Midway Gold Corp V.MDW

Haywood Securities is dropping coverage of Midway Gold Corp.

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According to Haywood Securities:

https://personal.crocodoc.com/N1mVdyT

Midway Gold Corp.

(MDW-T, MDW-US; $0.09)

Rating: Dropping Coverage (from Sell)

Target Price: Return N/A (from $0.10)

Curtailment of Operations at Pan Prompts Dropping of Formal Coverage

Event

Curtailment of operations and dropping of formal coverage.

Valuation

We no longer maintain a formal valuation or estimates.

Impact – Negative

Midway announced the curtailment of operations at Pan with the reduction in workforce and suspension of mining operations. Residual gold production continues from leaching of ore on the pad, although gold recovery continues to fall short of the Company’s expectations. Given the strained balance sheet, significant unfunded capital requirements, and prevailing uncertainty of the economic viability of the operation, we are dropping formal coverage on Midway Gold Corp.

- Operations Winding Down – Midway announced that mining operations at its Pan gold mine have been suspended and a commensurate reduction in the workforce effective Friday, June 19th. Staffing levels of both Midway employees and contractors (Ledcor CMI Inc.) are both being reduced. While a moot point at present, Midway signed a contract mining agreement with Ledcor (c.f. May 2014) whereby a break fee is payable to Ledcor which amounted to US$8.1M as of March 31st, 2015.

- Heap Leach Continues to Underperform – Residual gold production remains from the heap leach pad, with the rate of recovery continuing to underperform the Company’s expectations. We are unable to assess the viability of the current operations, and or that of a future operation involving modification of the current processing plan, and thus unable provide reasonable assessment of potential asset value.

- It’s the End of the Road? Little Remaining for Equity Holders – With a restructuring or bankruptcy looking more and more inevitable, we see little left for residual claimants (shareholders). Noting the pecking order includes Commonwealth Bank of Australia (CBA) for US$47.5 million (project facility & cost overrun facility), Ledcor CMI Inc for US$8.1 million, a subordinated credit facility with Hale Capital for US$3.9 million (of a US$10.5 million facility), Hale Capital’s redeemable preferred shares for US$70 million (noting that upon liquidation, dissolution or winding-up increases to 125% of the value), plus other creditors (accounts payable) prior to any common shareholders receiving any residual value. While we see asset sales (i.e. Spring Valley or Gold Rock) as potential sources of cash infusion, we believe those to be insufficient to remain solvent (noting CAPEX & working capital requirements) and provide little potential upside barring a material movement in gold prices and recasting of project economics. As highlighted in our last report (Downgrading on Lower Grade/Fewer Ounces, Higher CAPEX & Lackluster Production), the balance sheet remains strained with cash of US$2.7 million, inventories of US$28.5 million, payables of US$16.4 million and negative working capital of US$29.9 million as of 31st March, 2015.

- Target Price, Ratings – Forecasts, estimates, and target are withdrawn.