West Red Lake Gold Mines Draw Nearer Towards 2025 Production

• West Red Lake Gold Mines is working to restart the Madsen gold mine by mid-2025.
• In 2024, the company conducted extensive drilling, underground development, and de-risking work to prepare the mine for production.
• The project has a high-grade resource of 1.7Moz indicated ounces at 7.4 g/t gold. Initial production is expected to be 60-65k ounces per year.
• The company has raised over C$90M in equity and secured a $35M debt facility to fund remaining capital needs until the mine generates cash flow.
• Near-term investment catalysts include a pre-feasibility study in early 2025, a bulk sample program to validate grades, and the start of production.

West Red Lake Gold Mines (WRLG) is moving full steam ahead to bring the past-producing Madsen gold mine in Red Lake, Ontario back into production by mid-2025. The high-grade underground mine previously operated from the 1930s-1970s, producing nearly 2.5 million ounces of gold at an average grade of 9.7 g/t. It briefly restarted in the late 1990s before low gold prices forced it to close again.

Final Preparations Towards 2025 Production

WRLG acquired the Madsen project out of bankruptcy in mid-2023 and has spent the last 18 months rapidly advancing it back towards production. The company's strategy has focused on de-risking the asset by conducting extensive definition drilling to accurately model the gold mineralization, while also completing key capital projects and operational readiness work.

"Mining as a very complicated machine has a lot of aspects to that - there's a lot of things that could potentially go wrong," explained WRLG VP Communications Gwen Preston. "The most important aspect of putting a mine into production is to have a plan and then realize what could go wrong as you enact that plan and address all of those risks. So de-risking is huge and that's been a big focus for us."

High-Grade Resource Supports Robust Restart Plan

The centerpiece of the Madsen property is the high-grade 8 Zone deposit which contains an indicated resource of 1.7 million ounces grading 7.4 g/t gold. WRLG's mine plan will target the upper, easily-accessible portions of this deposit first.

The company expects to produce 60,000-65,000 ounces of gold per year at all-in sustaining costs in the low $1,000s per ounce range based on a mining rate of 800 tonnes per day. At current spot prices around $2,600/oz, this would generate strong margins and cash flow.

"One of the things that we really love about this asset is that it's a high-grade deposit," said Preston. "Our indicated resource here is 1.7 million indicated ounces at an average grade of 7.4 g/t gold. That's the resource that we're going to tap first in this initial version of the Madsen mine restart."

2024 Progress Sets Stage for 2025 Production

Over the course of 2024, WRLG completed 85,000 meters of definition drilling which resulted in improved geologic modeling and understanding of the 8 Zone gold system. The drilling was accomplished from new underground development drifts that provide access to key areas of the mine for future production.

Another major 2024 achievement was the completion of the Connector Drift - a 450 meter tunnel that links the east and west sides of the mine. This will allow for ore and waste haulage entirely from the larger West Portal, greatly improving efficiency versus the smaller, constrained East Portal.

On surface, the company made significant progress on recommissioning the 600 tonne per day mill, raising the tailings storage facility, and building a new camp and mine dry. All of this positions Madsen for a smooth transition back into production in 2025.

Upcoming Catalysts to Watch

The next major milestone for WRLG will be the release of a Pre-Feasibility Study (PFS) for Madsen in early January 2025. This report will lay out a detailed roadmap to first production, including mining methods, expected throughput, operating costs, sustaining capital, and a robust economic analysis.

Another key de-risking step will be the processing of an 8,000 tonne bulk sample from the 8 Zone in Q1 2025. This will validate the geologic model, mining dilution assumptions, and head grades prior to the start of commercial production. The goal is to demonstrate grade reconciliation in line with the mine plan.

"The test for whether we know where the gold is and can mine it effectively is a bulk sample from a few different areas," said Preston. "So by the end of February we hope to have 8,000 tonnes of bulk sample stockpiled on surface. Then in March we'll process it and report actual vs expected grades. It's really key."

Assuming no major surprises from the bulk sample or PFS, WRLG aims to be in commercial production at a rate of 800 tpd by mid-2025. The company is targeting 60-65,000 ounces of annual output, which would generate significant free cash flow at current gold prices. Longer-term, there is potential to incorporate satellite deposits like Fork, Rowan and the Upper 8 Zone into the mine plan and boost production.

Interview with VP Investor Relations, Gwen Preston

Well-Funded Through Remaining Capital Needs

To date, WRLG has raised approximately $100 million to fund the Madsen restart. This has been comprised of $90 million in equity financing and a $35 million debt facility currently being finalized. The company expects the remaining capital needs until the mine generates its own cash flow which the credit facility will cover.

