CIBC UpdateValentine Project Update: Completion of Federal Environmental Assessment
Impact: Neutral
MOZ-TSX, Sector: Materials
Current Price (8/25/22): C$1.74
Price Target (12-18 mos.): C$2.50
Our Conclusion
On August 24, 2022, Marathon announced the receipt of a positive Decision Statement in the Federal Environmental Assessment for the Valentine Gold project from the Minister of Environment and Climate Change, allowing the project to proceed to development based on applicable permitting. Permitting is ongoing for initial construction activities, and we expect investors to shift their focus from the environmental assessment to the additional financing required to fund the development of the Valentine Project amid a tough market for junior miners.
We currently model an equity issuance of C$60M in our model with additional debt of C$85M to fund the financing gap. Overall, we view this announcement as a positive for the stock today, though we expect the financing market for the junior sector to remain a headwind for the stock in the coming months. We reiterate our C$2.50 price target and Neutral rating.
Key Points
Focus On Construction And Financing Of The Project As We Model A $145M Financing Gap: We forecast total capex for the project of C$443M (above the feasibility study estimate of C$305M) to be incurred over two years with first gold production expected in the second half of 2024. As at Q2/22, MOZ had a cash balance of C$62M, a US$185M credit facility and, with the project now having been released from the federal EA process, a US$81M equipment lease financing. However, we continue to expect the need for C$145M in additional financing to close the funding gap. We currently model an equity issue of C$60M as well as an additional C$85M in debt.
Feasibility Study Expected In Q4/22: On July 6, although MOZ announced an overall increase in mineral resource at Berry, the Marathon deposit saw a 13% decrease in M&I ounces and a 35% decrease in inferred ounces for a total mineral resource of 4.0Moz at 1.90g/t. The company will now incorporate the updated mineral resource estimate into an updated feasibility study (FS), expected in Q4/22. The FS should not include any changes to the project’s mill flow sheet or processing strategy, any changes to the project’s tailings management facility design, its camp, its major facilities, its road and power infrastructure or the site’s overall footprint.
Potential Upcoming Catalysts:
• Receipt of permit for initial construction activities
• Financing announcement
• Resource update at year-end 2022