CIBC Analyst RecommendationCIBC has initiated coverage with an outperform rating and a target of $4.00.
Key Points
Marathon Gold is a junior gold developer focused on its Valentine Gold project in Newfoundland. The project is in the permitting phase, following the release of a positive PFS in early 2020. With top-quartile AISC, we expect the project to be highly profitable with a ~50% internal rate of return (IRR) at our base case long-term gold price of US$1,650/oz.
Goldilocks Project That Ticks All The Boxes:
Valentine Gold is an attractive mid-tier Canadian asset with life-of-mine (LOM) open-pit gold production of 1.7Moz at 1.4g/t over a 12-year mine life. The project’s relatively high-grade reserve base compares favourably with other mid-size North American open-pit projects, and the life-of-mine AISC of ~US$750/oz should generate more than $150M in annual free cash flow (FCF) even at a US$1,650/oz long-term gold price. The project features a relatively simple processing flow sheet, and no obvious sources of elevated technical or permitting risk.
Advanced Development Story With Re-rate Potential:
Marathon Gold is one of the most advanced North American developers in the gold sector. The company currently trades at 0.5x P/NAV at spot prices, in line with the peer group, but is, we believe, well positioned to re-rate as it moves towards first production. That potential for a re-rating is further corroborated by the average share price return of ~150% over the two-year pre-production period for comparable single-asset developers, as construction projects are de-risked ahead of first production.
Exploration Upside Adds To M&A Appeal:
Valentine Gold would provide a logical growth opportunity for a mid-tier gold producer looking to add nearly 200koz of annual Canadian gold production to its portfolio. Transaction history suggests an average takeout value of $264/oz, vs. Marathon Gold’s current EV/oz of ~$90/oz. Recent exploration success at the Berry target could potentially extend the current mine plan and increase M&A appeal.