We recently sat down with Gwen Preston, Vice President of Investor Relations at West Red Lake Gold (TSXV: WRLG) (OTCQB: WRLGF) to discuss the “Golden Runway” – a model of looking at the value created during a gold discovery. Let’s look at some key details to gain a better understanding.
Lassonde Curve
Mining projects go through the Lassonde Curve, a model popularized by mining investment legend Pierre Lassonde which describes the lifecycle of mine from inception to acquisition.
Discovery Phase
There is much excitement generated during the discovery phase, as investors will jump into a mining equity based on the potential of the project. The share price of a mining company with blue sky possibilities can go parabolic, as significant discoveries are rare.
Feasibility: Figuring it Out
Once a discovery occurs, the mining company will commence a drilling program and evaluate the quantity of gold, quality of ore and if the project is economical. Counterintuitively this leads to a downturn in value due to the costs and passage of time associated with permitting, engineering and financing a mine. Investors can become disillusioned with the progress and the equity may suffer for it.
The Golden Runway
The Golden Runway refers to the second ascent on the Lassonde Curve. Prices move upward again, and excitement is generated as the time to build the mine is near. The value of the asset is now defined, and the mining company can now go from spending money to producing gold; a very attractive investment in an environment where the spot price is rising. The Golden Runway is very reliable, as 92% of the miners that reach a construction decision become producers; great odds and excellent returns.
Golden Statistics
What makes the Golden Runway a phenomenal opportunity is the numbers behind this phase. A study made by mining analyst Lobo Tigre from the Independent Speculator reveals that the average time it takes a miner to move from construction to their first “gold pour” is only 568 days. The 124 stocks reviewed in the study went from deciding to build a mine, to producing gold. In their respective timeframes, the average return for those equities was 111% – strong, reliable results for the discerning investor.
The Golden Runway in Action
West Red Lake Gold is at the start of the Golden Runway – their Madsen Mine project is a high-grade resource in Ontario. A key feature is that the project’s mine, mill and tailings facility are already built, with $350 million invested in infrastructure to date. The company is in the process of working on additional projects required to meet their goal of restarting the mine by 2025, an accelerated Golden Runway that may produce desired results at faster pace.
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