Touting the growing resource base at its project in Chile with a “manageable” initial capital estimate, BMO Nesbitt Burns analyst Rene Cartier initiated coverage of Marimaca Copper Corp. (MARI-T) with an “outperform” rating on Wednesday.
“Exploration efforts have been focused on further delineating and defining the Marimaca deposit. A relatively recent resource was published in 2022; however, we expect a further update in the near-term to deliver additional growth, and a resource upgrade,” he said. “Marimaca has outlined additional targets in close proximity, and near where the plant facilities would be located, which could be a future growth driver for the shares, though we expect integration to be longer dated. There are a number of prospective targets that have yet to be fully explored.”
“On our assumptions, the Marimaca project is anticipated to move into production in 2027. We have modelled Marimaca as a larger open pit copper mine relative to the prior PEA, particularly in light of success in growing resources, but with production below the 50ktpa threshold. We expect a feasibility study to be released after the resource update. Potential supplemental ore feed from surrounding targets could position the project as a larger-scale growth option for a strategic partner or an acquiror; however, at this time, we see this as more mine life extension potential as compared to scale uplift. In our view, the estimated lower capital intensity, and the manageable initial capital, provides an attractive entry point for a base metal project. We do not model supplemental resources beyond the Marimaca oxides, or include the recently discovered sulphides in our mine model, and see this as upside exploration potential.”
In a research report titled Chile Spice and (Almost) Everything Nice, Mr. Cartier emphasized the heavy insider ownership of the Toronto-based company.
“Management/insiders hold a significant economic interest in Marimaca at 45 per cent,” he said. “Private equity firms Greenstone Capital, and Tembo Capital, effectively control the company, though they have been supportive for overall project advancement. Of the board of directors, 50 per cent are independent, and both private equity firms having some form of representation. We see this as a concern for large-scale institutional ownership. With $15-million in cash, Marimaca will need to raise funds by mid-year based on our estimates and accordingly, we could see an equity financing overhang with the name.”
Pointing to its presence in “an attractive mining jurisdiction in proximity to established infrastructure with strong exploration results to date and additional prospective near-mine targets,” he set a target of $5.75, which is below the $6.25 average.
“Shares of Marimaca are trading at 0.5 times our diluted P/NAV10%, a bit below the midpoint of other developer and explorer peers within the BMO coverage universe at 0.6 times,” the analyst said. “Marimaca’s exploration success and nearby prospective targets, location in a quality mining jurisdiction, and readily available access to infrastructure, all support the progression of an estimated low capital intensity development project, in our view. We expect some discount is likely to persist, however, given the shareholder ownership, and near-term cash requirements.”