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 Fri Aug 28, 2020
Tracker: What's Next for Midas Gold Corp?
    Publisher: Kaiser Research Online
    Author: Copyright 2020 John A. Kaiser

 
Midas Gold Corp (MAX-T: $1.740)
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Tracker - August 28, 2020: What's Next for Midas Gold Corp?

Midas Gold Corp has escaped the stigma of a never-ending permitting cycle for its Stibnite gold-antimony project in Idaho, which has allowed the stock to more than double from the $0.63 stock price at the start of 2020 when we confirmed the Good Spec Value rating and Favorite for 2020 status. Midas, which has been my top gold optionality pick for several years now due to its potential to produce 350,000 oz gold annually once in production as a 20,000 tpd open pit mine, plus a significant antimony by-product credit that could become critical to American security of supply should global Chinese supply evaporate, suffered badly during the Covid-19 market meltdown of March 2020. Midas was in the midst of a US $35 million financing set at $0.53 on February 27, 2020, which was revised to $0.4655 and managed to close despite the stock dropping as low as $0.265. This financing enables Midas to meet its spending obligations until the end of 2021. The problem with Midas has been the endless series of delays by the Forest Service and related agencies who have never managed a permitting cycle with this scale and complexity, for it also involves reclamation of an environmental disaster of a former mine site. That changed on August 14, 2020 when the USFS filed the Draft Environmental Impact Statement which kicks off a 60 day comment period ending October 13. During this period the public can submit positive or negative comments which the USFS will compile and answer, for it is the USFS that is on trial, not Midas, which merely submitted 80 reports comprising 27,000 pages from which the USFS created the 5,000 page DEIS. Because submitted comments become public Midas will be monitoring them and submitting its own comments to the USFS where the comment or question simply missed something already addressed by the USFS in the DEIS. Midas will also be on the lookout for things that were not addressed. The DEIS outlines 5 scenarios. The first Plan of Restoration and Operations (PRO) is the one Midas submitted in 2016 to kick off the permitting cycle. That became the basis for a modified PRO submitted in early 2019 which dealt with issues generated by the first PRO and which is the version Midas would like the Final EIS to adopt. The other 3 alternatives were invented by the USFS because the law requires it to come up with alternatives. After all the comments have been reduced into a manageable set of similar comments the USFS must respond to each comment. Only comments classified as "substantive" will require Midas to make changes to the PRO. Midas is currently conducting real time cost research for final updating of its feasibility study, which will likely be published in November 2020. This will be the most important milestone for the market for it will tell us how the cost structure has changed since the PFS was published in December 2014. That PFS was based on a $1,350 base case gold price, and it barely hit development hurdles, and until May 2019 the price of gold languished below the base case price. That is what made Midas Gold such a leveraged gold optionality play, for at $1,600 plus the project implied a $3-$6 target price. In Tracker July 27, 2020 I show what the Stibnite project is worth under the PFS assumptions, which indicates a range of $3.86-$5.71 at $1,936 gold. More drilling has beefed up the PFS ore schedule, but how have CapEx and OpEx fared since the PFS? Midas plans to publish its FS in Q4 of 2020, assuming the draft EIS is filed as planned and the comment period doesn't create any problems. CEO Stephen Quin has guided that OpEx will be unchanged or slightly lower, but there will be an increase in CapEx. How much he has not revealed, though he has publicly stated that it will not be something like a double. So I have created a speculative DCF model which incorporates most of the PFS ore schedule, reduces OpEx slightly and boosts CapEx 30%, the results of which are also in the Tracker. In Tracker Aug 27, 2020 I updated the Speculative DCF to reflect the current 540 million fully diluted which reduced the target range slightly to $4.40-$7.00 treflecting a 5% discount rate for the higher price and 10% for the lower price at $1,931 gold. At $3,000 gold without inflation the range expands to $9.33-$13.91. The Tracker also outlines bonus ESG reasons for owning Midas as the best leveraged bet on gold involving a resource junior: 1) the $70 million Midas will have spent on the Idaho permitting cycle will be a gift to other potential Idaho mines because after Stibnite the USFS is no longer learning how to permit a large scale project, 2) a Superfund site will be cleaned up and salmon access to the upstream watershed will be restored, and, 3) the antimony by-product will more than fulfill America needs should China, Russia, Tajikistan and a motley group of unstable or hostile nations prove unable or unwilling to export antimony to the United States, which is on the critical mineral list. Once the USFS has dealt with the DEIS comments it will work on the Final EIS which will focus on the scenario it chooses; since the USFS essentially guided Midas to the Modified Pro scenario that is likely what it will be. The current timeline suggests that the USFS will file the Final EIS and a Draft Record of Decision in Q2 of 2021. This will kick off a 30 day Public Objection Period open only to parties who feel the USFS did not properly address their comment submitted during the DEIS comment period. If all goes well the USFS will publish a Final Record of Decision in Q3 of 2021, which is a mine development permit usually with conditions attached. It will take 3-5 months to finalize remaining sub-permits which depend on the ROD, though road construction, the longest lead time item for building Stibnite will likely begin right away. Once the FS has been published Midas will trade as a function of the gold price, or expectations of where gold is going. With the stock below $2 and gold above $1,900 Midas currently offers Good Speculative Value based on my Speculative DCF which hopefully is conservative in its assumptions. The ultimate milestone will be a buyout, likely by Barrick whose majority ownership of the Barrick-Newmont controlled Nevada Gold JV likely gives it access to surplus roasting capacity to which Stibnite's ore could be trucked, thus avoiding the expensive cost of building and operating a pressure oxidation autoclave to process the refractory ore. This would require a modification of the mining plan, which mainly involves not doing things like building the POX and cyanidation segments of the flowsheet. Depending on what the gold price is doing and what the Nevada Gold JV's internal cost numbers indicate, this could result in a higher buyout price than one might otherwise expect for a standalone operation. My recommendation is that if you believe gold is staying at current levels or heading higher, and also want to feel good about making a substantial return based on gold, Midas Gold Corp should the first advanced gold junior in your portfolio.

 
 

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