Midway Gold: Spectacular, Yet Simple 10 out of 10 Fail

May 18

Midway Gold: Spectacular, Yet Simple 10 out of 10 Fail

Well that escalated quickly. Shares of Midway Gold (NYSEMKT: MDW) have collapsed 85% in less than three months. What was supposed to be the best of times [Nevada’s newest gold producer!] turned out to be the worst of times [teetering on default?].

Midway - crashing

Courtesy of BigCharts

Apparently the Pan Mine wasn’t so “simple” to operate after all.

Now I’m no Lukas Lundin or Rob McEwen, but I interpreted simple as being core to Midway Gold’s business model. For years, Midway Gold advertised simplicity, and this word still features prominently throughout its investor presentation.

Midway - simple

Speaking at the Denver Gold Forum September 2014, former CEO Ken Brunk spoke confidently and simply, stating Pan would make a nice chunk of change>>> Listen Here

What could go wrong with Pan?
Ore starts at surface, less than 2:1 strip ratio, no need for crushing equipment, just scoop-dump-repeat. With a confident and qualified CEO, projected all-in-costs under $900 per-ounce, bank financing in place… Midway Gold appeared to check all the boxes a professional mining analyst would want to see. Hindsight being 20/20, the Pan mine was just too simple, something had to go wrong, and it did.

On the hook…
After announcing the highly-anticipated (albeit behind schedule) 1st gold pour, it only took a couple more press releases to leach the life out of Midway Gold’s stock price.

Sophisticated institutions like Vanguard, Oppenheimer, Van Eck, Franklin Resources and Hale Capital (just to name five) took the bait, all owned more than 3% according to Midway Gold’s investor presentation— for whatever that’s worth. In full disclosure, MDW also hooked me, right in the corner of the mouth.

Production delays and lower grades weren’t just a blip— bad assumption. It doesn’t feel any better to be in the company of Vanguard and Oppenheimer either, I thought they did better research. Anyhow, have to write this off as a learning lesson (avoid startup mines and run away at the first sign of trouble), but good ones don’t come cheap.

Pointing Fingers>>>
Natural resource consultants at Gustavson Associates were responsible for the in-the-ground gold projections. Those resource estimates were wrong, far worse than reported. I’ll let the mining gurus and financiers determine whether or not Gustavson Associates did the job it was hired to do or not. Midway Gold was successful in securing financing, but it could be the rope that hangs it.

Crushing it. Advertised as a run-of-mine heap leach operation, the powers that be within Midway Gold decided against buying rock crushing equipment— not a cost worth cutting. Likely a huge blow to their credibility, Midway Gold’s management was wrong, Pan needs crushing equipment.

At this point, I can’t help but wonder… how many attorneys are licking their chops or have already begun filing. Could be open and shut, simple case.

Bottom Line: Cannacord Genuity kicked Midway Gold while it was down last week, reducing its price target to 10 cents. Music is still playing for MDW, if you listen closely you can just barely hear it. But what a spectacular fail!

I don’t think many people saw this coming. If you did please contact me, I’d be interested in borrowing some brilliance, how’d you figure it out?

As terrible as the stock is trading, the odds could favor a bounce to 20-30 cents within six months, even if it’s just a dead cat. Midway Gold has a few levers left to pull:

1) 25% ownership in Spring Valley must be worth something to Barrick Gold

2) CEO and Wharton grad William Zisch just recently left Royal Gold, maybe it’s interested in a royalty?


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