Categories: Precious Metals
Topics: General Precious Metals

Midas Gold (TSX: MAX) CEO Stephen Quin on Updated Mineral Resources at Stibnite Gold Project: 2.5 g/t Gold, 0.25% Antimony and Improved Project Economics

Feb. 16, 2018

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of Midas Gold (TSX: MAX)(OTC: MDRPF), Mr. Stephen Quin. Stephen, how are you?

Stephen Quin: I'm doing good. Thank you, Gerardo, and thanks for having me on again.

Gerardo Del Real: Well, thank you for taking the time. You just released an updated mineral resource estimate for the Stibnite Gold Project, and I more accurately would like to describe it as the "lots of gold and some very good antimony project." But congratulations. I know it's a milestone for the company because you are working towards an important feasibility study, and this is a big step in that direction.

Stephen Quin: You're absolutely correct, and the resource is a foundation of everything and having a new and updated resource, it gives us the platform to spring into the feasibility and mine planning work that we plan to complete this year.

Gerardo Del Real: Excellent. Let's talk about some of the highlights. So this is the first time that you've been able to define a measured resource at Yellow Pine. It's got a grade of 2.5 grams per tonne gold, 0.25% antimony. Yellow Pine is important because it's the first pit that would be mined under the development plan that was proposed in the 2014 PFS. Can we talk about why getting that measured resource at Yellow Pine was important, and also bringing in the antimony? I know that was one of the big goals with this estimate.

Stephen Quin: Sure, I'm happy to. Essentially there's three classes of resource: measured, indicated, and inferred. Measured is the highest confidence category of resource. So previously we've had indicated resources, which is sufficient to create a reserve, but obviously measured is another step above that, and then what we defined was about 4.6 million tons, as you said, grading about 2.5 grams a tonne gold and about a 0.25% antimony. So having that significantly higher grade material available and early in the mine life, because this measured resource essentially sits right below surface in the area that was just below where it was previously mined as an open pit, it gives you some high-margin material for your first year of production that will give you a significantly higher margin and increase the payback, rate of return, etc., in the early years.

So, having that high gold grade is definitely significant, and one of the things we've talked about in the past is that from the economic assessment we did in 2012, we had some good grade antinomy in that area, but in 2014, a dataset was excluded from drilling of older drill data that reduced the amount of antimony there. And antimony is a byproduct of the production and helps reduce the cost in the early years. So what we did in 2016 and into early 2017 was drill to a place that historical or reconfirm that historical data, and we were successful in that, and so bringing that antimony in early in the mine life, again, will give you a significant boost to the margin in those early year tons, which should increase your rate of return and your present value of the project because it's right at the beginning of the mine life.

Gerardo Del Real: Now, you mentioned margins, and overall there was a 6% increase in gold grade and a 22% increase in antimony grade at Yellow Pine. Can you talk about the margins that you're speaking of, because they were already pretty robust, Stephen?

Stephen Quin: Yeah, the costs were very good, and again, in that central area, under the existing open pit, there was an historical data there that indicated higher grade that was excluded from the 2014 PFS. And again, the objective of the drilling we were doing in the Yellow Pine area was to confirm that higher grade, and that was successful in the drilling, and what the drilling also gave us was a better geologic control.

So you could better define which rock units were well-mineralized versus which weren't, and define the boundaries between those two very clearly. The combination of those two assets essentially gave us the 6% overall grade. A simple way to sort of conceptualize what 6% grade ­– at first it doesn't sound very much of an increase, what impact would it have? – a simple way to look at it is gold was $1,200 dollars an ounce, and you have a $600 dollar all-in cost, a 6% increase in grade is like a 12% increase in margin, because it's all profits, it's the same tons, it costs you the same amount to process it through the mill, etc.

It should have a significant impact and boost the return and the margin on those early years, and because the Yellow Pine deposit is the first one to be mined, it operates for them as seven years in the mine plan that's proposed in the pre-feasibility study, that you see that boost in margin for the entire first seven years. So again, that should help your payback, your rate of return, your NPV calculation. So, it's definitely where we wanted to see the gains and where we were focused on the work we did in 2016, 2017, was on that deposit because it increases margin in the early years.

And again, the antimony side, as with the measured resource, that is a byproduct. So what it essentially does is reduce your cash cost to production by the byproduct credit. And so pushing that antimony grade up will increase the byproduct credit and therefore reduce the cash operating cost in those early years, and so obviously all of that feeds into an improved margin when we get to feasibility study.

Gerardo Del Real: How important was the predictive geological model that you're working off? Because the drilling was very successful. Obviously that bodes well for the feasibility study that's coming up, but we've seen some issues recently with companies that modeled one way, went into production and are having issues that are having significant impacts on the bottom line. How important is it to get that right at this stage, Stephen?

