Via Penny Mining Stocks, I have been buying Midway Gold (MDW.T)
*This is not investment advice. This article is my own thoughts and I could easily be wrong. Please do your own due diligence and talk with a licensed financial advisor before making any investment decision. The author of this article owns Midway stock purchased in March in the open market and is therefore biased. All facts are to be verified by the reader.
I have bought Midway Gold stock twice in the last 10 trading days at CA $0.45 and CA $0.$415. Midway stock has had a tremendous sell off in the last couple months and is currently trading at a 52 week low of $0.375 (Friday March 28th close). The stock was as high as 93 cents on March 3rd. I believe the stock offers a terrific risk/reward scenario at these levels. Midway will be Nevada’s next gold producer (any day now). The stock does have some issues but I will explain those as well.
Here is why:
2.Production (days away) – Midway announced on Friday testing of the refinery and a gold pour of 100 ounces ($120,000 at $1200 gold). I am expecting an announcement early this week as the company has announced that the first commercial scale production is expected for Monday, March 30th. History shows according to US Global research shows that when a company begins production (cashflow) the share price responds positively. See below chart.
3. Additional Projects – Midway has a plan to use future cash flow from Pan to bring a pipeline of projects in to production including Gold Rock and Spring Valley (JV with Barrick Gold). These are excellent projects in their own right and investors can read more at theMidway Gold website.
A couple problems that may be causing of some of the sell off in the stock.
Note: Midway Gold’s new CEO is William (Bill) Zisch who recently was VP one of the largest gold streaming companies in the world (Royal Gold). As VP of operations for Royal Gold Mr. Zisch will have plenty of experience and contacts with financing and funding deals so I expect this to be very beneficial with the current situation Midway is in.
2) Ore grades – This is also a worry for investors. It is too early to say whether or not this will be an ongoing issue and Midway has been very quiet on details.
Initially this was a big concern of mine until I did some more research on the project economics.
These economics are some of the best of any current development project and gives Midway a little breathing room if grades are lower than expected. The following chart provided by Midas Gold shows the Pan project as a low cost producer.
Obviously if the grade is lower this will have a big effect on the cash cost but at this point we do not have enough info from Midway to make an educated guess on how much. I did pull the following sensitivity analysis chart from the 2011 Feasibility Study to have a look at though.
At these prices I believe the opportunity is there for investors to buy Midway stock. I have purchased shares and am therefore I am biased. I easily could be wrong but I have a hard time seeing Midway at these levels 6 months from now unless something crazy happens. That being said quite often something crazy does happen with mining stocks but I am comfortable taking that risk in this situation.