The latest from RBC, including upcoming catalystsMarch 28, 2022
Marathon Gold Corp
Provincial permitting clears the path to start running
Our view: The completion of the provincial EA process is a significant milestone for Marathon in advancing to construction. In our view, with final permitting now in sight, the company is well positioned to build the next Canadian growth project. As well, we believe MOZ comes back to the forefront on potential M&A given heightened competition and emphasis on assets in Tier I jurisdictions. Reiterate Outperform, C$4 PT.
Key points:
Provincial EA sets the stage to advance the next Canadian project
In our view, the recent approval of the provincial EIS and release from provincial EA is a significant achievement in moving the Valentine project forward. Release from federal EA in mid-2022 is expected to mark the completion of permitting ahead of construction, and we believe has a relatively strong likelihood of approval given successful provincial review.
As such, Marathon is well positioned to advance Valentine to construction in Q3/22, representing the next shovel-ready Canadian project. We view Valentine as an attractive growth asset given Tier I jurisdiction, robust operational profile, and exploration upside ahead, and estimate 160 Koz/ yr at mine-site AISC of $880/oz over a 15 year mine life.
Updating for higher capex and Berry upside
Given the ~6 month delay in construction, we anticipate focus around 2 major project updates. On capex, we now estimate $286M (C$358M), a 25% increase relative to the 2021 FS given ongoing cost inflation. As well, we expect the mid-2022 resource update to outline resource additions on the Berry deposit, and conservatively model the high grade portion of the maiden open pit resource with modest dilution (RBCe 420 Koz at 2.2 g/t). We believe Berry provides significant upside to current economics outside the 2021 FS as an additional mining front for the future mine plan.
Potential M&A back to the forefront; financing ahead
In our view, Marathon comes back to the forefront on potential M&A given line of sight to final permitting as the next shovel ready growth project. Over the past few years, valuation premium for assets in Tier I jurisdictions has expanded, averaging +33% vs those located in other countries (Pg 4). We believe recent geopolitical events have further emphasized focus and premium commanded by assets in stable jurisdictions, and anticipate continued heightened competition ahead. Financing serves as the next major milestone; we estimate C$150M in equity financing in addition to the C$230M debt facility and FY/21 cash balance of C$87M.
Premium valuation reflects project quality and status
Marathon trades at a ~15% premium to developer peers on spot NAV and a significant premium on an EV/oz basis. In our view, this reflects the project’s asset quality along with de-risking elements ahead. We anticipate potential re-rating as these milestones are achieved including completed permitting, resource update, project financing, and start of construction.