Stephen Quin: Oh, it's absolutely fundamental, and I agree 100% with you, Gerardo. I've looked at and seen a number of projects where the geologic controls are poor and interpretation is exaggerated. We've taken a huge amount of data, and it's not just the Midas Gold drilling that has been done. There's 60 or 70 years worth of data prior to that, which includes drilling, but in many ways more importantly, it includes open pit and underground mining. So we have all of the production records, and that particularly applies to the open pits at Yellow Pine and West End deposits where they’ve essentially taken the top of the deposit off, and we're able to compare the actual product records with our geologic model and interpretation of what's left underneath.

And obviously, the two should line up, and you should see the mineralization they were mining in the open pit historically continue down into the areas that you've done the drilling on, and they should line up and they should be similar. And that provides you a great deal of comfort in the robustness of the resource. There's been about a million ounces produced on this project already, and that million ounces is like a giant bulk sample test. So does our resource model align with the historical production records? You know, this simple answer is it does. And so, we spent a lot of time taking all of that historical data, whether it's bench plans or underground workings and using them to inform the geologic model we're using to drive the resource, and to bring it into alignment. It gives you a great deal more confidence in the accuracy of the geologic model and the resource model that has been dependent on it and therefore should substantially reduce your risk that you get surprises when you open it up.

And as I said, because you've seen two of the three deposits open pit mined already, you have had this effective, essentially proving up the geologic model that's already there. And then the third deposit, it was underground mined, and we've drilled into a number of areas where we predicted the underground workings and we hit them exactly where were expected over the thickness we expected, and that confirms again the accuracy of your modeling that the ore is where you believe it should be. We have a high degree of confidence in this model, and a lot of time and effort has gone in by our geologic team to ensure that level of accuracy and confidence. And that's what gives you the measured resource and the indicated resource. It's a measure of confidence, and so we're obviously confident in those estimates.

Gerardo Del Real: You mentioned the measured and indicated resource. That now stands at 5.6 million ounces of gold, if I'm not mistaken, at a grade of 1.66 grams per tonne. For people that are not familiar with the Midas Gold story, can you explain how the grade compares with other producing deposits?

Stephen Quin: Certainly, and I think it's the big attraction of this project is the grade of it, which is what gives you the margin that you see in the low cash costs and all the sustaining costs. When you look in Nevada, typically deposits being open pit mined in Nevada are 0.5 gram a tonne to at higher, 0.6, 0.7 grams a tonne. And there is a US Geologic survey database of all the projects and resources out there, mines in production, etc. And using that database, we'd be somewhere around the fourth highest grade open pit mine in the United States. So grade essentially translates into margin when you have good sized deposits like this. So, having a grade up in 1.66 grams of tonne gold with the antimony byproduct on top of that makes this a very good grade deposit in comparison to what's being mined out there, and that should translate into good margins, good profitability, good rates of return, etc.

Gerardo Del Real: We talk about the gold at the project, the 5.6 million ounces in the measured and indicated category, and nearly a million in the inferred category. So you can do the math, right? It sits nearly at 6.6 million ounces of gold, but the antimony is not insignificant. You now have I believe 204 million pounds roughly in the measured and indicated category, and another 20.5 or 21 million in the inferred category. How important is the antimony from a strategic viewpoint in the sense that the US doesn't produce any, and frankly it, well, before I get into the China question, how important is it to this specific project, and then my follow-up question will be how important is it overall in light of the fact that China is so dominant in regards to antimony production?

Stephen Quin: Sure. I think those are both valid questions. With the respect to this project itself, the antimony is worth about 4 or 5% of cash flow. So that definitely this is a gold mine, but the antimony is a significant byproduct, and it's worth about $50 dollars an ounce in byproduct credit value in the PFS that we did. Now we've increased the antimony grade, and the amount of production that's going to come out, we're obviously going to see that increase and play a bigger factor in it. But with regard to production and strategic metal side of things, the biggest demand use for antimony is to fire proof, act as a flame retardant in almost any synthetic product whether it's foam in carpets and chairs and mattresses and furniture, clothing, things like that, insulation around copper wire. Where do you really want things besides your retail home stuff, where do you think one thing's not to burn is in the military and the defense industry, and so there is a significant strategic aspect to antimony. And the other big sector is the energy sector. Again, you don't want things to burn in the energy sector.

