Sprott weighs in. https://www.sprott.com/media/4139/210722-scp-moz-debtplusberry.pdf
Ticker: MOZ CN Pro forma cash: C$107m Project: Valentine Lake Market cap: C$732m Price: C$3.12/sh Country: Canada / NFLD RECOMMENDATION (unc): BUY TARGET (up): C$4.10/sh
RISK RATING: HIGH Today’s infill drilling at Berry points to good conversion, with all 20 holes reported hitting grades well above the 0.3g/t cut-off inside the resource area (19 above 0.7g/t) even in the less delineated portion of the hangingwall. Ten holes from the HW that hit >10m averaged 15.8m @ 2.0g/t vs. 1.7g/t global grade, a useful addition given its location outside the higher-grade core. Looking forward, 120,000m planned for Berry is ongoing with 73,000m complete, but our enthusiasm picked up with news that a rig is now sitting along strike at Victory following the corridor to the NE extension.
Separately, this week’s ~C$232m (US$185m) debt financing is in line with our ~C$230m estimate which was based on 65% gearing, taking Marathon close to fully financing Valentine’s construction of C$305m.
The additional indebtedness of US$110m allowed by the Sprott facility for leasing mobile equipment is more than enough on face value (C$16m capex for mining equipment), but the DFS shows, for example, C$53m sustaining mining capital in Y1-2. We don’t expect the total allowance to be used, noting ~C$32m ITM options and warrants expire pre first-pour, so model a C$20m lease facility, with drill spend between now and first gold a key flex.
Updating for the equity and debt, we maintain our BUY rating and lift our PT from $3.90/sh PT to C$4.10/sh based on a raised NAV multiple of 0.8x to 0.9xNAV now that funding is in place.
We model a fully-diluted 261m shares, net of finance costs on the C$236m debt facility, and net of central G&A. This includes Berry upside at US$100/oz for resources outside SCPe inventory (C$59m), around a third of the DCF value, pointing to continued NPV growth here, and that ahead of next target Victory. 1. (A) Leprechaun > Victory plan map, (B) Berry drill plan map and (C) 3D pitshell view Source: Marathon 22 July 2021
Page 2 Berry resource infilling nicely with 21m @ 5.6g/t; rigs moving to Victory Marathon reported the latest 20 holes from Berry, highlighting 21m @ 5.6g/t including 2m @ 41.4g/t and 37m @ 2.1g/t including 1m @ 11.8g/t from within the April 2021 resource pit shell. Additional highlights include 13m @ 2.3g/t, 5m @ 4.2g/t, and 32m @ 0.86g/t.
Gold mineralization was confirmed between the two resource pit shells as well including 10.2m @ 0.8g/t. Year to date, Marathon has drilled 31,691m at Berry, with ~13,000m pending results.
Four drills are active with three focused at Berry through to November, one at Victory that will move to Sprite in September. RC grade control drilling at Leprechaun and Marathon is ongoing, with ~7,650m completed (2,358m at Leprechaun, 5,282m at Marathon) of the 8,000m planned 6 x 12 and 6 x 6m spaced program.
Drilling on this program is ongoing, and results are pending. US$185m debt financing secured ahead of 2022 construction at Valentine Earlier this week Marathon entered into an agreement with Sprott Resource Lending for a senior secured financing facility of US$185m (C$236m at spot) to support the initial C$305m capex required to build Valentine next year (6.5-year term closing March 31, 2022). As of 2Q21, Marathon's treasury stands at C$107m + C$12m from ITM warrants due September 2021.
The facility has headroom of up to US$110m allowed for mobile equipment leasing (the DFS shows C$16m capital cost for mobile equipment, plus C$35m opex for processing mobile equipment, but C$53m sustaining mining capital in Y1-2).
Separately, on May 27, 2021, Marathon closed a ~C$50m private placement ($30m @ C$2.45/sh common shares, $20m @ C$3.10/sh FT CEE) with primary participation from Pierre Lassonde and Trinity Capital reflecting strong support in the Valentine project.
Why we like Marathon 1. Low cost vanilla gold pit in Tier 1 jurisdiction is without peer in >150koz group 2. First satellite Berry has the potential to exceed our modelled 325koz in reserves 3. Potential for further satellites in Berry – Marathon ‘gap’ and NE of Marathon at Narrows 4. Builder-mentality of management, multiple recent staff bulk build team 5. Fully-diluted NAV in production sits at ~C$5.00/sh Catalysts 2H21: Detailed engineering and financing 3Q21: Permitting approval CY21: Equity and debt financing 1Q22/4Q23: Construction starts / first pour, subject to adjustment in 4Q21