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Midway Gold, Newmont, Barrick and Kinross

By James West
MidasLetter.com
Thursday, April 16, 2009

Midway Gold (AMEX:MDW, TSX.V:MDW) has recently filed an updated Canadian National Instrument 43-101 resource estimate on its Spring Valley gold project, which stipulates 1.8 million ounces of gold across all categories. It is the potential for expansion of this resource to a much larger deposit that has induced Barrick Gold Corporation (NYSE:ABX) to sign a definitive Joint Venture Agreement with Midway that will see Barrick inject $30 million over 5 years into further development of the Spring Valley Project.

"This resource update represents an 85% increase in contained gold at the Spring Valley deposit using an 0.006 opt gold cut-off," said Alan Branham, President and CEO of Midway Gold Corp. "The efficiency of the Midway team resulted in growth of the resource at a cost of less than $10 per ounce last year. The Spring Valley project continues to hold strong potential and we look forward to more growth in the future."

Midway’s ability to attract and do big deals with major mining companies has been a hallmark of their business model since its first discovery on the Midway property near Tonopah, Nevada in 2002. It is this ability that makes Midway a premium opportunity for investors who are able to understand the significance of this ‘between-the-lines’ meanings to such a business model.

Back in 2002, the gold mining and exploration industry was coming out of a protracted period of lack of funding and lack of investor interest. This was because the gold price had been groveling around US$300 per ounce for nearly five years and had just started show signs of life. Investment banks were just starting to become interested in financing junior gold companies, and Midway was one of the early beneficiaries of that interest.

The company started drilling its newly acquired ground and had promptly and literally struck gold. The drill core was so rich that geologists could actually see flakes of solid gold in it, and subsequent results assayed an astounding 22 feet grading 2.37 ounces per tonne of gold, and then 137 feet grading 1.7 grams per tonne of gold. These results indicated widely disseminated low-grade gold enriched by much higher grade veins acting as feeder systems.

It wasn’t long before Newmont Mining (NYSE:NEM) came along and signed a joint venture agreement with the company by 2003. 121 drill holes and US$3.5 million later, Newmont elected not to proceed with the joint venture and the property reverted back to Midway as a 100% owned asset. Newmont may one day regret the decision, as continued exploration since then has continued to expand both the understanding of the geology for management as well as the size of the deposit.

Early 2010 will see an underground decline built to provide access for the collection of bulk samples and verification of high grade veins. This is a major step in determining exactly what the shape and scope of the mining operation will be for putting the project into production.

The beauty of joint venture deals like the experience with Newmont is plain as day. Newmont spent $3.5 million of its own money on 121 drill holes, and Midway got the data, the added discoveries, and the addition of value to the company overall at no cost to shareholders. Management was free to go look for other properties, and it was while Newmont was working the Midway project that the company acquired the Spring Valley project.

Now that Barrick is fully committed to development of the Spring Valley project, and considering the increase in gold outlined in the latest technical report, Spring Valley will benefit from enhanced development on the scale that only a major mining company can provide, and Midway shareholders will reap the benefits regardless of the outcome, because its Barrick’s money.

Barrick, by the way, already owns 8.5 percent of Midway by virtue of its US$12.3 million invested to date in private placements. The joint venture is a way for Barrick to manage its investment in Midway, and what a break for Midway.

According to the terms of the definitive joint venture, Barrick has the exclusive right to earn a 60% interest in the project by spending US$30,000,000 on the property (US$4,000,000 guaranteed in the first year) over five years. Barrick may increase its interest by 10% (70% total) by spending an additional US$8,000,000 in the year immediately after vesting at 60%. At Midway's election, Barrick may also earn an additional 5% (75% total) by carrying Midway to a production decision and arranging financing for Midway's share of mine construction expenses with the carrying and financing costs plus interest to be recouped by Barrick once production has been established.

Its not often you see joint ventures done with two major mining companies in one junior exploration company, but three??!!

Midway announced a joint venture agreement with Kinross Gold (NYSE:KGC, TSX:K) on July 16 last year on its Thunder Mountain project, also in Nevada. Kinross must spend a minimum of $500,000 by August 1, 2010 and a total of $3 million over a five year period. Upon completion of the earn-in, standard joint venture terms will apply.

Midway’s Thunder Mountain project is an emerging epithermal gold district located six miles southeast of the company's Midway project, which hosts a series of high grade epithermal quartz-adularia-gold veins.

"Kinross has quickly began to evaluate the Thunder Mountain project as they aggressively explore for gold," said Branham. "They have tested a few obvious targets and have expanded the land package in this early stage exploration project. We are excited to see what their expertise, developed at their Round Mountain mine site north of this project, will produce."

Thunder Mountain will be explored while underground development proceeds at Midway. Potential future development at Thunder Mountain is expected to benefit from and complement mining at Midway.

But the Midway Project, Spring Valley, and Thunder Mountain aside, what is really getting President Alan Branham excited these days is the newly acquired Golden Eagle project in Ferry County, Washington.

The Golden Eagle is an advanced exploration target with a historic database of 847 drill holes over 165,775 feet, as well as a historic resource (not 43-101 compliant) of 32.19 million tons grading 0.069 ounces per ton for contained gold of 2.2 million ounces. Branham thinks there is a good chance that there is more there. Much more.

"The Golden Eagle property offers a very attractive underground high-grade vein exploration target on private ground,” he said. ”We believe that exploring under the historic two million ounce hot springs system is an attractive place to find more high-grade gold. This target is adjacent to the Republic Knob Hill veins which produced high-grade gold for Hecla for over 20 years. We will also review options to process sulfide mineralization, in view of newer technologies and the economics afforded by a higher gold price. The ability to explore the deeper targets combined with the strategic access to Kinross' nearby mill is a bonus that could add value to any new oxide ounces discovered on the property."

Midway Gold has a handful of other projects at varying stages of development. Too many, really, for one article. My point here is to demonstrate that companies like Midway, who are capable of integrating the concept of joint ventures at the expense of major mining companies as a business model have something that is so rare in exploration companies that, as is the case with Midway now, its existence is seldom reflected in the company’s share price.

That characteristic is vision. And investors who have enough vision of their own to understand its value will be the beneficiaries of it.