Midway Gold Corp. (NYSEMKT:MDW)
Wall Street Analyst Forum
March 27, 2008 12:30 pm ET
Alan Branham - President and CEO
Good afternoon, ladies and gentlemen. In our ongoing attempt to adhere to the public schedule, I'd like to introduce the next company in this afternoon's metals and mining program, Midway Gold Corp. Midway Gold Corp. is a precious metals and mines or precious metals exploration company that engages in the acquisition, exploration and development of mineral properties in Nevada.
The company focuses on the discovery and development of quality precious metals resources in stable mining areas. Midway controls over 69 square miles of Nevada land on four prolific gold trends. Currently, Midway is actively exploring and developing eight gold properties, four are advanced stage projects that contain resources in excess of 1.8 million ounces of gold.
Without any further introduction, I'd like to introduce Alan Branham, President, Chief Executive Officer and Director of the company.
Alright. Well, thank you for coming and thank you for having me here to present. You're going to hear a talk that's a little bit different than the last few that you've heard. We're at a little earlier stage than most companies. We actually have three discoveries in Nevada that are expanding. And before I start, I guess I should put up the obligatory forward-looking statement, because I will be making some statements that are subject to change.
One of the things that when you evaluate exploration companies, they are a little more difficult to evaluate than resource companies that are actually going into production because how do you evaluate them, what do they have? And I thought I'll take just a few minutes and talk about the discovery process and what it does for a public company.
And you will see that we're on the early stages of the discovery process. We have three projects that have discoveries that are moving towards becoming mines. And in Nevada, it cost people on the average about $8 to $35 an ounce to make a discovery. That's to create a resource. That's going out into the mountains with a brand new idea, stepping out from a mine site with a brand new idea, making discovery.
And if you look at the market cap companies as they make the discovery, the value that's passed on to the shareholders comes from the market. And typically, we see anywhere from $35 to $150 an ounce depending on the quality of the ounces that are discovered. And that's determined by the grade and the geometry, the location, the metallurgy. Things in Nevada are tended to be valued much better than, say, things in the Congo, political risk, things like that are all key factors to the value of those resources.
Then, as the company moves along, they start to take those resources and convert them to reserves. What they're doing is removing risk from those resources. They are doing metallurgical work. They are doing environmental permitting. They are doing things that make it more and more certain that they are going to be able to remove those metals out of the ground. And when you see those resources convert to reserves, they become more valuable.
And I've got a couple of examples. Newmont bought Miramar up in the Northwest territories. And if you look at their resource and reserve, they were purchased for about $166 an ounce. And if you look at the Barrick Rio Tinto transaction that occurred just a week ago, where they bought out the 40% interest on the Cortez trend out in Nevada, Barrick paid, my calculation was $369 an ounce. So those reserve ounces in stable places next to mines are more and more valuable.
And then, once you convert it to a reserve, you start to put it into a mining production. And typically in Nevada, mines are producing gold anywhere from $200 to $500 an ounce. And I think in average it's about $400 an ounce depending on the grade and the quality of the resource. And as the gold price increases, well, the mines benefit and the shareholders benefit.
What I'm going to show you is that Midway is earlier on in this discovery process. We create a lot of opportunities for our shareholders through new discoveries and through acquisitions. We currently have our most advanced project, Midway Project, which isn't as advanced of all things that you've seen today, but you'll see it is an attractive way for our shareholder to see some significant benefit in the future.
We've got a lot of potential new discoveries, and I'll talk a little bit more about that. And I'll talk about our largest growth potential which is our Spring Valley project in Nevada.
We have four gold projects with NI, National Instrument 43-101 compliant resources. That's our Spring Valley, Pan, Midway and Afgan. And that came through a very aggressive drill program for the last three years. In fact, the last three years we were the most aggressive junior in Nevada, drilling more holes and finding more gold than any other company that I know about.
Because of that, Barrick Gold Corporation stepped up, gave us $10 million so that we could explore, and bought equity in our company. And they're just like anybody else. They are shareholders. There is no joint venture. There is no backend right. We own everything a 100%. And we currently have underground development work in progress at Midway.
How this has happened is we put together a team of people with a lot of experience. I come from a mining background with Newmont Mining, 21 years with them, made three discoveries while I was with them. I was able to attract several key people. And these people in their careers, we've totaled up the number of ounces that they booked on major corporations, resource books is over 40 million ounces. We've got a very good team of people that can find gold.
