Midway gets key permit, pushes Pan closer to production

Midway Gold (MDW-V, MDW-X) is closer now to production than ever, with the Nevada state government handing the company the water pollution control permit needed for its Pan Gold project. 

The permit comes on the heels of Midway’s drafted environmental impact statement, and puts Pan on track to see construction start late this year, and production hopefully in mid-2014. 

The permit was issued after the Nevada Division of Environmental Protection determined that a future mine would not harm water supplies and that public safety and health would be protected. It helped that the property contains no surface water areas and that the proposed open pit wouldn’t go down to the groundwater table.

Midway is run by a pair of former Newmont Mining (NMC-T, NEM-N) executives, with Kenneth Brunk, Newmont’s former senior vice-president, serving as chairman and CEO, and Fritz Schaudies, who also worked at Newmont, serving as chief financial officer.

If Midway can get Pan into production it will be the company’s first producing mine, and from the looks of a feasibility study released at the end of 2011, the mine should generate considerable value for investors.

The study calculated an after-tax net present value of $123 million using a 5% discount rate and a US$1,200 per oz. gold price. The after-tax internal rate of return came in at 32% using the same gold price. The company expects that it will cost US$99 million to build a mine with a nine-year life and average annual production of 81,000 oz. year, at total cash costs of US$585 per oz.

Pan hosts proven and probable reserves of 48.3 million tonnes grading 0.56 gram gold per tonne for 864,000 oz. gold. The reserves come out of measured-and-indicated resources of 80.04 million tonnes grading 0.44 gram gold for 1.13 million oz. gold. The site also has inferred resources of 3.93 million tonnes grading 0.36 gram gold for 45,000 oz. gold.

The Pan property sits at the northern end of the Pancake mountain range in western White Pine County, 35 km southeast of Eureka, Nev. The project is an oxidized, Carlin-style gold deposit that will be mined via open pits, with gold extraction coming from heap leaching.

In Toronto on March 27, the day after the news was released, the company’s shares finished the day where they began, at $1.27. Over the last 52 weeks the company’s share price has fluctuated between $1.01 and $1.90. It has 128 million shares outstanding.