was created after Probe Mines Ltd. was sold to Goldcorp for the Borden Gold Project in 2015 for approximately C$526 mln. The team from Probe, armed with a $15 mln cash infusion from the sale, embarked to build a new company. The goal was to replicate the Borden Gold exploration model utilizing three components:

  • Scale – Must be able to acquire an extensive land holding
  • Infrastructure – Property must be located in a gold mining region
  • Grade – Property must have indications for high-grade gold ounces

Probe reportedly reviewed over 400 properties before deciding to focus on the Val-d’Or East Camp. In addition, Probe has properties in northern Quebec on the Lower Detour Lake/Grasset and Casa Berardi Trends and in Ontario in the West Timmins area – all regions with producing mines and multi-million-ounce resources.

In the Val-d’Or area, Probe has accumulated approximately 327 sq km of land including two past producing mines:

  • Beliveau – Operated from 1989 to 1993 by Cambior Inc. (Cambior acquired by IAMGOLD Corp. (IMG-TSX) in 2006). The underground mine produced 166,936 oz gold at a grade of 3.2 g/t and was mined to a depth of 300m.
  • Monique open pit – Operated from 2013 to 2015 by Richmont Mines Inc. (RIC-TSX). The pit, to 100m depth, produced 45,694 oz gold from a grade of 2.53 g/t from 580,000 tonnes mined.

Figure 2. Val-d’Or East Property Gold Mineralization Locations

Source: Probe Metals Inc.

Gold mineralization on the Pascalis Trend is hosted in stacked, shallow-dipping, quartz-tourmaline veins within northwest/southeast trending diorite dykes (see block model in upper-right-hand side of Figure 2). The brittle diorites intrude the more ductile mafic volcanic rocks creating a competency contrast and a host for the mineralizing fluids.

Figure 3. Stacked, south-dipping quartz-tourmaline veins in outcrop

 Source: PearTree Securities Inc.

When Cambior was mining at Beliveau, the competent ground conditions and favourable geometry of the veins permitted low-cost, longhole open stoping with only 7% dilution. Probe has continued drilling at depth and along strike of the Beliveau Mine and has intersected wide intervals of gold mineralization often with internal, high-grade intervals.

Highlights from recent drilling near the Beliveau site include:

Hole PC-17-197 (all intercepts in diorite with some volcanics within the first, inclusive interval):

  • 1.5 g/t Au over 316.3m from 387.7 to 704.0m, including
    • 7.6 g/t Au over 4.2m from 420.6 to 424.8m, and
    • 10.6 g/t Au over 2.0m from 466.4 to 468.4m, and
    • 3.0 g/t Au over 57.4m from 538.3 to 595.7m, which includes
      • 19.1 g/t Au over 5.5m from 572.3 to 577.8m, and
      • 5.5 g/t Au over 8.5m from 682.2 to 690.7m.

Hole PC-17-172 :

  • 1.5 g/t Au over 27.6m from 111.9 to 139.5m, including
    • 5.2 g/t Au over 2.7m from 111.9 to 114.6m (hosted in volcanics), and
    • 7.3 g/t Au over 2.0m from 131.4 to 133.4m (hosted in diorite).

Hole PC-17-182:

  • 1.1 g/t Au over 100.5m from 126.9 to 227.4m, including
    • 2.3 g/t Au over 34.8m from174.7 to 209.5m, and
    • 18.1 g/t Au over 3.8m from 205.7 to 209.5m.

Gold mineralization often occurs in wide, lower grade intervals containing high-grade intercepts. A possible mining scenario would be to bulk mine the lower grade mineralization within an open pit and mine the remaining, deeper, higher-grade intervals underground accessed from the highwall of the pit. The ground conditions encountered from previous mining, suggests the underground mining may be amenable to lower cost bulk mining methods. In addition to the New Beliveau mineralization (New Beliveau refers to extensions of mineralization outside of the Beliveau Mine), Probe has been testing the Highway and North Zones with success.

Probe currently has a NI 43-101 Inferred Resource of 770,000 oz gold contained in 9.13 mln tonnes grading 2.63 g/t from the New Beliveau, North and Highway Zones. The 2017 drill program of 75,000m is divided with 60,000m earmarked for resource drilling and 15,000m for exploration drilling. The company expects to complete an updated resource estimate by the end of 2018.

As part of the exploration program for the large property, Probe completed geophysical surveys over the entire property. As two orientations of mineralization have been discovered, east/west parallel to the Cadillac/Larder Lake Break and north/south associated with diorite dykes and fracture zones, the geophysical lines were run oblique to both directions. A VTEM survey was flown over the Island Garden Fault in the northern part of the property where outcrop exposure is low. New interpretations of the geology, including the identification of ultramafics, is expected to assist targeting drill holes for a winter program when the swampy ground is frozen.

