Midway Gold de-risks Nevada projects

Nevada-focused Midway Gold (MDW-V, MDW-X) shares have climbed 145% to $2.01 apiece since the beginning of 2011. 

The past year has been a fruitful one, with the junior updating the resource and completing a feasibility study on its Pan project, more than doubling its resource at Spring Valley with partner Barrick Gold (ABX-T, ABX-N), initiating a resource estimate for the Gold Rock project that the company expects to finish early in 2012 and qualifying as a development-stage company under U.S. Securities and Exchange Commission guidelines.

Midway expects to start production at Pan in 2013 and believes the deposit, 29 km southeast of Eureka in Nevada, demonstrates robust economics at a range of gold prices. 

In October the company pegged Pan’s resource at 37 million measured tonnes grading 0.49 gram gold per tonne for 579,000 contained oz. gold and 43 million inferred tonnes of 0.40 gram gold, for 551,000 contained oz. gold at a cut-off grade of 0.14 gram gold.

Pant is a bulk-tonnage, Carlin-style, sediment-hosted gold deposit that remains open in multiple directions. 

At North Pan mineralization remains open at depth, where many drill holes have bottomed in mineralization, and it is also open to the north. 

At South Pan, the deposit remains open at depth, to the south and to the east. Midway plans to drill 14,000 metres in 2012 to grow the resource.

In November a feasibility study demonstrated that at a gold price of US$1,200 per oz., the project’s net present value at a 5% discount rate reaches US$123 million, rising to US$235 million at a gold price of US$1,550 per oz. The internal rate of return at US$1,200 per oz. gold is 32%, climbing to 56% at US$1,550 per oz. gold. Payback periods range from 2.6 years at US$1,200 per oz. gold to 1.7 years at US$1,550 per oz. gold.

The oxidized gold deposit has a strip ratio of 1.79 to 1. It is mineable by open-pit methods and treatable by heap leaching. Gold recoveries are expected to reach 75%, with production exceeding 81,000 oz. gold a year. Capital costs are estimated in the range of US$99 million, including US$8.2 million in working capital and US$6.8 million in contingencies. Operating cash costs are projected to be US$585 per oz., including royalties, state taxes and a 5% contingency. Total production costs including capital is forecast to be US$824 per oz. gold.

Meanwhile Midway and Barrick Gold are advancing Spring Valley, a new discovery in Pershing County, Nev., that remains open and growing. Spring Valley is a porphyry- and diatreme-hosted gold system beneath pediment gravels in the Humboldt Mountains near Lovelock that has “easily liberated coarse gold,” the company says. 

In May the partners released an updated resource estimate for the project. At a 0.14-gram gold per tonne cut-off grade, the measured resource stands at 59 million tonnes grading 0.49 gram gold per tonne for 0.93 million contained oz. gold, the indicated resource equals 85.8 million tonnes grading 0.45 gram gold for 1.23 million contained oz. gold and inferred resources measure 103.9 million tonnes grading 0.59 gram gold for 1.97 million oz. gold.

In 2011 Barrick completed 16,000 metres of drilling at Spring Valley, and in early December released assay results from widely spaced reconnaissance drilling south of the resource. Drill results include 27 metres of 0.79 gram gold in hole 11-525 and 32 metres of 0.86 gram gold in hole 11-534. Higher-grade intercepts include 6 metres of 6.86 grams gold per tonne in hole 11-521, 6 metres of 4.97 grams gold in 11-530 and 11 metres of 1.44 grams gold in 11-532C, including 2 metres of 8.95 grams gold.  

Drilling at Midway’s Tonopah project, meanwhile, 24 km north of the town of Tonopah in Nevada’s Nye County, returned a number of high-grade intercepts. 

Highlights included 0.4 metre of 334.9 grams gold per tonne and 2 metres of 78.41 grams gold within a 46-metre zone of 7.68 grams gold in drill hole 11-09C. 

Other results included 1 metre of 88 grams gold per tonne within a 48-metre zone of 2.02 grams gold in 11-05C, and 3 metres of 17.5 grams gold within a 22-metre zone of 4.83 grams gold in 11-7CC.

At presstime Midway traded at $2.01 per share within a 52-week range of $1.27–$2.99 per share.