TD UPDATE Marathon Gold Corp. (MOZ-T) C$.75 Franco-Nevada Increases its NSR on Valentine by 1.5% (to 3.0%) Arun Lamba, CFA Kulvir Gill, CFA (Associate)
Event This morning, Marathon announced the sale of an additional 1.5% net smelter returns royalty (NSR) to Franco-Nevada Corporation (FNV-N) for US$45mm on its Valentine Gold Project (100%) in Central Newfoundland. In addition, FNV has offered to purchase common shares of the company comprising the entire back-end of a C$6.9mm non-brokered charity flow-through offering for which Marathon has firm commitments at a price of C$1.0488 per flow-through share.
Impact: SLIGHTLY POSITIVE Franco-Nevada now holds a 3.0% NSR (up from 1.5% previously) on Valentine.
As a reminder, FNV initially acquired a 2% NSR on Valentine for C$18mm in 2019. Earlier this year, Marathon repurchased 0.5% of that NSR for US$7mm (see Flash Note).
We estimate a NPV5% of ~US$43mm (at US$1,700/oz gold) for the 1.5% NSR royalty on Valentine, implying that FNV is paying ~1.05x NPV5%. At spot gold (~US$1,950/oz), we estimate FNV paid 0.92x NAV5%.
We estimate that the company now has cash of ~C$197mm (C$130mm as at March 31 plus US$45mm from today's NSR and C$6.9mm flow-through offering). As at March 31, Marathon has US$50mm drawn on its US$225mm Credit Facility.
We estimate that the company now has liquidity of ~C$430mm (~C$197mm of cash plus US$175mm available on its non-bank lender credit facility). We note that subsequent releases on the credit facility are available on satisfaction of costto-complete covenants and some other terms.
Recall, project costs incurred from October 2022 to the end of Q1/23 were C$64mm. According to the company, as at March 31, the project's cost to completion stands at C$403mm (TD: C$450mm).
This implies an ~C$20mm shortfall (TD's C$450mm cost-to-complete estimate minus ~C$430mm in liquidity).
Recall, in December 2022, Marathon released an updated Feasibility Study (FS) for Valentine. The updated FS includes Berry (mining at the Berry Deposit is currently scheduled for Q2/25). As a reminder, last year, the federal and provincial EA processes were completed (excluding Berry). The 2022 FS contemplates annual production of 179 koz/year (195 koz/year over the first 12 years) at total cash costs of US$902/oz (AISC of US$1,046/oz)
Event
Franco-Nevada has purchased an additional 1.5% NSR on Marathon Gold's Valentine Gold Project. Impact: NEUTRAL FNV will pay Marathon Gold cash consideration of US$45M for the additional 1.5% NSR royalty. In aggregate, FNV will now hold a 3.0% NSR royalty interest on the project. For context, we had previously valued FNV's 2.0% NSR royalty at US $43.3M.Earlier this year, Marathon Gold exercised its option to re-purchase 0.5% of the existing NSR for US$7M. In addition, FNV has offered to purchase common shares of Marathon Gold comprising the entire back-end of a C$6.9 million non-brokered charity flow through offering. The Valentine Gold project is located in the central region of Newfoundland and Labrador. Project construction commenced in October 2022 and first production is expected in Q1/25. An updated December 2022 feasibility study outlined an open pit mine with a conventional milling operation producing ~195koz/year for a 12-year period within a 14.3-year mine life. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++
This shows Franco Nevada and I assume Pierre Lassonde have a high degree of confidence in the Marathon Team and project.