TD UPDATECorporate Update Aug 17
Event In this brief note, we provide a summary of Marathon's recent events and our outlook for the company.
Impact: NEUTRAL Recall, in early August, Marathon provided an update on construction progress (see Flash Note) at its Valentine Gold Project (100%) located in central Newfoundland and, last week, it released its Q2/23 financial results. As of June 30, the overall project was 35% complete and construction was 15% complete. First gold at Valentine is currently anticipated by the company in Q1/25 (TD: Q2/25).
Project construction costs incurred from November 1, 2022 to the end of June 2023 were $113mm. This excludes sunk costs of $71mm incurred before October 2022.
As of June 30, the project's cost to completion stands at ~$391mm (+$40.5mm increase from the original December 2022 Feasibility Study cost-to-complete estimate of $463mm).
As at June 30, Marathon reported a cash balance (unrestricted) of ~$130mm. In July, the company closed a $6.9mm flow-through financing. The company also has ~$248mm of restricted cash ($243.5mm held within the Debt Proceeds Account (DPA), with releases subject to certain covenants). The company has fully drawn its US$225mm Credit Facility (transferred to the DPA). At June 30, there was ~US$175mm in advances remaining in the DPA.
Regarding permitting, the Valentine Gold Project was released from the Environmental Assessment (EA) process, provincially in March 2022 and federally in August 2022. The addition of the Berry Complex is subject to further EA requirements (the company estimates completion in 2024). Based on the 2022 FS, mining at Berry is currently scheduled for Q2/25.
We have updated our model to reflect the company's Q2/23 financial results and marked-to-market our modelled equity financing assumption. Net of these and other minor changes, our corporate NAV5% has decreased to $1.59/share (from $1.72/share).
Our target price has decreased to $1.45 (from $1.55) on our lower NAV estimate.
TD Investment Conclusion We expect the stock to rerate higher as it continues to advance and de-risk the project. We are maintaining our SPECULATIVE BUY recommendation.