Midway Gold (TSX: MDW; NYSE-MKT: MDW) has a lot on its plate — it’s almost a wonder it finds the time to release its first-quarter financials.
But that it did, and while building one mine, permitting another and being part of a prefeasibility study push on a third led to a $3.7-million loss for the quarter, the number was less than the $4.9-million loss it reported last year around the same time. The reduction came after cutting back on legal, audit and exploration expenses. On the exploration side, spending was reduced so that it could put dollars into its Pan gold project in Nevada.
Haywood Securities analyst Geordie Mark is bullish on the project — partly because it is so straightforward.
“The simple mining and processing approach enables Midway to enter production with relatively little capital expenditure (pre-production US$70-million capex) for generic equipment and facilities,” Mark wrote in his research report on the company.
Mark noted that the simple process comes from the morphology and metallurgical characteristics of the gold deposit that lend themselves to lower cost and easier processing, and is pleased with the deposit’s low strip ratio of 1.8 to 1.
Pan has proven and probable reserves of 48 million tonnes grading 0.56 gram gold for 880,000 oz. gold. Measured and indicated resources come in at 80 million tonnes grading 0.44 gram gold for 1.13 million oz. gold.
A feasibility study for Pan was completed in late 2011. It estimated a cost of $99 million to build a facility with a nine-year mine life, and average annual production of 81,000 oz. gold a year at a fully loaded cost of US$824 per oz. These metrics helped generate a $123-million net present value using a US$1,200 per oz. gold price and 5% discount rate.
The company recently released its processing model for South Pan, which outlines run-of-mine heap-leach processing. Mark expects it would yield gold recoveries in the mid-80% range.
With costs being at the front of many investors’ minds owing to the weakened gold price, Midway recently changed development plans to save capex by using contractor mining. The switch should reduce capital requirements enough so that it will only need another $50 million of capital to reach production, Mark wrote.
With progress already made on the leach pad and pond facility, the project’s first gold pour is expected in this year’s fourth quarter.
And while Pan takes up much of Midway’s time and energy, it is still pushing to get its permitting in place for its Gold Rock project, while its jointly held Spring Valley project moves towards prefeasibility. Both projects are in Nevada.
At Gold Rock, Midway said its draft environmental-impact statement is underway, and Mark expects that the company will get its record of decision by mid-2015.
As for Spring Valley — where Midway has a 30% stake, with Barrick Gold (TSX: ABX; NYSE: ABX) holding the remainder and acting as operator — the major should finish a prefeasibility study by mid-2015 as well.
Despite all the activity, the company remains well financed, with $44-million cash-on-hand and working capital of $39 million. It has a $49-million long-term debt outstanding, and is finding financing for Pan.
Mark has a $1.35-per-share target price, with a “buy” recommendation for investors.
On May 8, a day after financials were released, the company’s stock was off 3.3%, or 3¢ to 88¢, on 30,000 shares traded.
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