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Midas Gold could cut costs, bringing Barrick aboard

It makes sense for Midas Gold Corp. to partner with gold major Barrick Gold Corp. in a recent US$38.1 million financing to develop a large and complex gold project like Stibnite in Idaho.

That is the view of Joe Mazumdar, an Exploration Insights analyst who has followed the project over the years. The ore at Stibnite is refractory, meaning the gold is typically more difficult to liberate, and it will need to be processed in facilities such as those that Barrick operates for similar ore in Nevada.

"Having a major — only they can do it," Mazumdar told S&P Global Market Intelligence, pointing to the capital costs of the project which were estimated at US$970.3 million in a 2014 study.

Mazumdar wondered if Midas Gold, shares of which he does not own, may eventually look to a major producer like Barrick with pre-existing facilities to process Stibnite ore, if it passes permitting and goes to production.

The potential advantage would be to avoid building and processing the feed on site. "They could ship a concentrate," Mazumdar noted.

Kerry Smith, a Haywood Securities mining analyst, called it a "smart deal" for Barrick. "They get 20% in a de-risked project and the only remaining variables are permitting and financing," he said.

Smith agreed with Mazumdar regarding facilities. The Stibnite project is "feed for their roaster, which means they could reduce the project capital significantly. And they understand permitting risk better than most in the western U.S."

Barrick, after a few years of production cuts and divestments aimed at shrinking debt, has a relatively flat production profile. Mazumdar wondered if they may be eyeing cheap growth through the toehold in Midas.

Should Barrick own Midas and if Midas were in production, it could, for a time, increase Barrick's annual production by about 7.5% based on Stibnite's projected annual average of 337,000 ounces of gold and Barrick's production forecast for 2018, 2019 and 2022.

Still, Mazumdar was not keen on Midas shares, seeing potential for dilution as it develops the project.

"I'm not a buyer of the stock," Mazumdar said. "I know the share structure is going to blow up in a year or two."

Barrick, responding to requests for comment, noted that acquisitions gave it exposure to projects. It had not responded as of press time to more specific questions.