CIBC Update - Target dropped to $2.30, $151m in new equityValentine Receives Go-ahead; Price Target Revised To $2.30
Impact: Neutral
Current Price (9/1/22): C$1.38
Price Target (12-18 mos.): C$2.30
Previous: C$2.50
Our Conclusion
On September 1 Marathon Gold announced a formal decision from the board to proceed with construction of the Valentine Gold Project. MOZ also provided an updated timeline and capital cost estimate for the project.
The expected timeline for permitting noted early works construction commencing at the beginning of Q4/22, full construction mobilization by January 2023, first ore delivered to the mill by the end of 2024, and first gold production in early 2025 (vs. our prior estimate of Q4/24). The updated capital cost estimate for the project has increased to $470M-$490M (compared to the initial capital spend of $305M from the April 2021 Feasibility Study and our estimate of $443M) as a result of incorporating approximately 20 months’ worth of market inflation and a reallocation of costs previously classified as sustaining capital to the initial capital period.
We have trimmed our price target to $2.30 (previously $2.50) based on 1.0x NAV after updating our model. We reiterate our Neutral rating.
Key Points
Updates To The Model: We have updated our equity financing assumption to $151M (previously $60M) to better align with management’s financing strategy. We have revised our initial capital cost estimate to $490M (prior $443M), which now includes $42M of sustaining capex. This increase was then partially offset by a decrease in our pre-strip cost assumption for the development of the Berry pit. We have also increased our sustaining capital cost assumption to include an inflationary impact of 20% over the 2021 FS estimate of $332M. Offsetting this is our assumption that the higher-grade Berry pit is being mined out earlier.
The overall impact of the increase in costs combined with the updates to production and financing inputs in our model led to a decrease in NAVPS given the higher volume of shares expected with the anticipated equity issuance.
Focus On Construction And Financing Of The Project: We now forecast total capex for the project of $490M, with first gold production expected in early 2025. We expect the focus to be on project financing, as Marathon noted with its Q2/22 results that it intends to fund the project with its cash balance of $62M, a US$185M facility entered into on March 31, 2022, equipment lease financing of US$81M, equity issuance (which we assume will be around $151M net of financing fees), and additional debt.
Potential Upcoming Catalysts Include: An updated Feasibility Study in Q4/22, a financing announcement, and a resource update at year-end 2022.