Vancouver-based Midas Gold (MAX-T) says it should now have enough cash to keep advancing its Golden Meadows gold-antimony-silver project in Idaho until the end of 2014 owing to a $9.8-million endorsement from Teck Resources (TCK.B-T, TCK-N).
The junior recently announced that Teck entered 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 currently owns no 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 mining analyst Adam Melnyk views the transaction favourably and estimates once the placement closes the junior should have roughly US$25 million in its 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. Some of its key objectives include updating the project’s resource estimate later this year and completing a prefeasibility study based on the updated resource estimate in the first half of 2014. It 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 t/d open pit operation producing 348,000 oz of gold and 6.4 million lb of antimony a year throughout its 14.2-year life. Average cash costs were calculated at US$425 per oz of gold, net of antimony by-product credits. The cost to take the three pit project into production is about US$1.2 billion.
Midas says Teck’s investment is the second major endorsement of the potential at Golden Meadows. In May, Franco-Nevada (FNV-T, FNV-N) gave Midas US$14.65 million in exchange for a 1.7% net smelter return (NSR) royalty on any future gold production from Golden Meadows. The royalty excludes any by-product production.
Midas can buy back a third of the NSR royalty by paying Franco-Nevada US$9 million within three years. Franco-Nevada also provided Midas US$350,000 for 2 million warrants that could be exercised at $1.23 per share over a 10-year period. The junior may force conversion of those warrants if it trades above $3.23 a share 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 target of $3.60 and a speculative buy on the stock.
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