Figure 4. Drill core from PC16-90 with Quartz-tourmaline veining in host diorite with coarse pyrite development near vein margins.

 Source: PearTree Securities Inc.

Based upon the drill results from the New Beliveau Zone and IP geophysical results, we believe good potential exists for furthering the deposits to the south. The high concentration of pyrite with quartz veining is expected to provide a good chargeability / resistivity anomaly. Figure 5 illustrates the IP anomalies discovered south of the Beliveau Mine – we expect these to provide new drill targets and expansion of mineralization.

Figure 5. IP Anomalies south of the Beliveau Mine

 Source: Probe Metals Inc.

In addition to the Pascalis Trend, we visited the Monique open pit mine previously mined by Richmont Mines Inc. from 2013 to 2015. Mining was conducted from surface to 100m depth and 0.58 Mt of ore was extracted producing 45,694 oz of gold. Gold mineralization is hosted in quartz-tourmaline-carbonate veins and veinlets. In contrast to the Pascalis Trend mineralization, gold veins are associated with three deformational zones that strike 280 degrees and dip steeply to the north. A total of 12 gold zones have been reported on the property and mineralization has been traced from surface to 400m.

Figure 6. Monique Open pit – Note the high-angle veins and deformation in the highwall.

Source: PearTree Securities Inc.


Probe Metals has accumulated a large land package in an under explored part of the Val-d’Or Gold Camp. Initial results have been positive with thick intersections of gold mineralization being returned from the Pascalis Trend and particularly near the Beliveau Mine. Mineralization continues at depth and high-grade intervals have been intersected within the lower-grade intervals.

The company is well financed with over $30 mln in cash and securities and has an aggressive exploration program underway with a new resource estimation at New Beliveau planned for late 2018.


Pure Gold’s Madsen Mine Site Visit (PGM-TSX.V)

Purely Positive….

We visited Pure Gold’s Madsen Mine Property in Red Lake, Ontario. On the back of a positive PEA, the site visit provided the opportunity to examine the advancement made on the project including re-opening the decline, geological re-interpretation, underground mapping, new drill core intercepts, and most importantly, meeting the personnel running the project. We were impressed by the easy access, proximity to manpower and supplies, high-grade underground resource and opportunity for expansion.

Key Take-aways

  • The Property shows well with excellent infrastructure and a solid resource base with significant room for expansion.
  • We expect the updated resource, scheduled for Q4/17, to increase in both size and quality with the addition of satellite deposits and expansion of mineralized zones due to more recent drilling.
  • Resource expansion potential evident with two rigs drilling NQ-sized core.
    • One drill on surface targeting the upper part of the high-grade 8 Zone Deposit with plans to wedge to test a prospective region between the 8 Zone and the near-surface Russet South.
    • One drill near the end of the decline targeting the upper portion of the McVeigh Deposit and the South Austin Deposit outside of the resource blocks.
  • Mills appear to be in good shape with bearings lifted from the foundation and spare liners stacked nearby. Inspections were reportedly carried out by two groups who reported that the shut-down was carried out appropriately.
  • Underground ramp is in good condition with rebar bolts and screen near the portal (no shotcrete) and dominantly just rock bolts for ground support (very few “baskets” noted in the back).
  • Large area for tailings with favourable topography. Pure Gold expects a single 3.5m lift will be required for production at 600 tpd. The sides of the current tailings pond are naturally elevated suggesting only a single lift will be required at the current embankment.
  • New geological model based on over 14,000 drill holes suggests increased opportunity for expansion and predictability of mineralization. Recent drill hole PG17-456 intersected 34.6 g/t gold over 4.3m approximately 240m down-plunge from the previously mined South Austin ore at a vertical depth of approximately 1,373m. The large step-out hole implies that the mineralization continues to depth, similar to most deposits in the Red Lake Camp.
  • We are impressed with the high-grade and large Indicated Resource for an underground deposit. Pure has established a resource with overall drill intercept spacing of 6.3m in the high-grade domains and 9.5m in the low-grade domains.
  • Geologists have a good understanding of the mineralization controls and styles.
  • Personnel are energized and passionate about the project.
  • Strong Institutional and Corporate Support


Near-Term Catalysts

  • Updated Resource Estimate expected in Q4/17.
    • to include shallow, satellite mineralization from Fork Zone and South Russet.
    • to include drill results from holes completed since April 11, 2017 (over 30,000 additional meters). Expected to fill-in gaps in model and expand mineralized zones.
  • Continued drill results from in-fill and step-out holes (70,000m to be drilled in 2017).
  • Commencement of Permit applications for mill, tailings, etc.
  • Announcement of a Project Development Schedule to advance the property toward a production decision.

