Midway positioning Pan for production

Eureka, Nevada – Using the Pan gold project in Nevada as a springboard, Midway Gold‘s (MDW-V, MDW-X) President and Chief Operating Officer Kenneth Brunk is intent on transforming the company into a producer.

He is confident that this year’s planned 7,100-metre drilling campaign will expand the project’s gold resource to over 1 million ounces. Brunk believes the company will then be in a better position to improve the economics of a proposed open-pit, heap-leach mine by doubling the production scenario to 90,000 oz. per year.

As it currently stands, the Pan project contains a measured and indicated resource of 682,250 oz., based on 38.8 million tonnes grading 0.55 gram gold per tonne. Inferred resources hold an additional 51,000 oz. in 3.3 million tonnes grading 0.48 gram.

“There is no question Pan is going over 1 million ounces,” Brunk tells The Northern Miner during a recent site visit. “I am the eternal optimist; I have never had a half-empty glass in my life.”

“Newmont and Barrick might need 3 or 4 million ounces, but we don’t need those kinds of ounces as a smaller mining company. One million ounces is a heck of a lot of ounces of gold. That is a good size project,” he says.

The Pan project is located in White Pine County of east-central Nevada at the northern end of the Pancake mountain range. It is 35 km southeast of Eureka and 80 km west of Ely at the south end of the Battle Mountain-Eureka gold trend. The property is just 8 km south of the paved Nevada State Highway 50.

The Pancake range covers a package of Tertiary volcanics overlying Devonian-Pennsylvanian age sediments. These sedimentary rocks include the highly prospective Devils Gate limestone and Pilot shale formation, which host the gold mineralization at Pan. It is a classic Carlin-style, sediment-hosted, disseminated gold deposit.

“Pilot shale and Devils Gate host over 6 million oz. gold in the Eureka region alone, explains Bill Neal, Midway’s vice-president of geological services. The Pan property covers 39.6 sq. km of ground.

A preliminary economic assessment of the Pan project completed in July 2010 by Gustavson Associates shows the potential for a 10,000-ton-per-day (or 3.6 million tons per year) open-pit, heap-leach mine. The study predicts Pan could produce an average 44,000 oz. annually over a mine life of 7.5 years at a cash cost of US$453 per oz., or a total cost of US$670 per oz. if capital costs are included.

Material would be mined from two separate open pits on the North and South deposits at an overall stripping ratio of 1.49-to-1. The two pits contain proven and probable reserves totalling 453,000 oz. in 22.7 million tonnes grading 0.62 gram. “The ounces are not quite evenly split,” says Eric LeLacheur, Midway’s senior project geologist. “There are a few more ounces in the North pit than there are in the South pit.”

Midway is considering an in-pit, two-stage crushing circuit and conveyor system that will transport the ore to a central leach pad to be stacked and agglomerated. “It has a short 30-day leach cycle,” says Brunk. “It is molecular gold, there is no coarse gold and it leaches very quickly.”

The North Pan deposit is hosted mostly in the Pilot shale, while the South Pan deposit is almost all in the Devils Gate limestone. Metallurgical testwork so far indicates ultimate recoveries of 75% at South Pan and 70% at North Pan for an average recovery rate of 72% on a nominal inch-and-a-half crush.

“We are doing additional work right now to better define the metallurgy,” explains Richard Moritz, vice-president of project development. “I don’t anticipate any changes on the recovery. I think where we might have a change is defining the size that we are going to crush to,” he predicts.

With capital costs estimated at US$62 million, the project throws off a pre-tax internal rate of return (IRR) of 41% and has a net present value (NPV) of US$109 million at a 5% discounted rate, based on a US$1,200 price of gold. The payback period is two years.

Using a lower gold price of US$950 per oz., the project carries a pre-tax IRR of 23%, a NPV of US$49 million and a payback of three and a quarter years. The project generates a 5% rate of return at a gold price of US$750 per oz.

