The decision to take a dual listing in London comes as Canadian investors shun junior miners, preferring the buzz and growth potential of cannabis and cryptocurrency stocks, and will be closely watched by rivals in Toronto.
Small Canadian miners have historically relied on the domestic retail market to fund projects and deals, something that is becoming increasingly difficult as investors chase more exciting alternatives. The gold price has been moribund this year, failing to make headway despite the US-China trade spat and rising geopolitical tensions.
Darin Labrenz, chief executive of Pure Gold, said Canada’s miners were facing a big structural shift in funding, which also reflected the increasing popularity of passive investing and exchange traded funds.
“What we have seen is a depletion of traditional pools of capital,” he said. “Twenty years ago in Toronto there was $20bn of funding available for a new mine start-up. Today we’ve seen that figure shrink to less than $3bn in terms of active management money. And then you look at the broader picture, there’s 1,200 miners listed in Canada chasing that $3bn of capital.”
Mr Labrenz said Pure Gold, which wants to bring its Madsen Red Lake gold deposit into production this year, had picked London for a dual listing because the city offered access to a much broader pool of international capital.
“That’s quite different to what we see in Toronto or New York,” he said. “Also there are 147 mining companies listed in London and only 30 of them have a market value between $100m and $2bn.”
London lost its biggest and most successful gold company this year when Randgold Resources was swallowed by rival Barrick.
The company should be a litmus test for the appetite in the London market for Canadian mining companies, which have seen share prices hit by capital outflows,” said analysts at Numis Securities. “In London, Pure Gold offers exposure to a quality development story in a developed country with advanced infrastructure and a mature mining legislative environment.”
The Red Lake district of northwestern Ontario is one of the largest gold-producing regions in Canada. Its rich mineral endowment helped Goldcorp grow into one of the world’s biggest gold miners before its recent $10bn takeover by US rival Newmont Mining.
Pure Gold, in which AngloGold Ashanti has a near 15 per cent stake, acquired Madsen Red Lake in 2014 from an ailing rival. The company, whose market value is roughly $100m, needs to raise $100m-$105m to bring the mine into production.
“We’re looking at a breakdown of 75 per cent project finance and 25 per cent equity,” said Mr Labrenz. Madsen Red Lake will be capable of producing more than 100,000 ounces of gold over its 12-year life as a mine.
While the initial focus of Pure Gold is on developing Madsen Red Lake, Mr Labrenz said there was an opportunity to build a leading mid-tier gold company focused on Canada.
“In the Red Lake area we see opportunities for consolidation and we are keen to be part of that conversation,” he said.
“Newmont have said publicly they are going to divest $1bn to $1.5bn of assets and Red Lake pops to the top of its [divestment] charts fairly often,” he said. “I think there is an opportunity for a new Canadian-focused developer to be built.”