TD updateEvent On Friday morning, Marathon reported its Q1/22 financial results. In this brief note, we provide a summary of recent events and our outlook for the company.
Impact: NEUTRAL The company ended the quarter with $72mm of cash ($87mm at December 31) and no debt.
With regards to permitting, Marathon continues to anticipate completion of the federal EA process and the receipt of sufficient permits to allow site early works to commence in Q3/22. Principal site mobilization for the construction of the mill, major facilities, and the Tailings Management Facility is expected to commence by the end of 2022.
As a reminder, in 2021, Marathon completed an ~12 km RC drill program at the Leprechaun and Marathon Deposits, and ~70 km of new exploration diamond drilling at the Berry, Victory, and Sprite Deposits. These RC and diamond drilling data will be incorporated into a new Resource (mid-2022E). Management previously reported that it expects a decrease in tonnes and ounces at the Marathon Deposit and minimal changes at Leprechaun. Overall ounces are expected to increase with the inclusion of Berry.
Recall, on April 12 (see Flash Note), Marathon announced that it forecasts LOM capital and operating costs to be 15-20% higher than the April 2021 Feasibility Study (FS). The company is planning to complete an Updated FS in Q4/22. The company is currently anticipating first gold in late-2024.
We have updated our estimates to reflect the company's Q1/22 financial results. Net of these and other minor changes, our corporate NAV5% decreases slightly to $3.10/share (from $3.14/share). Our target price decreases to $3.50 (from $4.00) on a lower multiple that reflects the multiple compression seen across the gold developers, given the significant cost inflation that is affecting capital projects globally. (Price of D. fuel in St. Johns Today $2.65 lt.)
TD Investment Conclusion The completion of the EA process (and the initiation of site-specific permitting work) continues to be the principal schedule driver of the project. If permitted, we believe that it has one of the few development projects in Canada with manageable capital requirements and robust economics. We expect the company to continue to rerate by de-risking the project through completing project permitting and final project financing thereafter
Update Arun Lamba, CFA Kul Gill, CFA, (Associate) Recommendation: SPEC BUY Risk: SPECULATIVE 12-Month Target Price: C$3.50 Prior: C$4.00
The company is planning to complete an Updated FS in Q4/22. Marathon will reassess the optimum pit size for each deposit in light of a higher gold price environment, since the pits were first designed in 2020. No changes are expected in processing and facilities design, infrastructure, mining methodology or tailings deposition strategy.
As a reminder, the Valentine April 2021 Feasibility Study estimated an initial capital cost of $305mm and AISC of US$833/oz. Since that time, significant cost inflation and construction market volatility have affected major capital projects globally. Based on the project’s current scope and development timeline, Marathon forecasts that LOM capital and operating costs will be 1520% higher.
Balance Sheet The company previously closed a 6.5-year US$185mm term loan credit facility with a non-bank lender. The first two releases of US$50mm each will be available on or after September 1, 2022 and December 31, 2022, respectively, subject to the project’s release from federal environmental assessment, the perfection of security, a construction decision by Marathon’s Board of Directors, and certain other customary covenants and terms.
Resource Update in Mid-2022 The company’s immediate focus is on the Leprechaun and Marathon deposits, where the April 2021 FS outlined Reserves of 2.05 Moz at 1.36 g/t. M&I Resources (inclusive of Reserves) are presently defined by 1.96 Moz at 1.62 g/t (Marathon) and 1.08 Moz at 1.98 g/t (Leprechaun).
Management previously reported that it expects a decrease in tonnes and ounces at the Marathon Deposit and minimal changes at Leprechaun.
Inferred Resources (all deposits) are presently defined by 1.64 Moz at 1.72 g/t. This includes 639 koz at 1.75 g/t from Berry (based on 42 km of drilling). Exploration
The company’s 2022 exploration program is well underway, with a full-year plan of ~50 km of diamond drilling (3840 km of drilling at Berry and 1012 km of drilling at Victory). As of March 31, Marathon had completed ~12.5 km of its 2022 exploration program (9.8 km at Berry and 2.7 km at Victory) across 62 drill holes.