TD updateEvent This morning, Marathon announced that it entered into a non-binding Indicative Term Sheet with a non-bank lender for a US$185mm senior secured project financing facility. Proceeds (if agreement goes through) are to fund partial construction of the Valentine Gold Project (100%), which is located in central Newfoundland.
Impact: NEUTRAL The Credit Facility is structured as a term loan with a 6.5 year tenor. Closing is scheduled for not later than March 31, 2022 and is subject to a number of conditions including receiving applicable permits. Additional terms (interest rate, additional fees/conditions, etc.) were not provided.
Final project financing will include additional provisions for working capital, financing and interest costs, cost overrun facilities and other costs. Marathon reported that additional financing is contemplated by way of equity and equipment leasing (up to US$110mm permitted under this finance facility). We believe the company will raise additional equity to fund some of the provisions listed above. We currently model equity financing of $75mm.
We estimate the company would have ~$340mm in available liquidity (the US $185mm or ~C$235mm project finance facility plus $107mm of cash). The company last reported that it had no debt.
As a reminder, the March 2021 Feasibility Study (FS) at Valentine estimated initial capex of $305mm (TD: $330mm). Marathon is currently waiting to receive its main permit at Valentine (expected in Q4/21 or early Q1/22), after which the company could begin construction.
We have updated our estimates to reflect the company's May $50mm private placement and marked-to-market our equity issuance price assumption. Net of these and other minor changes, our corporate NAV5% decreases slightly to $3.25/ share (from $3.27/share). Our target price has increased to $4.25 (from $4.00) on a higher multiple that reflects the company's improved funding status.
TD Investment Conclusion Marathon appears to possess one of the few quality development projects in Canada with manageable capital requirements and robust economics. The company is trading at 0.94x NAV5%, which is slightly above its other precious metal development peers (average 0.91x). We expect the company to continue to re-rate by derisking the project through completing project permitting and final project financing thereafter