Nevada hosts some of Newmont's most profitable gold mines and is a key reason behind merger talks between them and Barrick (Photo: Bronstein/Getty Images)

Nevada hosts some of Newmont's most profitable gold mines and is a key reason behind merger talks between them and Barrick (Photo: Bronstein/Getty Images)

Nevada is the place where Newmont and Barrick made their names.  It is a place of very large gold operations that have been producing for decades and continue to provide these behemoth gold miners with baseline production and profits.

It is estimated that Nevada produces 80% of the total US gold production.

This morning, Nevada's newest gold mine began operating but the company who owns that project has a market cap of $170 million, not the $21 billion of Barrick or the $12.5 billion of Newmont.

That company is Midway Gold (MDW:TSX) and it has been quietly ticking off construction milestones over the past year culminating this morning, with the announcement that they have begun mining at their Pan gold mine in the Eureka-Battle Mountain trend.

It hasn't been an easy start for the junior miner.  A late and vicious storm ravaged the mine this summer, causing $2.5 million worth of damages and caused the company to have to rework access roads as well as the leach pad and pond liners.

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The company is working to pour first gold before the end of the year, but this storm combined with a couple other unforeseen issues have made that timeline quite tight.

It may come down to how fast the gold leaches from the pads.

Ken Brunk, Midway's president and CEO said: "The combination of these delays is not, at this time, expected to cause material cost overruns. We applaud our team for their efforts to regain some setbacks in schedule and minimize our financial losses. We expect the next few months to come with both challenges and successes. If we experience additional unseasonal weather or other factors outside of our control, there is a risk our first gold pour may not occur until early first quarter next year. However, we will continue to focus our efforts and conduct all reasonable activities to reach our planned objective, which is to achieve a gold pour in 2014."

The Pan project hosts a Measured and Indicated (M&I) resource of 80Mt at 0.44g/t gold containing 1.13 million ounces of gold.

Pan is as simple a mine as you can have.  It is an open pit, heap leach operation with no pre striping necessary.  The ore is 100% oxide, so recoveries are simple and predictable.

In the early years of the project, the company estimates they will use run-of-mine material on the pads meaning they will not crush any of the ore, yet they still expect to have recoveries in the 75% range.

According to a 2011 Feasibility Study, Midway will be able to produce an average of 81,000 ounces of gold per year at $824 all-in sustaining cost per ounce.  At $1,200 per ounce gold, Pan is expected to generate an after-tax IRR of 34%, NPV (5%) of $123 million and payback the $99 million of capex within 2.6 years.

The company also owns the Gold Rock project which looks to be an identical sediment hosted, Carlin-style deposit to Pan.  The project is only 8km from Pan and Midway already expects the project to have a similar production and cost profile as Pan.

View of Barrick's Cortez Hills mine which produced over 1.3 million ounces of gold in 2013 and host over 11 million ounces in reserves (Photo: Barrick Gold)

View of Barrick's Cortez Hills mine which produced over 1.3 million ounces of gold in 2013 and host over 11 million ounces in reserves (Photo: Barrick Gold)

Currently the Gold Rock project hosts 20,215,000 tonnes at 0.79g/t gold containing 513,000 ounces of gold in the M&I category.  They have already begun permitting at this project and are now working on engineering and designing the conceptual mine.

Midway is also partnered with Barrick on the Spring Valley project whereby Barrick is the operator under a 75/25 JV (Barrick/Midway).  Barrick has spent over $38 million on the project, earning 70% in the project and proving up nearly 4.4 million ounces of gold.  Barrick is spending over $17 million this year and will earn an additional 5% after.

Barrick believes Spring Valley could be a stand-alone gold mine which will be very good for Midway who gets a free carry through to production (and cash flow).

The company has an impressive shareholder list, including: Barrick, Blackrock, American Century, Hale Capital, Sun Valley and Franklin Templeton.

Read: Midway Advances Construction and Mining Begins at Pan Gold Project, Nevada