And this is what we've done. Three years ago, we had zero resources. And now the utility is all up, 1.8 million ounces resource and growing. The biggest one is obviously our Spring Valley project that was recently updated in January, and I'm going to show you there's a lot more room for that to grow.
All of our projects are located in Nevada. They are all located on major gold trends. And right now we control about 69 square miles along these trends. These are very prolific places to find gold. For example, the Carlin trend there has found and produced over 100 million ounces of gold. The Battle Mountain-Eureka, it's sooner and very prolific 50 to 100 million ounces of gold found and being mined on those trends. If Nevada were a producing nation, it would be the fourth largest producing nation in the world. It's a very prolific area, and most of that gold comes off of these trends.
Spring Valley, this is where the discovery is made. And if you look on the left there you'll see a little bit of disturbance there. Those were old placer operations that the old timers mine. And they came up the valley, they made some ponds there, and they stopped mining because they ran out of water, the gravel got too deep.
When we stepped out on this covered valley here and started drilling, we discovered a new deposit, actually in a volcanic crater hidden underneath these gravels. It's a new type of deposit for Nevada, and it has started to prove itself to be very large.
Spring Valley is located in the Humboldt Range. It's about 90 miles Northeast of Reno, Nevada. Here is the interstate right there, if you've ever driven through Nevada, you've probably driven on that interstate. The neighborhood, there are a lot of big gold deposits in the neighborhood.
The Florida Canyon, the Standard mines are currently being operated by a Japanese group called Jipangu. They found and have reserves of over 2 million ounces. To the south there was a small mine operated by Pegasus, an open pit gold mine, and then two quite large silver and gold mines that are operated by Coeur d'Alene Mines. In fact, the Rochester deposit is the largest silver producer in North America. We're looking on a fault that connects all those up just to the north of Spring Valley.
Spring Valley was in the wrong rocks and the wrong place according to conventional wisdom, and the team of guys that I went in there with, everybody has written this off as a silver camp, you weren't going to find any big gold deposits. Everybody knows that the big gold deposits in Nevada are found in sedimentary rock, these were in volcanic rock, hidden under the gravel. And, well, we found it anyway.
And what we found was a very large, like I said, a volcanic eruption that was intruded by porphyry rocks. You can see the drill holes here, there is a cross-section shown, showing what we think it would look like through the earth if you were to slice it open. You can see it's all covered with gravel. It's very difficult to project where it's at. The red outline shows where we found gold to-date.
We've got some very nice intercepts starting at 50 feet, extending it to 1,400 feet depth. It's still open at depth in the long strike. These are where we floated cones in January to test the economic feasibility of what we found. We have basically 1 million ounces in those pits there. We have a lot more drilling left to do.
Here is a grade thickness map like you're flying over and you're looking down, and the brighter the colors, the thicker and more plentiful the gold is. You can see the gates that were floated, and that's what it would look like in 3D if you give me a minute here. I think this will work. The engineers have a wonderful little program here. We can show you what it looks like in 3D.
The brown area is the cones. That's a 650 cone. Everything inside that cone is economic and it's at $650 gold. Everything outside would be outside the breakeven pitfall. The white lines or grey lines coming from the back, those are our drill holes. The blue and green and red are 50/50 foot blocks of ore, little bit modeled, and 25 feet gives you a bit sense of scale. Those two pits are almost a mile long there.
It's a very big deposit. What's interesting is as we drilled this out we realized that from the north end we hadn't done enough drilling to delineate some of this ore. It's open to the north, so open the depth. And it's open to the west, we actually only have about three or four holes in between the zone. Those are about 500 to 600 feet apart the scale and we were busily trying to drill that out right now. We didn't do enough drilling there.
So it's a pretty exciting project. We can see it's big, and this is one of the reasons why Barrick Gold Corporation bought into our company. They see something big here also.
Now, when you find these types of deposits -- I'm a geologist by training -- we realize that you usually don't find one, you're finding rest of them. There tends to be an intrusion of depth that's pushing up gold and silver. For example, the Rochester pit to the south produce 200 million tons of ore, 174 million ounces of silver and 1 million ounces of gold. It's a very big system operating in this mountain range.