“It is exposed right at surface. It is simple oxide metallurgy. We can process it with relatively low-cost heap-leach methods. It is also above the water table so we eliminate a lot of environmental issues that way,” says Neal. “Overall it is a manageable project size for a junior trying to put a mine into production.”

“Our goal is to be in production in 2013,” confirms Brunk. “It will be driven more by permitting issues than it will be by technical issues. We completed quite a bit of engineering that we intend to use for our 2011 feasibility study and we are currently doing environmental baseline studies for the permitting process.”

“I am permitting it to operate at 20,000 tonnes a day,” he says, further elaborating: “The reason I am not going into construction right now at 20,000 tonnes per day is because we haven’t proven up the resource.”

Midway recently secured the water rights needed to put Pan into production. The company signed a 10-year lease, extendable by 15 years, which calls for annual payments based on the amount of water consumed. Midway estimates that at expected production levels, the cost of the water will be about US$1 per oz. produced.

“This lease provides us with the certainty needed in the engineering and design phase, and reinforces our plan to construct Pan as a low-cost gold producer in Nevada,” exclaims Brunk.

Last fall, Midway conducted a widely-spaced core drilling program across the North and South Pan areas. Totalling 1,760 metres in 14 holes, the core drilling was done to provide key information for engineering, metallurgy and permitting.

“We wanted ore grade material for metallurgical testing so we can optimize our processing,” explains Brunk. “We tried to ensure we were spatially represented in the different rock types. We wanted to have as many ounces of gold represented by these holes as possible so we get things right.”

Some of the holes were also drilled for waste rock characterization and geotechnical purposes. “We actually hit ore in places there wasn’t supposed to be any,” says Neal, a problem many companies can only dream about.

Designed for geotechnical and waste characterization reasons, hole 10-3 surprised the company by returning 52 metres of 0.58 gram, followed by 23 metres of 0.96 gram in a silicified breccia. The hole bottomed in 6.1 metres grading 1.51 grams.

“We had a lot of good intercepts; many of them were planned because we were trying to test ore zones that were known. Some of these actually were surprises because we did not expect to hit mineralization in some of these areas. But they all are far better grades than the average grade of the deposit that has been reported in the past,” Neal notes.

The Pan project has 864 historic drill holes into it. It was first discovered in 1978 by Lyle Campbell through surface prospecting. Outcropping gold mineralization at North Pan occurred as silicified jasperoids, which are now referred to as the Campbell Jasperoid.

“The jasperoids are a critical part of the alteration in these types of systems,” explains Neal. “Jasperoids have been a very, very good guide for tracking these systems.”

“They are so hard that they are the last thing to erode, they are still sticking out with remnant gold in them,” adds Brunk.

Gold mineralization outcrops throughout the deposit, including exposures at North Pan, South Pan, Wendy, Nana and Barite. The main deposit is aligned along the north-south trending, steeply-dipping Pan fault.

Different parts of the deposit have been drilled over the years by nine different companies, including Amselco Minerals, Hecla Mining, Homestake Mining, Echo Bay Exploration, Alta Gold, Southwest Gold, Latitude Minerals, Castleworth Ventures
and Pan-Nevada Gold.

Midway acquired the Pan project in 2007 by merging with Pan-Nevada Gold. During 2008, Midway completed a reverse circulation (RC) drilling program that was designed to confirm historical drill grades. “Nine of the 11 holes showed much better grade,” explains Neal. “These were either twin holes or very, very close.”

Midway believes the grade of the Pan deposits are understated because of old RC sampling issues and old lab issues pertaining to assay methods. A lot of the resource is based on historic drilling that was done in the late 1980s and early 1990s.

“It comes down to sampling techniques and making sure you capture the fines,” says Brunk. “In the early days, they drilled with air so there would be big clouds of dust. Nowadays, you don’t drill with air, you drill with water. The water will capture a lot of the fines.”

