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Midas Is Trading Close To Half Its Value.

|About: Midas Gold Corp (MDRPF), Includes: MDRPF

Summary

PFS showed the project to remain viable at a gold price of 1200$/Oz.

The value per share would be about 95c.

A 5 M Oz reserve is quite attractive to a major gold miner.

Midas gold corporation (OTCQX:MDRPF) is a micro-cap company listed on the Toronto venture exchange. The primary business of this company is advancing its Stibnite gold project toward production. Stibnite gold project which contains 5.5M Oz of gold resource and 4.5 M Oz of gold reserve is located in Idaho, USA. Stibnite is the site of an old mine and is to become an open pit mine with an average grade of 1.6 gr/ton and an average strip ratio of 3.5:1, which compares well with average open pit gold mine grade of 1.2 gr/t.

Others on SA have wrote about this project and the company itself has a done a good job providing information about the Stibnite project, so I would pass on the detail of the project. According to the recently released prefeasability study (NYSE:PFS) 94% of the revenue will be from Gold, 5% from Antimony and 1% from Silver.

Over the last 2 weeks Gold has been in 1250$ to 1300$ range so I'll assume 1275 as the current price. The PFS disappointed some investors as IRR and NPV both decreased compared to preliminary economic assessment, PEA. Case A in PFS showed the project to remain viable at a gold price of 1200$/Oz with an after tax IRR of 14.4% and NPV5 of 513M$. The base case scenario considers a gold price of 1350$/Oz with an after tax IRR of 19.3% and NPV5 of 832 M$. I would interpolate the NPV to the median price of 1275$/Oz as 672.5 M$. If we consider 80% of this value to be demanded by future investors of the company and only 20% to be attributable to current shareholder, by considering 142M shares, the value per share would be about 95c.

The company has more than 10M$ cash which should permit it to continue its activities through 2015. Also there is considerable upside to the results of PFS from converting inferred resources to indicated and to reserves and from drilling of identified targets.

Gold

The fate of any investment in Midas depends on the gold price. Fiat currencies are generally preferred to a commodity money like gold as the former can simultaneously serve as ones cash reserve and source of interest income. Since we are in an environment with very low interest rates (negative for 10 year Swiss bonds and 30 BP for German 10 year Bund) fiat currencies at the margin are losing part of their appeal compared to Gold. Fed might increase the short term rate but the long end of the curve will keep low as a result of low rates in Europe and Japan. So I am cautiously optimistic on gold prices.

Possible catalyst

A 5 M Oz reserve is quite attractive to a major gold miner.

Disclosure: The author is long MDRPF.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.