Midway Gold Corp

On April 17, 2015 the Company entered into a subordinated credit agreement (the “Subordinated Credit Agreement”) with Hale Capital Partners, L.P., as administrative agent and collateral agent, and HCP-MID, LLC and INV-MID, LLC, as lenders, in the aggregate amount of $10.5 million (“Subordinated Debt Facility”). On April 17, 2015, the Company received an initial draw of $3.85 million (the “Initial Draw”) from the Subordinated Debt Facility.  The Company paid half ($0.1 million) of the origination fee to the lenders and reimbursed the lenders for $0.15 million in legal fees and expenses from the Initial Draw.  The Subordinated Debt Facility matures on September 30, 2017 (the “Maturity Date”), bears interest at a rate of 13.5% per annum and is subject to a 5% per annum commitment fee on the undrawn commitment through September 30, 2015.  Payment of the Subordinated Debt Facility is due in full on the earlier of the Maturity Date or the discharge date as defined within the Subordinated Credit Agreement.  The Subordinated Debt Facility is secured by subordinated security interests and guarantees by the Company, subordinated to the senior security interest of the lender of the Senior Debt Facility.

All future borrowings under the Subordinated Debt Facility are subject to conditions, affirmations and negative covenants as described in the Subordinated Credit Agreement.  There can be no assurance that we will satisfy the conditions to make future draws under the Subordinated Debt Facility.  The proceeds will be used to pay for costs of the Pan Mine and corporate expenditures.  Proceeds from the Subordinated Debt Facility are not adequate to cure noncompliance of the Senior Debt Facility as described above.

The Company hired an independent engineer to update the geologic model and mineral resource estimate for the Pan Project at a current date, due in part to mine performance being lower than expected.  The updated mineral resource estimate was completed in early May 2015 and will be used to update the mine plan and mineral reserve estimate for the Pan Mine, which is also to be received during Q2 2015.  Upon receipt of the update mineral reserve estimate and its incorporation into the Company’s impairment accounting model,  the Company believes there is a higher risk that there will be an impairment charge to reduce the carrying value of its capitalized mineral property, plant, equipment and development costs for the Pan Mine. Until such time as the Company receives the updated mineral reserve estimate, it is not possible to reasonably estimate an impairment charge, if any that might occur.    The updated mine plan and mineral reserve estimate are expected to be completed in late-June.  The updated mine plan will be the basis for negotiations with CBA to amend the Senior Debt Facility.  There is no assurance that we will be successful in our efforts to amend the Senior Debt Facility or avoid an event of default.  There is also no assurance that we will be able to raise any capital required in connection with that amendment or the capital required for the crushing and agglomeration circuit, leach pad expansion or for any of our other working capital requirements.  If an event of default occurs, CBA could elect to declare all principal amounts outstanding, together with accrued interest, immediately due and payable and seek to enforce their security interest over the Pan Project and other assets, which would negatively impact our operations.

On April 17, 2015 (the “Closing Date”), we entered into a subordinated credit agreement (the “Subordinated Credit Agreement”) with Hale Capital Partners, L.P. (“HCP”), as administrative agent and collateral agent, and HCP-MID, LLC and INV-MID, LLC, as lenders, in the aggregate amount of $10.5 million (“Subordinated Debt Facility”). On the Closing Date, we received an initial draw of $3.85 million (the “Initial Draw”) from the Subordinated Debt Facility.  We paid $0.1 million of the $0.2 million origination fee to the lenders and reimbursed the lenders for $0.15 million in legal fees and expenses from the Initial Draw.  The Subordinated Debt Facility matures on September 30, 2017 (the “Maturity Date”), bears interest at a rate of 13.5% per annum and is subject to a 5% per annum commitment fee on the undrawn commitment through September 30, 2015.  Payment of the Subordinated Debt Facility is due in full on the earlier of the Maturity Date or the discharge date as defined within the Credit Agreement.  The Subordinated Debt Facility is secured by subordinated security interests and guarantees by the Company, subordinated to the senior security interest of the lender of the Debt Facility.

Our development and construction activities at our Pan project have required substantial capital expenditures.  We have made and expect to continue to make substantial capital expenditures in our business and for the development of our other projects.  To date, funding to explore and develop our gold properties and to operate the Company has principally been from equity and debt financings, and from the sale of gold since production began in late March 2015.  Gold production to date has been less than forecasted principally due to low solution permeability.  This has resulted in lower than expected cash flow from operations.  Ore from the South Pan pit will require crushing and agglomeration to improve permeability, which will require an additional capital investment in the project and may result in a reduction or temporary suspension of mining activities.  Our initial capital cost estimates indicate approximately $5 million to $10 million will be required for the crushing circuit, $5 million to $8  million for the agglomeration circuit and approximately $10 to $11 million for expansion of the leach pad in 2015.   We plan to pursue leasing of the equipment components to the extent that option is available.  The amount of additional required funding will depend, in part, on further evaluation of these expected capital outlays, working capital requirements and the results from the updated mine plan that is expected to be finalized in late-June 2015.  The updated mine plan will be the basis for negotiations with CBA to amend the Senior Debt Facility.  There is no assurance that we will be successful in our efforts to amend the Senior Debt Facility, or that we will be able to raise any funding required in connection with that amendment or for any of our other capital or working capital requirements, or avoid an event of default.  If an event of default occurs, CBA could elect to declare all principal amounts outstanding, together with accrued interest, immediately due and payable and seek to enforce their security interest over the Pan Project and other assets.

In order to address some of our immediate working capital and funding needs for our Pan project, on April 17, 2015, we entered into the Subordinated Credit Agreement for the purpose of establishing the Subordinated Debt Facility, in the aggregate amount of $10.5 million.  On April 17, 2015, we received an initial draw of $3.85 million (the “Initial Draw”) from the Subordinated Debt Facility.  We paid $0.1 million of the $0.2 million origination fee to the lenders and reimbursed the lenders for $0.15 million in legal fees and expenses from the Initial Draw.  The Subordinated Debt Facility matures on September 30, 2017 (the “Maturity Date”), bears interest at a rate of 13.5% per annum and is subject to a 5% per annum commitment fee on the undrawn commitment through September 30, 2015.  Payment of the Subordinated Debt Facility is due in full on the earlier of the Maturity Date or the discharge date as defined within the Subordinated Credit Agreement. In the event that any amounts drawn under the Subordinated Debt Facility are repaid on or before September 30, 2015, the amounts repaid are subject to a make-whole payment of 3%.  Any amounts repaid after September 30, 2015 and prior to the maturity date are subject to make-whole payment of 3%, plus the present value of interest that would have accrued had the amounts repaid been paid on the maturity date.  The Subordinated Debt Facility contains provisions whereby mandatory prepayments are required in certain circumstances. The Subordinated Debt Facility is secured by subordinated security interests and guarantees by the Company, subordinated to the senior security interest of the lender of the Senior Debt Facility.  The proceeds will be used to pay for costs of the Pan Project and for general corporate purposes.  There can be no assurance that we will satisfy the conditions to make future draws under the Subordinated Debt Facility.  Proceeds from the Subordinated Debt Facility are not adequate to place us into compliance with the Senior Debt Facility as described above.

Our auditors have noted material uncertainties that cast substantial doubt about our ability to continue as a going concern in their audit report on our financial statements as at and for the year ended December 31, 2014.  As of May 4, 2015, we had cash and cash equivalents of approximately $2.9 million.  We anticipate the updated mine plan will provide us with a path towards resolving the operational challenges that we have encountered to date, resolving our non-compliance with the Senior Credit Facility and our going concern qualification.