Midway Gold Corp V.MDW

PI Financial: Buy rating and $0.65 target for Midway Gold

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According to PI Financial:

https://personal.crocodoc.com/p1leC3R

MIDWAY GOLD CORP.

(T-MDW; N-MDW) $0.31/US$0.25 (Intraday)

RATING: BUY (unchanged)

TARGET: $0.65 (decreased, previously $1.00)

Updated Resource Estimate at Pan Leads to Target Reduction

EVENT: Midway Gold Corp. (Midway) provided an updated resource estimate for its flagship Pan project (Nevada, U.S.) on May 11th, 2015.

DISCUSSION: The Company announced an updated total resource of 645Koz with an average grade of 0.40 g/t gold which is down from its previous resource of 799Koz with an average grade of 0.52 g/t gold (Exhibits 1 and 2). This represents a 19% and 22% decline in overall ounces and grades, respectively. The updated resource was completed following a discrepancy that was found between the resource block model and recovered grades during the first few months of initial production at the open pit heap leach project. An updated Feasibility Study is expected in June that will provide investors with an updated LOM mine plan as well as the Company’s official guidance for 2015.

Operationally, the Company has now produced 4,300 ounces year-to-date and currently has placed 36,000 ounces on its leach pads which are currently under leach.

IMPACT: Negative. The decline in both ounces and grades have resulted in a decline in the overall economics of the project. In particular, our NAV for Pan has decreased substantially from $1.10/sh to $0.47/sh. In addition, given the issues that the Company has encountered thus far during its ramp up period at Pan, we don’t anticipate that the Company will be able to generate operating cash flow until late 2015 / early 2016.

FORECAST/OUTLOOK: Based on the updated resource estimate, we have made revisions to our production and cost assumptions at Pan. In particular, we have decreased our assumed mine life from 11 years to 8 years and have increased our LOM cash cost assumptions to reflect lower LOM grades as well as higher than previously expected mining costs based on actual results year-to-date. Consequently, our financial forecasts have also been reduced (Exhibit 3).

VALUATION/RECOMMENDATION: We have updated our model to reflect the updated resource estimate at Pan, Midway’s Q115 financials, as well as other adjustments. Based on these changes, our NAV estimate decreases to $1.10/sh from $1.65/sh (Exhibits 4 and 5). Our new target price of $0.65/sh (was $1.00/sh) is based on a 0.65x multiple (unchanged) to our NAV estimate. Given the fact that our target price represents a 110% return relative to the current share price of Midway, we are maintaining our BUY recommendation. We rate the shares with a SPECULATIVE risk rating.