Figure 1. Madsen Headframe

Source: PearTree Securities Inc.

Project Status

In mid-September, Pure Gold released a positive PEA for the Madsen Mine, a past 2.5 mln ounce gold producer. The study was based on an updated Resource estimate using a 4.0 g/t gold cut-off. The Austin, Austin South, 8 Zone, McVeigh and A3 Zones were estimated to host 1.648 mln oz gold grading 8.9 g/t in the Indicated category plus 178,000 oz grading 9.4 g/t gold in the Inferred category. The PEA returned positive economical results yielding a post-tax IRR of 47% and a Net Present Value (at 5% discount) of C$258 mln. Gold production, using on-site mill, underground facilities and tailings pond, averaged 66,109 oz gold per year peaking at 85,411 oz in year six. Pre-production capital is estimated at C$50.9 mln (including 15% contingency) with LOM sustaining capital estimated at C$134.7 mln (including 5% contingency). Costs are low due to the existing infrastructure, permits, patented claim land status and proximity to town for supplies and manpower.

Figure 2. Madsen Mine Resource Estimate as of Aug 2, 2017.

 Source: Pure Gold Mining Inc.

Figure 3.PEA Parameters and Highlights

 Source: Pure Gold Mining Inc.

Infrastructure: Pure has opened the portal, slashed-out the decline to 4.5m X 4.5m and commenced underground drilling. Ground conditions that we viewed in the host basalt are competent requiring minimal screening and rock bolts. The decline provides access to the upper 150m of mine workings and is designed to be extended to a final depth of 1,430m based on the PEA production design. The existing Madsen Shaft would be utilized for ventilation, water discharge and as secondary egress.

Figure 4. Madsen Portal. Plans are envisioned to access all mineralization via the ramp.

 Source: PearTree Securities Inc.

The tailings pond is large and according to the company has sufficient capacity for production at 600 tpd requiring only a single 3.5m lift. The natural topography along the sides minimizes additional dam material required. The existing pond was constructed in 1996.

Figure 5. View of the Madsen Headframe from the Tailings Dam (looking south).

 Source: PearTree Securities Inc.

The 600 tpd Mill was purchased by predecessor Claude Resources in ~ 1996 from the Dona Lake Gold Mine which operated in the Pickle Lake area of northern Ontario. Recoveries by Claude were approximately 90% running at ~ 5 g/t gold. Historically, recoveries reportedly averaged approximately 94% at grades of 9.7 g/t, closer to the current PEA grades. Our walk-through of the mill confirmed the presence of a SAG and Ball mill, six CIP tanks, carbon-stripping circuit plus refinery. The company commented that two independent inspectors had examined the plant and concluded it had been placed in Care and Maintenance appropriately including supporting the mill bearings off the foundation. Pure Gold expects to replace pumps plus add instrumentation and update electrical. Capital costs are expected at less than $15mln. An additional permit will be required to restart the mill.

Pure’s geological team has re-interpreted the geology resulting in tighter controls to the mineralized zones. Gold mineralization occurs in brecciated siliceous bands hosted in shear zones (quartz-vein hosted in the 8 Zone). The mineralization is hosted in more brittle basalt bounded by more ductile ultramafic units. Mineralization appears to occur in shallow-angle lenses cutting the basalt (riedel shear-like).

Figure 6. Shear Zone Hosted Silicified Breccia noted in the Madsen Ramp

 Source: PearTree Securities Inc.

Figure 7. Schematic Diagram of Mineralized Zones Illustrating Cross-Cutting Relationships to Stratigraphy.

 Source: Pure Gold Mining Inc.

Figure 9. Plan View of Mineralized Zones.

 Source: Pure Gold Mining Inc.

The improved geological interpretation permitted tighter controls on the model resulting in increased confidence of the resource. The company noted that the new, refined model captured the en echelon and anastomosing nature of mineralization in the old, mined-out stopes giving confidence in the interpretation. In addition, recent deep drilling utilizing the new model successfully intersected mineralization 240m down-plunge of the South Austin Deposit at a depth of 1,373m. Drill hole PG17-456 returned 34.6 g/t gold over 4.3m including 67.0 g/t gold over 2.0m.


We were impressed by the infrastructure, on-site progress, clear objectives and improved geological understanding of the Madsen Project. As the company winds down the 70,000m drill program, a new Resource Estimate is anticipated in Q4/17 and a new plan aimed towards a production decision is expected. The drilling and new geological interpretation are expected to add ounces to the Resource with the inclusion of the satellite Fork and Russet South Deposits plus expansion of the existing block models.

