RE:Q report should be out this weekFactors affecting financial results for the three months ended March 31, 2022: • General and administrative expenses increased from $1,709 to $2,325. The principal components of this increase include: • Project Financing advisory & professional fees increased from $404 to $970, as a result of increased advisory, legal, and due diligence related costs associated with the closing of the US$185 million term loan credit facility with Sprott Resource Lending II (Collector-2) on March 31, 2022.
• Share-based compensation expense increased from $68 to $459, due to a $391 increase related to stock options granted during the first quarter of 2022 and further vesting of prior period stock option grants. A total of 2,644,000 options were granted in the three months ended March 31, 2022, compared to 810,000 in the comparable period of 2021.
• Depreciation expense increased from $52 to $131, resulting from the depreciation of the right-of-use assets related primarily to the new Grand Falls-Windsor office lease entered into in the fourth quarter of 2021 and the new commercial land lease in the Town of Millertown entered into during the first quarter of 2022.
• Salaries and wages decreased from $645 to $101, due to higher capitalized salaries and wages compared to the same period in the prior year, offset partially by an increase in overall compensation costs as a result of the additions made to the Company’s management team throughout 2021 and the first quarter of 2022. For additional details regarding the changes to the Company’s management team during the quarter, see the “Corporate Developments” section below.
• Finance income, net increased from $26 to $100, primarily as a result of an increase in interest income from $33 to $102, due to an increase in surplus cash balances and the interest rate earned on such balances, compared to the same period in 2021. 7
• Other income increased from $36 to $42, due to an increase in royalty income from the Golden Chest Mine, where the Company holds a 2% net smelter returns royalty.
• Deferred income tax expense increased from $995 to $1,622, as the increase in the deferred tax liability of $3,901 in the first quarter of 2022 was higher than the $1,095 increase in the deferred tax liability in the comparable period in 2021. This was partially offset by a higher decrease in the flow-through share tax liability in the first quarter of 2022 of $2,280, compared to $100 in the comparable period in 2021.
• Capital expenditures, excluding working capital movements, were $7,757 higher in the first quarter of 2022 than the prior year primarily as a result of project pre-construction capital spending, which commenced in the third quarter of 2021 and continued into the first quarter of 2022. Pre-construction capital spending in the first quarter of 2022 included detailed engineering and consulting fees, milestone payments related to the procurement of a permanent camp, access road maintenance and initial deposits on drilling equipment.
CURRENT DEVELOPMENTS Novel Coronavirus (“COVID-19”) Consistent with other businesses globally, the Company’s operations could be significantly adversely affected by the effects of the widespread global outbreak of COVID-19. During the first quarter of 2022, the Valentine Gold Project camp and operations were not materially impacted by COVID-19.
While the Project awaits release from the Federal Environmental Assessment (“EA”) process and continues to advance its work related to permitting, preconstruction capital spending, and exploration activities through 2022, it could be impacted, depending on both the continued duration and severity by the COVID-19 through supply chain disruptions, impacted staff, or the Company’s ability to safely access the project site.
Beyond the potential impact to various schedules, the economic impact of COVID-19 could affect the Company's ability to access capital markets and secure sufficient financing to move the Valentine Gold Project forward on previously planned timelines. See the risk factor titled “Public Health Crises such as the COVID-19 Pandemic and other Uninsurable Risks” in Marathon’s AIF. Valentine Gold Project On April 12, 2022, the Company provided an update on development planning for the Project, including guidance on remaining regulatory approvals and permitting, the Project’s execution strategy and schedule, mineral resources and mine planning, capital and operating cost outlook, and project financing.
The highlights of this update were as follows: • The Provincial EA has been completed, including approval of the Project by the Cabinet of the Government of Newfoundland and Labrador;
• The review of the Project’s Environmental Impact Statement ("EIS") by the Federal regulator has been completed, with the Federal EA approaching a ministerial decision; • Site-specific permitting has commenced;
• Subject to regulatory approvals, site early works to commence in the third quarter of 2022, supporting full mobilization by the end of the year and first gold pour in late 2024;
• An updated Mineral Resource Estimate (“MRE”) is expected to be completed by mid-2022, incorporating the 2021 Reverse Circulation (“RC”) drilling at the Marathon and Leprechaun Deposits and 100,000 metres of exploration drilling at the Berry Deposit. An overall increase in open-pit Measured and Indicated Mineral Resources is anticipated;
• Life-of-mine capital and operating costs were estimated to have increased by between 15% and 20% compared to the April 2021 feasibility study, in line with market trends;
• A new technical report to be prepared for the fourth quarter of 2022, constituting an updated Feasibility Study (the “Updated FS”)incorporating the new MRE, a new production schedule, updated capital and operating costs, and a higher gold price environment. For additional details, see the “Valentine Gold Project Development” section below