Taking on a modest amount of debt so close to production is a prudent move to limit further equity dilution. And with the extensive de-risking work done to date, WRLG is in a much better position to meet any covenants or requirements tied to the debt.

"Scale and de-risking matter a lot when considering the role of debt in financing a mine, said Preston. "If you look back, people blame debt as one of the things that tripped up Madsen last time. But those debt deals were signed before they had done the de-risking to know if they could deliver. We're at a stage now where we're comfortable taking on debt because we know what we can get out of this asset."

Re-Rating Opportunity as Production Nears

Despite its advanced stage and near-term path to production, WRLG still trades at a steep discount to peers on a price to net asset value (P/NAV) basis. Unfinanced gold developers tend to trade around 0.25x-0.35x NAV, while producers command multiples of 0.6x-0.8x NAV or higher.

As the company checks off final de-risking milestones in the coming months and the market gains clarity on the robustness of the Madsen restart plan, a significant re-rating is quite likely. Catalysts to watch include the PFS in early 2025, a construction decision and securing of full project financing in Q1, and the start of production by mid-year.

"The near-term investment thesis is pretty clear - a re-rating as the market acknowledges and gets clarity on our progress," said Preston. "When we issue the PFS, go through the last few de-risking steps, and put this into production, that's a big change. You go from a 0.25x NAV for developers to probably a 0.6x NAV for producers."

Of course, a rising gold price would provide additional upside. Many analysts see gold breaking out to new all-time highs above $2,000/oz in 2025 as the U.S. dollar weakens and real interest rates remain low. Every $100/oz increase in the gold price adds approximately $50 million to WRLG's after-tax NPV according to recent analyst estimates.

The Madsen gold project represents an attractive investment opportunity given its high-grade resource, near-term production timeline, and significant de-risking and capital investments to date. With several key catalysts on the horizon in early 2025, WRLG looks poised for a re-rating more in line with producing peers. The company is well-funded through remaining capex needs and looks to be in a strong position to execute a successful mine restart by mid-2025. In a rising gold price environment, Madsen's high-grade ounces should generate significant margins and shareholder value.

Investment Thesis for West Red Lake Gold

In a precious metals bull market, new gold mines being built by well-managed teams in stable jurisdictions tend to get rewarded by the market. WRLG checks all those boxes with Madsen and looks poised for an exciting and transformational 2025. Investors seeking exposure to a near-term, high-grade Canadian gold producer should take a closer look at this compelling opportunity.

• High-grade, high-margin gold mine: 1.7M oz at 7.4 g/t support 60-65k oz/yr production at low costs
• Near-term production: extensive drilling, underground development and de-risking sets up mid-2025 restart
• Upcoming catalysts: PFS, bulk sample, project financing and construction decision in Q1 2025
• Fully funded: $100M raised to date via equity and debt covers remaining capital to production
• Compelling valuation: trades at discount to peers, likely re-rating as production nears

Macro Thematic Analysis

Gold is poised for an exceptionally strong year in 2025 as a trifecta of macro drivers create a highly supportive environment for the yellow metal. Firstly, the U.S. dollar looks to be entering a sustained downtrend after a decade-long bull run, as twin deficits and the Fed backing off aggressive rate hikes weigh on the world's reserve currency. A weaker USD is a major tailwind for gold.

Secondly, real interest rates – the arch nemesis of gold – look set to remain low or negative even as central banks tighten monetary policy to fight inflation. This is because inflation is likely to remain stubbornly high while economic growth slows. This negative real rate environment reduces the opportunity cost of holding gold.

Finally, heightened geopolitical tensions, soaring debt levels, and a looming recession are all fueling safe haven demand for gold as a portfolio diversifier and store of value. Central banks, in particular, are likely to remain large buyers of gold to mitigate risk. In this macro backdrop, gold breaking out to new all-time highs above $2,000/oz seems increasingly likely.

"The arguments for gold remain pretty strong," explained Preston. "Gold took a step back in the last few days because of the Federal Reserve and that's fine, but I think the reasons to own it are still very much intact."

This bodes well for gold miners, especially marginal producers in stable jurisdictions with high-grade assets like WRLG's Madsen project. These companies offer torque to a rising gold price while mitigating some of the risks inherent with mining in less favorable locations. With Madsen on the cusp of production, WRLG is well-positioned to capitalize on a historic gold bull market in 2025 and beyond.