Desjardins Analyst Update With its Valentine Gold project now fully permitted with early work commencing, Desjardins Securities analyst John Sclodnick thinks Marathon Gold Corp.’s (MOZ-T) “acqusiition window [is] wide open,” seeing it as an enticing target for larger peers.
“We view the current juncture as an optimal acquisition window for a producer, as the project is de-risked through permitting,” he said. “The acquiring company could build the project as best suits it. The acquirer may want to control the engineering process and may want to build an 11,000tpd operation from the beginning rather than Marathon’s planned phase approach to development, which involves constructing a 7,000tpd processing plant before expanding to 11,000tpd in year 4.
“We expect that producers will be considering an acquisition of Marathon for various reasons. These include lowering jurisdictional risk profile, potentially for tax benefits if the company is headquartered in Canada. An acquirer may also want to bolster its production profile with a long-life, low-cost permitted mine in Canada with lots of resource growth upside along the 32km mineralized trend. The acquisition window is wide open and we believe that now is the time for a producing company to consider an acquisition. If not, the window may close once construction of the processing plant is underway. At that point, a company may wait and see how the asset ramps ups before making an acquisition.”
Mr. Sclodnick thinks companies with potential acquisition interest will find the Toronto-based miner’s current valuation as “attractive.”
“MOZ is trading at 0.57 times consensus NAV [net asset value], a 21-per-cent premium to the gold developer peer group, but its average premium was 30 per cent over the past year, peaking at 67 per cent,” he said. “Given the project is fully permitted in a lower risk jurisdiction with further resource growth potential, the stock certainly deserves to trade at a premium valuation. The price might be right for a producing company to offer an attractive premium, and still show material NAV accretion to its own board and shareholders, with any future discoveries as additional upside.”
With a “buy” recommendation, the analyst trimmed his target for Marathon shares to $2.25 from $2.70. The average is $1.83.
“With the stock recently breaching the latest deal price of $1.10, we believe that some participants may be selling shares and holding the warrants,” said Mr. Sclodnick. “Once this pressure subsides, combined with a potential positive announcement of an expanded credit facility, we expect the shares to outperform.”
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