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 Tue May 26, 2015
SVH Tracker: Midas raises $8 million to eliminate financing risk over next 12 months
    Publisher: Kaiser Research Online
    Author: Copyright 2015 John A. Kaiser

 
Midas Gold Corp (MAX-T: $0.42)
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SVH Tracker - May 26, 2015: Midas raises $8 million to eliminate financing risk over next 12 months

Midas Gold Corp raised $8 million in May through a private placement of 19,124,190 units @ $0.42, boosting its working capital from $6 million at the end of March 31, 2015 to about $14 million. The unit included a two year half warrant exercisable at $0.60. Haywood brokered 75% of the financing while a private party placed the rest. The stock was largely taken by existing shareholders who have been supporting the stock since Teck and Franco Nevada got involved in 2013. Midas has been spending $2 million per quarter on the 100% owned Stibnite project and about $600,000 on overhead. The money has been spent on mine optimization and metallurgical work, as well as stakeholder meetings in preparation of submitting a Plan of Operations some time in Q3 of 2015. Once the regulator has received the Plan of Operations it will spend 2-4 months determining whether an EA or EIS is required and what its scope should be. CEO Stephen Quin indicates that it will require an EIS. Once the EIS contract has been awarded, expected by the end of 2015, it will take at least 30 months to complete the EIS and secure all the required mining permits for which applications will be made in conjunction with the POO submission. During this period Midas will also prepare a feasibility study. If there are no major delays, the FS should be ready in Q1 of 2018 and the EIS/permits in Q2 of 2018. According to Quin the current financing should take Midas well into H2 of 2016.

While the dilution of 28.6 million shares is not welcome, bringing fully diluted to 194.5 million shares, it does remove financing risk as we head into a potentially turbulent H2 of 2015 where a number of possible financial train wrecks beckon: a Greek eurozone default, a volatile bond market as the United States raises interest rates, a collapse of the Chinese equity market bubble, and a sharp correction in US equity markets. That does not even take into consideration possible geopolitical disasters such as the Spratly Island problem in the South China Sea, Russian saber rattling in eastern Europe, and, of course, the Saudi-ISIS-Iran triangle in the Middle East. Theoretically any of these bad things should be good for the price of gold, but in a financial crisis the rush is for liquidity, not investment opportunities, even if the price of gold manages to rise and put the Stibnite project well into the money. I have updated my DCF sensitivity model to reflect the new fully diluted figure. At the current $1,188 gold price Stibnite has an after tax NPV of US$284 million to $574 million using 10% and 5% discount rates, and an 18.1% IRR. While the IRR is fine, the NPV range is too low relative to US $980 million CAPEX. For Stibnite to get funded we need a gold price of $1,400 or better. At $1,600 gold and an 0.80 CAD:USD exchange rate the price target range for Midas is $5.40-$8.47, about 12-20 times the current stock price.

At $0.42 the market is assigning a US $65.4 million value to Stibnite, which can be interpreted as a negative outlook for gold dropping below $1,100, or deep pessimism that Stibnite will be permitted by mid 2018 with its current project economics intact. One should also keep in mind that the project economics suffered at the PFS stage because certain resources, including half the antimony resource, could not be included in the mining plan because of insufficient drilling density, something that will be corrected by the time a feasibility study is completed. With regard to the permitting pessimists, I like to remind Spec Value Hunters that Stibnite is a reclamation project with a gold mine attached and a security of supply solution for America involving antimony, a critical metal whose supply dominated 85% by China will suffer as China's environmental awakening gathers steam. Although the project is not fundable at the current gold price, the economics will not be relevant until two years from now by which time the circumstances for a gold uptrend will be more favorable than now while the global economy is still reaping the consequences of the austerity response to the 2008 financial crisis. Now that the Stibnite project is settling into the tedious permitting stage of the development cycle, Spec Value Hunters need only think about the leverage to higher gold prices that Midas Gold Corp represents. Midas Gold Corp continues to be a Good Relative Spec Value buy at $0.42, with 5-10 times upside over a 2-3 year time horizon, or a shorter term doubling potential should a producer act ahead of a gold uptrend to scoop the 4 million ounce potential of Stibnite before the permitting cycle gets too advanced with a mining plan different from what an existing producer might envision as preferable.

 
 

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