Timing of the financing... Resuming coverage following the close of its $150-million bought deal offering, Desjardins Securities analyst John Sclodnick said Marathon Gold Corp. remains one of his “top developer picks,” seeing its Valentine Gold project “nearly at the fully funded finish line.”
“A common question from clients on the equity financing was on the timing of the raise, which we discussed with management,” he said. “Management stated that it did not want to go into construction with an equity financing overhang, as this scenario would have put it in a more challenging position when negotiating with the equity markets. However, a potentially bigger factor in the deliberations was that many of the bids and firm quotes received for the construction had associated expiries. Management had always been clear that it would move forward with the build and there were certain key milestones that it needed to achieve to maintain the current timeline. As much as shareholders did not like the impact on the stock, to delay the project by a year with a continued equity overhang would likely have been a worse outcome. We understand management’s predicament, and while the equity financing discount taken was greater than we were expecting, we ultimately believe that the greatest value creation will come from successfully building the project on time and on budget. Completing the equity financing in a timely manner was necessary to maintain the schedule and budget.”
Maintaining a “buy” rating for Marathon shares, Mr. Sclodnick cut his target to $2.60 from $3 to account for additional share dilution. The average is $2.94.
“With the environmental assessment now complete and a positive formal construction decision made, Marathon is able to begin project construction and is planning to kick off site early works at the start of 4Q22,” he said. “Full construction will ramp up in January 2023 and first gold is planned for early 2025. We expect to receive ongoing construction updates as the project progresses.
“In addition to construction updates, another major catalyst for the stock will be the updated feasibility study expected in 4Q22. This study will confirm the updated capital cost and provide updated sustaining and expansion capital and operating costs. The major update in the study will be the inclusion of the Berry deposit, which will increase the project’s mineral reserves (currently at 2.05moz at 1.36g/t), extend the minelife and increase the production profile.
Other analysts making adjustments include:
* National Bank Financial’s Don DeMarco to $2.25 from $2.50 with an “outperform” rating.
“The financing marks a significant project de-risking milestone and addresses the overhang after messaging for higher development capex,” he said.
* TD Securities’ Arun Lamba to $2 from $2.50 with a “speculative buy” rating.