And that's where we started looking around for more gold. We expanded our land package. We controlled about 17 square miles. We started realizing then that the old timers had mined these gravels up into the mountains and then it stopped. There was still an undiscovered load source upstream. There is where we've drilled out our Diatreme gold deposit. And these are areas that we found gold at the surface, and we are now testing with the drill rig.
We've got a dozen sites. We'll drill eight of them this year. It's a little deceptive to scale here, but you're looking at almost 20 square miles right there in that picture. And we don't know if some of these stars won't be a little better than what we've hit today. But it is a pretty exciting project to be working on, a lot of visible gold. In fact, we have a lot of visible gold coming up from drill holes. And metallurgists call it the instant gratification project, they can tell right away when they are in the ore, which is unique, you don't see that very often.
Okay. How big do these deposits get? We don't know yet. We've still got to drill it out. But if you look at similar geologic environments around the world, they produce very large deposits. Some of the biggest would be at Cripple Creek, Colorado, where AngloGold is busily mining. They are pushing towards 30 million ounces right now. Montana Tunnels should be a small end, and we're very quickly approaching and passing that size, and we hope to drill quite a bit more this summer.
We have got $6 million budget, at least 90,000 feet of drilling. They told me 90,000 feet last year, and they did 125,000 feet, so they kept hitting gold. So I didn't complain. We will just step out drilling around the resource and we'll drill eight of those star targets looking for more gold.
Now that's all we had, it will be a great story. But while we were busy drilling out Spring Valley, we had another opportunity come to us. It was called the Pan deposit. It's located over on the Battle Mountain-Cortez trend, and it hosted in a bunch of sedimentary rocks, the right rocks, and it has about 0.5 million ounce resource.
This deposit is sticking out of the ground, has less than 1:1strip ratio, it's above the water table, and in Nevada it's got ore that's very favorable called oxide ore, which means it's very simple to treat, very to simple to recover the gold. It's actually amenable, the heap-leaching, and we're beginning to start some scoping studies there.
But more importantly about this project, when we picked it up -- this is an air photo looking down on top of the deposit -- the bright colors are where the gold occurs, and what we realized is this thing is over two miles long in strike length. As we started looking around, we started to find a lot more places to look for gold.
And when we picked up the property and bought the company last April, we bought it on April 15, we had a drill rig out there within five days, we drilled 113 holes and found four new areas of gold. We believe we can do that again. We don't know how big these are going to get, but it has room to become quite large.
This is a cross-section through the main deposit. You can see the gold is kind of in the red blob shape there. When we picked up the property and our guys started doing the work on it, they realized that many of the holes had bottomed in mineralization. We have now extended that mineralization another 150 feet below, and we will be infilling that this summer and trying to grow the resource in place as well as the new discoveries.
These new discoveries, why haven't they been found? Well, number one is it's not easily distinguishable. If you haven't worked on these types of systems, they are very difficult to tell where the gold is at. And in this case, we have a whole bunch of volcanic rocks that occurred after the deposit was formed, covered up the deposit.
And when we drilled underneath those volcanic shown here in pink, we started to hit some nice, thick intervals of gold. So it extends out underneath the volcanics. There is evidence, there are some geologic reasons why we think it will go better, and we are going to find out this summer by drilling a lot more holes.
We also collected about 6,000 soil samples. We've got about 50 square miles of land staked up now. And what we found is there's a lot more gold out there than the old timers knew about, and we found some very significant soil and gold anomalies as much as a mile and a half away from the known resources. The big, the bright red, yellow, green colors here are arsenic anomalies that delineates gold buried at depth possibly. And we have a very aggressive drill program to test for new deposits there.
Here is just a little picture shown, the known resources, and then some of the targets we'll be testing this summer. So we have a 130 holes planned here. We also began our scoping study on the known resource with the gold prices today at $900 to $1,000 an ounce. We want to get the permit going as soon as possible, so we need to get that scoping done, and we'll be doing a lot of drilling on the targets.
Now, we actually started off with a much smaller project. This is a namesake, this is what we started the company with. It's located down in Southern Nevada, what they call a Round Mountain-Goldfield trend. Round Mountain is a very large deposit operated by Kinross and Barrick, somewhere between 16 million and 20 million ounces, very prolific trend. Each one of those red dots represents the deposits that are in or excess of 1 million ounces. We're right in the middle of the fray there.
