Analyst rerates and TPs... With shares of Marathon Gold Corp. plummeted 18.3 per cent on Thursday after announcing it planned to proceed with construction of the Valentine Gold project at a higher-than-anticipated price, Desjardins Securities analyst John Sclodnick sees “upside potential” and reaffirmed it as “a favourite developer.”
Before the bell on Thursday, the Toronto-based miner announced the project, located central Newfoundland and Labrador, is now expecting to cost $470– 490-million, a 57-per-cent increase from an April 2021 estimate of $305-million. It attributed the increase to inflation, scope changes and sustaining capital reallocation.
“It expressed confidence that the updated estimate is realistic and achievable, and we gained some comfort on the number given civil engineering at site is 85–100-per-cent complete while overall detailed engineering was 43-per-cent complete at end-July,” said Mr. Sclodnick.
“We estimate that MOZ is now facing a $200–225-million funding gap. We expect this gap will be largely filled by an equity raise and we also believe that Sprott may upsize its project debt financing. MOZ has an option to buy back 0.5 per cent of the 2% NSR held by Franco-Nevada, and a payment to MOZ to maintain the full royalty and better reflect the current value is likely, in our view.”
Maintaining a “buy” recommendation for its shares, he cut his target to $3 from $3.75. The average is $3.11.
“Our NAVPS estimate fell 19 per cent to $3.06, but with the shares falling by 18 per cent [Thursday], the stock continues to, the stock continues to trade at 0.45 times NAV vs developer peers at 0.34 times,” he said. “Given MOZ is through the EA process with a feasibility-level project in a top-tier jurisdiction and has further resource growth potential, we expect the stock to trade at a larger premium and see the current valuation as an attractive entry point.”
Other analysts making changes include:
* Canaccord Genuity’s Michael Fairbairn to $3.50 from $3.75 with a “speculative buy” rating
“While the estimated cost to complete is higher than we anticipated, we believe the project’s strong fundamentals are capable of supporting the additional cost, and the inclusion of the Berry pit into the mine plan should result in a stronger project overall,” he said. “Additionally, we believe the updated capital number provides increased certainty for investors ahead of project financing. Overall, we continue to view Valentine as one of the top gold projects in Canada and note that MOZ trades at an attractive 0.35 times P/NAV vs. construction peers at 0.49 times NAV.”
* Scotia Capital’s Ovais Habib to $3 from $3.50 with a “sector outperform” rating.
“We view the announcement as mixed. Although the new capex guidance was above our estimate, we believe the values are conservative and reduce uncertainty. Additionally, we see near-term upside potential with the upcoming DFS (2H/22 expected) that will include the Berry deposit which may notably increase project NPV,” said Mr. Habib.
* Raymond James’ Craig Stanley to $2.40 from $2.85 with an “outperform” rating.
* CIBC World Markets’ Anita Soni to $2.30 from $2.50 with a “neutral” rating.
* TD Securities’ Arun Lamba to $2.50 from $2.70 with a “speculative buy” rating.