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 Wed May 9, 2018
SVH Tracker: Barrick invests $49 million in Midas Gold to secure 19.9%
    Publisher: Kaiser Research Online
    Author: Copyright 2018John A. Kaiser

 
Midas Gold Corp (MAX-T: $1.11)
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SVH Tracker - May 9, 2018: Barrick invests $49 million in Midas Gold to secure 19.9%

Midas Gold Corp announced on May 9, 2018 that it has raised $49.3 million through a private placement of 46,551,731 shares at $1.06 to Barrick Gold Corp which will end up with a 19.9% undiluted stake in Midas. Barrick will be entitled to appoint one member to the board of directors and maintain its equity stake by participating pro-rata in any future financings. On February 15, 2018 Midas announced an updated resource estimate for the Stibnite project and on April 2, 2018 the company reported that it expects to file a draft EIS for public comment in November 2018 leading to a Final EIS and draft Record of Decision in July 2019 leading to an approved ROD in November 2019 that sets the stage for full mine approval in 2020.

As of December 31, 2017 Midas had about USD $15 million working capital left from the big CAD $55 million financing in Q1 2016 led by John Paulson in the form of a debenture convertible at $0.3541 per share. The Barrick financing gives Midas more than enough capital to ride out the permitting cycle until 2020. In my SVH Tracker - Jan 10, 2018 I ran the PFS numbers using the new 21% federal tax rate (29.4% with state taxes) which showed that at $1,316 gold the after tax IRR was good at 23.5% but the after-tax NPV range of USD $510 million to $882 million at 10% and 5% discount rates was still low relative to the $1 billion plus CapEx. This left Midas Gold in the position of being a gold optionality play that needed gold at $1,600 or better to be a no brainer production decision when mine approval is in hand. At $1,600 gold the NPV converted into a stock price range of CAD $3.56-$5.50 per share based on 344 million fully diluted, well above the recent trading range of $0.85-$1.00.

I have updated my DCF model with 390 million fully diluted, 0.78 USD:CAD exchange rate, $1,312 gold, $16.47 silver and $3.78/lb antimony which yields 23.7% IRR and an AT NPV range of USD $576-$970 million. At $1,600 gold the range is $974 million to $1.5 billion at 10% and 5% discount rate which converts into a stock price range of CAD $3.17-$4.90. As a junior Midas would never raise the capital to develop Stibnite if gold was not above $1,600 and the feasibility study did not boost costs without offsetting grade improvements. The arrival of Barrick as a major shareholder is a very positive development because Barrick has experience with refractory ore, and with a foothold attained at a cost which values Midas as a gold optionality play rather than a no brainer headed for production as soon as the permit is in place, Barrick's costs to wrap up 100% will be cheaper than for a competitor like Newmont. Midas Gold moved up today because the odds of a takeout have improved. Although the US dollar appears determined to crank higher against other currencies, which should be negative for gold, Trump's blustery negotiation tactics on the trade front, the Korean Peninsula and in the Middle East may leave the United States very isolated on the global stage. Rather than submitting to American bullying, what if the rest of the world calls Trump's bluff and decides that it will learn to live without reliance on the United States? What if Europe decides it will ignore sanctions against Iran? What if Kim Jong Un strings Trump along with a proposal that effectively pivots America away from Asia? Trump has put a lot of balls into the air he may lose control of and accelerate the marginalization of the United States as the leader from which the rest of the world takes its cue. Putting Humpty Dumpty together again after he has fallen off the wall would not be accomplished by getting rid of Trump. The stage is set for a rising gold price, with only a $300 gain needed to put the Stibnite gold project well into the money. Spec Value Hunters should continue to hold their Midas Gold Corp positions as the best gold optionality play among the juniors. Furthermore, keep asking yourselves, where does 85% of the world's antimony come from?


 
 

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