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Today’s Berry drilling continues to support our views from our recent site visit that Berry’s scale has real mine plan implications. Two takeaways from our site visit last week were (i) ‘code cracked’ / more regional exploration to come, and (ii) that Berry could see double from its current 640koz (SCPe 325koz reserve) to perhaps 1.2Moz.
If achieved, this could underpin a lift from DFS 4Mtpa / 173koz pa into perhaps 6Mtpa / 200-300koz pa range.
While positive of course, this still isn’t the real news in our view. Rather, any expansion of ounces, post build of the existing 4Mtpa twin-pits being permitted now, could underpin buyer confidence, hence improve M&A optionality.
On exploration, our love of Victory (the ‘next pearl’) remains strong, and we are happy to see other regional targets being worked up too including the Scott Zone north of Berry HW. Qualitatively, the trip reminded as that Marathon is the only >150koz pa (or more in future?) developer in our universe who doesn’t have to worry about UG mining, complex metallurgy, coups, jungle or ice and more, making this a high conviction name for us.
As such, we maintain our BUY rating and 0.9xNAV C$4.10/sh PT based on a fully-diluted NAV net of finance costs on the C$236m debt facility, and net of central G&A. This includes Berry upside at US$100/oz for resources outside SCPe inventory (C$59m), around a third of the DCF value, pointing to continued NPV growth here if the above estimates are hit, and that ahead of next target Victory. Figure 1. Berry Deposit (A) long section (assays >0.3g/t) and (B) plan view showing drilling to date Source: Marathon Gold 27 October 2021
Page 2 Site visit & Berry infill returns 23m @ 2.7g/t ; 19m @ 2.5g/t ahead of MRE next year
Today, Marathon reported the results from 20 infill holes drilled at Berry highlighting 23m @ 2.7g/t, 22m @ 2.3g/t, 19m @ 2.5g/t and 17m @ 1.2g/t. Higher grade intersection highlights included 1m @ 17g/t, 1m @ 11.3g/t, 1m @ 10.4g/t, and 1m @ 24.5g/t. Drilling is ongoing with four rigs total, with two rigs at the Berry Deposit, and two rigs at the Victory Deposit.
Last week we were on site, with notes included below. Site visit: geology code ‘cracked’, unlocking ounces at Berry, Victory and testing new targets At Valentine, the ore zones lie within extensional quartz-tourmaline-pyrite-gold veins adjacent to the Valentine Lake Shear Zone that is traced along a 20km trend (Figure 2).
Stacked veins have a shallow dipping en chelon orientation forming sub-vertical “main zones” of the deposit. As demonstrated by the five deposits identified to date from Victory to Leprechaun along the main break, Marathon clearly has the blueprint to grow reserves, with the next leg up coming from Berry in our view.
After review of Berry during our site visit, we were very impressed by the drill progress as grade and strip appears to be shaping up in line with Leprechaun / Marathon deposits. Hence, we think that Berry could see +50-100% lift in MRE towards 1.2Moz / 700-800koz reserves, well over our 325koz modelled inventory currently.
For reference, the Leprechaun and Marathon pits go to ~290-300m deep, respectively, while the Berry 2021 constraining shell only went to ~200m, hence deeper drilling to date is key, likening the deposit to Leprechaun with roots.
Figure 2. Valentine Lake overview showing resources along ‘main break’ captured by geophysics Source: Marathon Gold, SCP Our enthusiasm picked up with news that drilling along strike at Victory continues to hit along the corridor to the NE extension (now 700m in strike) with visible gold reported in untested areas—assays are pending.
There, the historic drilling was off the main break (a mistake) so we’d expect the drilling of the main break to prove fruitful. This should come as no surprise, with Figure 3 showing the track record of consistent resource growth, including +640koz @ 1.75g/t most recently at Berry from only 42,000m of drilling in 2020 (+70,000m underway) taking the Valentine global resource to 4.8Moz @ 1.72g/t.
Perhaps the biggest surprise during our visit was the drill parked at the new Scott Zone, an exciting greenfield target north of Berry HW where 7 shallow holes (150m deep) are planned in the first pass. Whilst off the main break, there is a potential for mineralization between this zone and Berry indicated by previous trench sampling. 27 October 2021
Page 3 Figure 3. Valentine Lake’s resource growth over time Source: Marathon Gold, SCP Berry could see lift production to 200-300koz pa with mill expansion towards 6Mtpa
We expect the next MRE update mid-2022 for Berry to provide the scale and also the mine plan implications. If Berry is akin to Leprechaun scale, which we think it is, that would provide the booked ounces to underpin mill expansion from DFS 4Mtpa / 173koz pa into 200-300koz pa—mid tier producer range.
Whilst the focus is permitting / building the 4Mtpa from only two pits, we think these ounces should firm up any interest from the M&A side who can then join their own dots on the engineering side.
Why we like Marathon
1. Low cost vanilla gold pit in Tier 1 jurisdiction is without peer in >150koz group
2. First satellite Berry has the potential to exceed our modelled 325koz in reserves
3. Potential for further satellites in Berry – Marathon ‘gap’ and NE of Marathon at Narrows
4. Builder-mentality of management, multiple recent staff bulk build team
5. Fully-diluted NAV in production sits at ~C$5.00/sh Catalysts 4Q21: Permitting approval 4Q21/1Q22: Drill results from Victory, RC grade control program, and Scott Zone CY21: Equity and debt financing 1Q22/4Q23: Construction starts / first pour, subject to adjustment in 4Q21