The Madsen Project has attracted solid investors including AngloGold Ashanti Ltd. (AU-NYSE) with 10.8%, Evanchan Ltd. (Robert McEwen Co.) holding 9.4%, Goldcorp Inc. (G-TSX) with 7.2% plus Institutional Shareholders with 14.4%.


Important Information and Legal Disclaimers

This report has been prepared for general information purposes only and should not be considered either a solicitation for the purchase or an offer of securities. This research report does not constitute a recommendation. The securities mentioned in this report may not be suitable for all types of investors. The information contained in this report is not intended as individual investment advice and is not designed to meet any particular investment objectives, financial situations, or needs. Nothing in this report constitutes legal, accounting or tax advice.

Information, opinions and statistical data contained in this report were obtained or derived from sources believed to be reliable, but its accuracy cannot be guaranteed. PearTree Securities Inc. (“PT Securities”) and/or its affiliates and/or any of their respective officers, directors, and representatives (collectively “PearTree”) does not represent that any such information, opinion or statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report provided by PearTree or individual research analysts). Any opinions or analysis herein reflect the views of the Analyst as at the date appearing above, and are subject to change without notice. The Analyst writing the report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in this report.

PearTree may, in exchange for remuneration, participate in the financing of companies mentioned in this report. PearTree analysts are salaried employees who may receive a performance bonus that may be derived, in part, from corporate finance income. PearTree and members of their families may hold positions in the companies mentioned in this report and may buy and/or sell these stocks on the market or otherwise.

PearTree shall not be held liable for any loss or damage resulting from the use or the implementation of the information contained herein, except to the extent that liability may arise under specific statutes or regulations applicable to PearTree. The investments to which this report relates can fluctuate in value.

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Research reports are disseminated through electronic medium or in printed copy. Clients may access reports on our website, or receive publications directly via email. PearTree strives to ensure all recipients receive research in a timely manner and at the same time.

For Canadian residents: PT Securities is registered as an Exempt Market Dealer, a Registered Portfolio Manager and Investment Fund Manager pursuant to NI-31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. PT Securities is a subsidiary of PearTree Financial Services Ltd., an unregistered firm that consults to charities on tax and other matters related to a flow through share donation program.

For US residents: The information provided herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country including the United States, where such distribution or use would be contrary to law or regulation or which would subject PearTree to any registration requirement within such jurisdiction or country.

Analyst Certification

I, Gary Baschuk, hereby certify that the views expressed in this report accurately reflect my personal views about the subject and the issuer.


Important Disclosures

Of the companies included in the report the following Important Disclosures apply:

Ticker Company 1 2 3 4 5
AEM-TSX Agnico Eagle Mines Ltd.
AZX-TSX.V Alexandria Minerals Corp. x
AU-NYSE AngloGold Ashanti Ltd.
ELD-TSX Eldorado Gold Corp.
GMX-TSX Globex Mining Enterprises Inc.
G-TSX Goldcorp Inc.
GDX-TSX.V Goldex Resources Corp.
MQR-TSX.V Monarques Gold Corp. x
PRB-TSX.V Probe Metals Inc. x
PGM-TSX.V Pure Gold Mining Inc. x
QMX-TSX.V QMX Gold Corp.
RIC.TSX Richmont Mines Inc.
WDO-TSX Wesdome Gold Mines Ltd.
1 The Analyst(s) preparing this report (or a member of the Analyst’s household) have a financial interest in this company.
2 PearTree has managed or co-managed or participated as selling group in a private placement for the issuer’s in the past 12 months.
3 As of the end of the month immediately preceding the date of issuance of this research report or the end of the second most recent month if the issue date is less than 10 calendar days after the end of the most recent month, PearTree collectively beneficially owned 1% or more of a class of the issuer’s equity securities.
4 PearTree has visited projects of the issuer and a portion of the expenses for this travel may have been reimbursed by the issuer.
5 PearTree, the analyst or an associate of the analyst responsible for this report or any individuals directly involved in the preparation of this report hold or are short the issuer’s securities directly or through derivatives.
The research analyst is not aware of any other material conflict at the time of publication.

This newsletter is dedicated to providing insight and analysis on Canadian mineral exploration and development stories. We welcome your feedback.

PearTree Securities is the largest provider of mining flow through capital in Canada. As an exempt market dealer and portfolio manager, PearTree Securities has approximately $250 million available for investments annually.

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121 Mining Investment in London, UK – November 27-28, 2017

Contact Us

David Donato
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Lisa Davis
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Gary Baschuk
Managing Director, Mining and Senior Geologist
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Ricky Chan
Vice President
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Danny Mah
Managing Director, Oil & Gas
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