Marathon Gold Corp T.MOZ

RE:RE:RE:RE:RE:RE:RE:RE:Updated FS

[Angelique01]

AlwaysLong683 wrote:

NLMoose wrote: ........When you embark on Capital Budgeting projects, notably Valentine Lake, you need to focus more on debt financing as opposed to an equity counterpart and here's why.

Unlike equity, particularly issuing shares or putting up your own money, debt financing such as loans and bonds are tax deductible, which makes it cheaper as the debt financing rate is the "after tax cost of new debt".

If Marathon Gold secured more debt financing, their "Weighted Average Cost of Capital", which is the smae as Required Rate of Return, will be substantially lower.

The fly in the ointment with debt financing is you will not be able to claim interest expenses until you start generating revenue, which won't happen until the mine is complete, gold is poured and sold, and the company can sustain itself financially. Also, given the risk assoiated with a mine build which could have it's first pour delayed, the confidence a potential creditors may have in the company to repay the loan and all interest, and the delay in repaying any of the principle or interest until the aforementioned tasks are completed, the interest rate offered on the loan(s) could be quite high.

I think MOZ may have been caught between a rock and a hard place. They may have in fact investigated debt financing first but found the terms to be too onerous. Pick your poison.

That being said, I believe most projects are financing primarily by debt, so I think ideally, this would have been the better option provided the terms were reasonable.

Not sure why a portion of the $150M couldn't have been debt. Yes it does usually result in a lower  weighted average cost of capital than equity. 
The interest incurred during the construction phase would be capitalized as part of the asset  cost and then amortized over the life of the asset once available for use.  Interest on the debt once the mine is in production would be written off as interest expense.