Midway Gold derisks Nevada projects

Shares of Midway Gold (MDW-V, MDW-X) have climbed 145.12% to about $2.01apiece since the beginning of 2011, a fruitful year that saw the junior update the resource and complete a feasibility study on its Pan project, more than double its resource at Spring Valley with partner Barrick Gold (ABX-T, ABX-N), initiate a resource estimate for the Gold Rock project that the company expects to finish early in 2012, and qualify as a development-stage company under SEC guidelines.

Midway expects to start production at the Pan project in 2013 and believes the deposit, 29 km southeast of Eureka in Nevada, demonstrates robust economics at a range of gold prices. In early October the company updated the project’s resource estimate, calculating that measured resources stand at 37 million tonnes grading 0.49 gram gold per tonne for 579,000 ounces of contained gold and 43 million tonnes of 0.40 gram gold in the indicated category for 551,000 ounces of contained gold at a cut-off grade of 0.14 gram gold.

The Pan project is a bulk tonnage, Carlin-style, sediment-hosted gold deposit and currently the gold resource remains open in multiple directions. At North Pan mineralization remains open at depth where many drill holes have bottomed in mineralization; 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 reached 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 was 32%, climbing to 56% at US$1,550 per oz. gold. Payback periods ranged from 2.59 years at US$1,200 per oz. gold to 1.70 years at US$1,550 per oz. gold.

The oxidized gold deposit has a strip ratio of 1.79:1 and is mineable by open-pit methods and treatable by heap leaching. Gold recoveries are expected to reach 75% with production exceeding 81,000 ounces of 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 ash costs are projected to be US$585 per. zo, including royalties, state taxes and a 5% contingency. Total production costs including capital is forecast to be about US$824 per oz.

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

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 ounces of contained gold; the indicated resource equals 85.8 million tonnes grading 0.45 gram gold for 1.23 million ounces of contained gold; and inferred resources measure 103.9 million tonnes grading 0.59 gram gold for 1.97 million ounces of gold.

In 2011 Barrick completed 15,953 metres of drilling at Spring Valley and in early December released assay results from widely spaced reconnaissance drilling south of the resource. Drill results included 27 metres of 0.79 gram gold in hole SV11-525 and 32 metres of 0.86 gram gold in hole SV11-534. Higher grade intercepts included 6.1 metres of 6.86 grams gold per tonne, including 1.5 metres of 21.91 grams gold in SV11-521, 6.1 metres of 4.97 grams gold, including    1.5 meters of 18.89 grams gold in SV11-530 and 10.7 metres of 1.44 grams gold, including 1.5 metres of 8.95 grams gold in SV11-532c.  

Drilling at Midway’s Tonapah project, meanwhile, about 24 km north of the town of Tonapah in Nevada’s Nye County, returned a number of high-grade intercepts. Highlights included 0.4 metres of 334.9 grams gold per tonne and 1.5 metres of 78.41 grams gold within a zone of 45.9 metres of 7.68 grams gold in drill hole MW11-09c. Other results included 0.5 metres of 88 grams gold per tonne within a zone of 47.9 metres of 2.02 grams gold in MW11-05c and 2.7 metres of 17.5 grams gold within a zone of 21.6 metres of 4.83 grams gold in MW11-7cc.

At presstime in Toronto Midway was trading at $2.01 per share within a 52-week range of $1.27-$2.99 per share.