So, there is a significant strategic and economic implication to a supply of antimony, and as you mentioned, China is the dominant producer. It produces about 75% of the world's primary antinomy. There is some recycling, but it's about 10, 15% of world supply is recycled, but the vast majority comes from primary production, and it primarily comes from China, about 75% of it. A lot of the rest comes from countries that you characterize as allies of the US, Russia, and places like that. So the US is very dependent on supply restrictions if they would develop in the future, and we saw that during the second World War, pre the Second World War when Japan invaded China and cut off Chinese supply, and the US was suddenly scrambling for supply for military purposes, and this mine became the dominant producer for the entire US war, for producing about 90% of US demand for war effort during the Second World War and the Korean War.

And so it has a strategic role, and there is no domestic production at all, as you mentioned, and all the supply is essentially coming from China, and so having a strategic supply base inside the United States would obviously be a significant benefit and provide security of supply in the event of increasing tensions and so on. So we believe that this project can meet that demand, particularly for the military and energy sectors, but for the border market demand as well, and so I think that gets the project some different attention. It's not just a gold mine. It's a gold mine with a significant strategic metals component associated with it.

Gerardo Del Real: Agreed. Agreed. Now you touched on the feasibility study. How are things coming along on that front, Stephen?

Stephen Quin: We’re moving the feasibility forward. We have the resource, the next big step is to complete mine planning, and then there are some opportunities to optimize the project returns and economics through that mine planning process because our prior mine plans were relatively straightforward. We just mined each deposit sequentially, but there may be opportunities now we have the resource to mine some parts in parallel and bring some better grade earlier into the mine life and essentially enhance the returns of the project through that process. In parallel with that, the other big work activity that we've been running in parallel to the resource side was the metallurgical side to demonstrate to feasibility standards the economic recovery of the metals from the resources. And we've just completed a pilot's scale metallurgical test program. We're just waiting for the final results from that program, and we expect to have those results out in the relatively near future.

And with those two pieces in hand, the metallurgical test work and the resource updates, obviously leading into the mine planning, we can really start to work on the guts of the feasibility study, which is really to optimize the project based on all the latest information, optimize it, look at different ways to enhance return, reduce capital costs, reduce operating costs, and various aspects like that. So that work will consume most of the rest of this year as we pull all that data together into a feasibility study that should be out by the end of the year.

Gerardo Del Real: Well, Stephen, I know that oftentimes you're going through the permitting process as we speak, and as you pull together all this data, it's not the most exciting for the average speculator or investor, but I can't overstress how critical getting it right at this stage is, and I want to congratulate you on your approach and your efforts because you've done an excellent job of executing for shareholders on every front thus far, so congratulations.

Stephen Quin: Appreciate that, Gerardo. As you say, it's not necessarily the most exciting stage of a company's life but I think it has the best risk/reward profile because people often look at these life cycles, the mining share type of charts, and they say, "Oh, well, you should jump in at the exploration stage." But the probability of success in exploration is significantly lower. There are many, many exploration companies that never find anything, and so when you move to this stage of a company, you already have a project that demonstrated to be economic, and you just have to work your way through the permitting and feasibility process and deliver what you already know, or what you've already shown is to be the case, and just deliver it to a higher standard and get the permit through, and then you see a substantial revaluation in companies.

And so from my perspective, and I spent a lot of my career in this stage of projects, is the best risk/reward profile is this stage of a company when everybody's bored, and nobody's paying attention, and then you suddenly wake up and it's permitted and the feasibility's great, and you see this substantial revaluation in the market for these kinds of assets.

Gerardo Del Real: Well, with the 6.5 million ounces across all categories and the 225 million pounds of antimony, I think you're off to a pretty good head start, Stephen.

Stephen Quin: Yes, I think we're in a good position with one of the best quality deposits, and it's located in the United States. You're not going to have to go to some strange and challenging jurisdiction. You're in a very good location. Idaho's a great place to work. It's a great state, and it's very pro-business. We have the unique advantage here of this isn't just a great project, but we have the opportunity to address a lot of the legacy impacts of environmental damage created by, particularly, the mining during the Second World War, Korean War, where rules were ignored or not in place. We're going to restore this site so that it's considerably better than it is today.

Gerardo Del Real: And much like Yellow Pine, this happens very early or before or during the construction of the mine. Is that correct, Stephen? I think that's an important point.

Stephen Quin: Yeah, that is correct, and we are essentially front-ending the reclamation of the site and deliberately to take care of all of those historic issues and not just say, "Oh, well, we'll do it all at the end." And then we disappear, like some of the prior companies did. This will all be taken care of up front before we're making a profit, and we'll substantially demonstrate the benefits of redevelopment of this project very early in the life.

Gerardo Del Real: Stephen, thank you so much for the update. I really appreciate it, and as always, I hope to have you back as more updates come out.

Stephen Quin: Thank you very much, Gerardo.