We found this deposit under a bunch of sand. This is a picture right on top of the deposit, bunch of sand dunes. Drilling through the sand, there is about 60 feet of sand underneath it. We've hit a lot of gold. We drilled about 400 holes in a 2-square mile area. We've got gold extending now for about a mile and a half. And when we went through and started to mine the gold, we released that most of the gold was occurring in narrow veins about 5 feet thick, 5 to 20 feet thick and very high grade. Some of the gold that we've seen assays is high as 90 ounces per ton.
This is what it would look like in cross-section, the sand on top with a little bit of volcanics, and then the red delineates where the gold veins are. When we started to notice that gold was in the veins, there was some more great gold around it. We started to do a cross-analysis of what would be the most effective way to advance this project, these veins, since they are so high-grade, they need to be drilled out at very close densities.
Here are the 12 veins that we drilled out of 50 foot centers. The averages of the veins are shown on the left and see they're quite good averages. They're averaging almost an ounce per ton, 0.87 ounces. If you hand this over to an engineer, he does what they call capping where they take everything above an ounce per ton and they drop it down an ounce, and they average it. It's a very conservative way to do it.
We looked at that. We said, well, that's the standard acceptable way to deal with most deposits. But this deposit has seen as wide as your finger running through the core when we drill it, and we really have 0.4 ounce per ton in that vein or is it 4 ounce per ton, and we do have a lot of 1 ounce per ton intercepts.
We talked it over and costed it out and decided that the best way to expand the exploration project here was actually to drive the decline in and we've got that in our plan. We will go in and we will sample five of the veins with 50,000 bulk sample, and we'll determine what the actual grade of those five veins are. With that, we'll be able to model the rest of the veins. We have another 56 veins yet to be drilled out.
This is a picture of our planned process plant of a decline. We've actually started the permit with a decline. We're waiting on the regulators for that and are in the process of designing the metallurgical recovery plant.
Here is an example showing the high-grade vein intercepts that we found in the drill holes, the yellow dots represents high-grade vein. The red lines are where we start to tie the veins together, but you can see we've got over 70 veins here delineated over a big area. That's what we will drill. So we've initiated our permitting. We'll start the underground decline next year. We'll develop the resource by drilling and bulk sampling.
Our 50,000 bulk sample has a very high likelihood of paying for all the development work, and actually it could finance the company going forward. It depends on if we have 0.4 ounce per ton, we'll actually make $5 million to 10 million. If it's 4 ounce per ton, there will be phenomenal amount of money we'll have in our pocket to actually develop some of our other projects.
So, we will have created a mining platform. All our permits will be in place to continue mining. And we'll develop the other 56 veins that we have out in front us. This is one of our small projects. The estimated cost of this is about $15 million.
We have four other new projects that we'll be drilling this year. We believe that when you can put $1 in the ground and make a discovery and get $10 back and value for your shareholders that's a good thing to do. We have some very quality targets. We've got guys that find gold, and they say, let's drill some more of these properties we have. So we'll be doing that this summer.
Here is a little bit of market information on this. We have about 53 million shares fully diluted out there. We have $7 million cash, no debt. What else can I say? We've just shown some nice steady growth. Like everyone, I think our current price right now is $2.90. We've backed off a little bit in February with the downturn with the gold, but still hanging in there pretty solid.
Our future growth, just in summary, we hope to start the Midway underground decline fourth quarter of '08, early of '09. We'll hope to have our resource updates done at Spring Valley and Pan. As we drill out those other new discoveries, we will add those ounces in. We have over $10 million slated to drill. We'll be drilling 250 holes on 25 distinct targets, could be a lot of news flow there. We'll do our scoping study at Pan and we hope to see a new discovery on one of the other four new targets.
In 2009, we'll actually begin producing gold from the bulk sample, and we'll have our Pan project in feasibility and begin our EIS permitting process. In Spring Valley we'll probably just still be drilling it out, but will being some of the scoping studies at Spring Valley.
So what does Midway offer to their shareholders? Rapid growth potential. In the last three years, we've gone from zero to 1.8 million ounces. We've got three advanced projects that are in the process of converting resource to reserve and expanding the known resources. We've got a very solid resource base.
Well, I don't know if we'll be the most aggressive this year as a lot of people are stepping up. Last three years we've had the most aggressive junior drill program in Nevada for exploring on four major gold trends. We're well funded with the equity placements by Barrick, and we have other parties interested in funding us. We got explorers with a proven track record and potential gold protection in '09.
