Midway Gold Facing Hurdles at Pan Mine

Midway Gold (TSX:MDW,NYSEMKT:MDW) has already faced difficulties at its Nevada-based Pan mine, and based on its most recent news, its troubles are far from over.

Last week, the company issued a corporate update regarding its current capital structure and existing debt obligations, noting that it is reviewing alternative financing proposals to replace its senior debt. It has also formed a special committee to explore strategic partnerships, asset sale opportunities and debt refinancing options in order to enhance shareholder value.

While that might sound promising, the decision follows a string of unfortunate events at Pan, which just began producing this past March. Here’s a look at what’s been going on at Midway and what may be in store for the company.

Pan mine problems

When Midway provided a construction update for Pan in September 2014, it said it expected first gold to be poured there in late Q4. The company then provided another progress report in November 2014, stating that Pan was in late-stage construction and that the first pour was expected in late January 2015. However, the first pour at the mine came much later, at the end of March 2015.

Unfortunately, delayed production has proven to be the least of Midway’s problems. Earlier this month, the company announced the results of modeling work at Pan, including an updated resource estimate for the mine. Pan’s average gold grade came in 15 percent lower than expected, and as a result the measured and indicated resource fell 36 percent, or 284,500 ounces from a 2011 feasibility study. Some of the measured and indicated resource was shifted into the inferred category, now consists of 141,000 ounces, or 13.9 million tonnes at 0.31 g/t gold.

Taking the lower grade and 13,400 meters of new drilling into account, the project is now believed to contain 503,800 ounces, or 35.9 million tonnes grading 0.44 g/t gold; that excludes material that has already been produced or is currently under leach.

Financial distress

Delays at Pan have also set Midway back on the financial front, and the company is currently at risk of defaulting on its three-year senior debt with the Commonwealth Bank of Australia. Midway said in last week’s corporate update that it is currently in talks to extend its default waiver with the bank as the deadline came and went on May 20. That said, it notes that while it is “reviewing alternative financing proposals to replace the Senior Debt that may provide the Company with necessary time and capital to advance its business although there can be no assurance that replacement debt will be on terms acceptable to the Company.”

According to The Northern Miner, Midway doesn’t think it will be able access to the remaining US$5.5 million of its senior debt and has just US$3.8 million left under its US$10.5-million subordinated debt facility. The company said that money will go towards building Pan and will not be enough to “cure noncompliance of the senior debt.”

It remains to be seen what Midway will do to alleviate its financial woes. At at this point at least it looks as though the company’s hands may be tied. Its share price has reacted accordingly — although it was unmoved at end of day Friday, trading at $0.135, it was down 63.51 percent for the week and 82.91 percent year-to-date.

Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.