Midas gets a $9.8M infusion from Teck

Midas Gold (TSX: MAX; US-OTC: MDRPF) should have enough cash to advance its Golden Meadows gold-antimony-silver project in Idaho until the end of 2014, thanks to a strong endorsement from Teck Resources (TSX: TCK.B; NYSE: TCK).

The junior and Teck have entered into a $9.8-million, non-brokered private placement for 12.7 million shares priced at 77¢ apiece. That represents a 5% premium over Midas’ closing price on June 28 and a 10% premium to the five-day, volume-weighted average trading price. No warrants will be issued as part of the placement.

Once the deal closes, Teck — which does not yet own any Midas shares — will have a 9.9% stake in the junior. And the major will have a right to participate in future equity financings to maintain its percentage ownership, as long as it holds at least 5% of Midas’ shares.

Desjardins Securities mining analyst Adam Melnyk estimates that once the placement closes, Midas should have US$25 million in the bank and 127.5 million shares outstanding, or 140.3 million shares, fully diluted.  

With the cash injection, Midas plans to keep pushing Golden Meadows forward. Objectives include updating the project’s resource estimate later this year and completing a prefeasibility study in the first half of 2014 based on the updated estimate. Midas also intends to prepare a plan of operations to start permitting the proposed mine.

A September 2012 preliminary economic assessment envisioned Golden Meadows as a 20,000- tonne-per-day open pit operation producing 348,000 oz. gold and 6.4 million lb. antimony per year during its 14.2-year life. Average cash costs were calculated at US$425 per oz. gold, net of antimony by-product credits. The cost to take the three-pit project into production is about US$1.2 billion.  

Teck’s investment is the second major endorsement of Golden Meadows’ potential. In May, Franco-Nevada (TSX: FNV; NYSE: FNV) gave Midas US$14.7 million in exchange for a 1.7% net smelter return royalty (NSR) on any future gold production from Golden Meadows. The royalty excludes by-product production.

Midas can buy back a third of that NSR by paying Franco-Nevada US$9 million within three years. Franco also provided Midas US$350,000 for 2 million warrants that can be exercised at $1.23 per share over 10 years.

The junior may force conversion of those warrants if shares  trade above $3.23 apiece for 30 consecutive days.

Despite the influx of cash, which should keep the company afloat until late 2014, Midas — like many other exploration and mining firms — is reducing its expenditures. The junior has already cut its workforce twice since last December. And it’s working to close its U.S. subsidiary’s Spokane office given the continuing poor market conditions.

Midas finished July 3 flat at 78¢, after gaining 5.5% the day earlier on the investment news.

Desjardins’ Melnyk has a $3.60 target and a “speculative buy” on the stock.

BMO analyst John Hayes is less optimistic about Midas, and rates the stock as a “speculative market perform.”