So, I guess that's my story and I'm sticking with it. And if you have any questions, I am available.
Unidentified Audience Member
Well, the silver to gold ratio is 1:1. There is very little silver compared to the Rochester deposit. We have done an extensive geochemical sampling over, and there seems to be some magical change almost at our property boundary going from gold to silver.
One thing that's nice about the system is that there doesn't seem to be any vertical zonation. It's the type of deposit that appears to continue at depth in gold grades. We are seeing some silver zoning in other parts of the property. We did drill one of the little stars last year on the far south end of our property and hit a new silver discovery. And we'll be drilling that out, but mostly gold. That's what we see.
Unidentified Audience Member
1.8 million ounces total of our resources. Yeah. 1.8 million ounces. Okay? Any other questions?
Unidentified Audience Member
Pan, right now we have an approved environmental assessment, which allows us to make up the 25 acres of disturbance. We've began the scoping study and we won't be able to begin the EIS until we actually finished that scoping study. We need to know where our facilities are going to be. More likely we're going to have drill some holes, make sure there isn't ore there and where the heaps are going to be planned. So, that's probably little later this year, we will start that process.
Unidentified Audience Member
No, let me backup, back to Midway. The question was, explain a little more about cap and uncapped grade. For example, the Midway vein, it's a vein that's between 5 and 20 feet thick. We might have something like 20 or 25 different intercepts across our actual pierce points across it. And when you average those pierce points, I think there is like 6 or 8, they are in excess of an ounce per ton. And when I say in excess, I mean they are very much in excess. They are 70 ounce per ton, 300 ounce per ton, 20 ounce per ton. They are very high.
And so when we hand that to a mining engineer, he certainly says, well, we can predict how far these narrow high-grade themes of gold will go, so let's cap it, which is a standard practice. We'll cap it at a statistical break of 1 ounce per ton, and it has two statistical breaks. It has one at 1 ounce and one at 6 ounce. He's going to take the conservative route, which is probably the right thing to do. And so when we cap everything, we average all those 24 different intercepts and they come up that vein as averaging 0.444 ounce per ton. Okay? That's a conservative estimate.
You can see that if you take the conservative estimate the average grade is just under 0.4 ounce per ton. When you take the true grade or the true averages, it's 0.87. There is a big range there. We've talked this, some of the best sampling experts in the world, they said that the only way you're going to really define what's there is go mine it, go and take a big sample of it. And he says, if you'd go with the capped, conservative estimate, you're going to underestimate, but he says you can't go and raise money on that grade there.
And so, when we costed it out, it was $3 million to drive the declining. It was $5 million to drill out another 10 or 12 veins. It was a no-brainer. You know the risk is you're going to find it. There is a good likelihood that we're going to find more veins than what we have drilled out. For example, we drilled 14 holes, vertical holes last year, and these veins are vertically dipping or slightly inclined, to put in hydrology wells to test or dewatering out of our permitting process.
Well, out of those 14 holes, four of them hit high-grade gold, and totally unexpected. So we hope to see more veins as we go down, but we have enough problems in front of us right now. The decision has been made. Let's get out there and find out what it is. Let's start pulling gold out of the ground, get the permit process done and move forward.
This is unlike a lot of the other projects you have seen. It's not high a CapEx, $15 million to drive the decline and put it in the processing plant. It's a very simple operation and the potential here is if the 4 ounce per ton is there, you could produce the 100 million ounces or 100,000 ounces a year. 100,000 ounces in one year, very low production, because the gold is so concentrated in those veins. And it's totally unknown, it's all covered with sands, so we need to get down there and see what's there.
This is not our main project, but this has the potential helping the stock or dilution as a company, as we go out and raise money.
Unidentified Audience Member
Unidentified Audience Member
That's right. Yeah.
Unidentified Audience Member
Yeah. When we financed with Barrick, they gave us a placement. Part of that condition was a certain proportion of our money would go to the Spring Valley project. That's why we have $6 million drill program. We got four drills here shortly, but it's very aggressive to step out and find out how big that big deposit is. It has a potential of being very grand and it's already getting very nice in size.
Unidentified Audience Member
That's a good question, probably by third quarter of this year, yeah. Okay? Any more questions? Okay. Well, if there aren't more questions then we can go to the breakout session and talk there if you like. Thank you.
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