Brunk is convinced there is good opportunity for grade improvement. As an example, while drilling North Pan, Midway intersected7.6 metres of 2.88 grams within a much wider 50-metre section averaging 0.79 gram in hole 08-6. This hole was drilled alongside an older hole that had returned only 6.1 metres of 1.41 grams, bottoming in mineralization.

“We came up with double the grade and substantially greater thicknesses,” says Neal. In fact, Neal tells The Northern Miner that 20% of the historic drill database ends in mineralization.

“This is another place we can grow the deposit, just by drilling out the bottom. It’s a gimme,” Neal says. “We can also grow this thing by expanding the deposit laterally.” The Pan deposits are still open to the north and south under the volcanic cover. The area between the proposed North and South pits will also be tested for possible continuity.

An expansion drilling campaign for 2011 is already underway. The program will include 6,500 metres of RC drilling and 600 metres of core drilling. “We’ve got a lot of places to drill. Our goal is to get this into 1 million ounces of resource,” says Neal.

In 2007, several drill holes were popped into the Boulders target area, stepping out to the north on North Pan. The holes hit mineralization in the Pilot shale underneath the volcanics.

Results included: 35 metres of 0.79 gram in hole 07-03; and 22.9 metres of 2.06 grams, followed by 18.3 metres of 0.72 grams in hole 07-04. A third hole, 07-99, collared 370 metres north of the North Pan deposit, intercepted 29 metres of 0.55 gram.

“We have three holes out on the north end under the volcanic showing the gold system continues. It’s still strong and there is no guarantee we have even come close to hitting the optimal area,” Neal says.

According to senior project geologist LeLacheur, the current drill campaign will concentrate on making the easy stepouts and filling in the gaps to get the ounces up. “Overall, there is a good chance that we will be able to expand the resource very quickly,” LeLacheur confidently confides.

Midway is currently working on a prefeasibility study that is scheduled for completion at the end of this year’s first quarter.

Gold Rock

Located just 13 km from the Pan deposit is Midway’s neighbouring Gold Rock property. The 36-sq.-km property covers the same type of host rocks as Pan, with exposure to a 10-km-long trend of Pilot shale and Devils Gate limestone.
The property comes with a historic database of 794 holes comprising 82,180 metres of drilling and historic production from the Easy Junior pit totalling 52,560 oz. An inhouse, non-compliant 43-101 estimate of the geologic inventory shows the potential for 15.6 million tonnes grading 0.82 gram gold, or 415,100 contained oz.

According to Neal, there are places at Gold Rock where drilling hit significant intercepts but never followed-up. Drilling in the Decker Flats area hit significant mineralization in the Joana limestone, which sits higher up in the stratigraphic column above the Pilot Shale and Devils Gate limestone.

Drilling no deeper than 122 metres depth, intercepts included: 30.5 metres of 1.44 grams gold, including 7.6 metres of 3.53 grams in hole 495; 19.8 metres of 2.57 grams, including 9.1 metres of 4.32 grams in hole 517; and 15.2 metres of 2.57 grams, including 4.6 metres of 4.46 grams in hole 521.

“Nobody has drilled down into the Pilot shale/Devils Gate contact in this stuff, so we want to follow the structures and get down into that lower contact where we have the mineralization at Pan,” says Neal. “We will also test the lateral extent of the Joana limestone. There are a lot of targets that we can go after.”

Midway carried out a mapping and geochemical sampling program in the fall of 2010 that outlined gold and arsenic anomalies extending 4 km to the northeast of the Easy Junior pit. “We have got excellent alteration, we have got the right rock types and most of this area has never been drilled,” says Neal.

The company is making plans to drill approximately 6,000 metres at Gold Rock in 2011.

“The good thing about this project is that it is real similar to the mineralization style at Pan. It should be essentially the same kind of ore, the same kind of environment,” says LeLacheur.

Midway is sitting with about $6.7 million in cash. It has 96.4 million shares outstanding, or 113.7 million on a fully diluted basis. At press-time, shares were trading around $1.20 in a 52-week range of $0.38-1.35.