Post by
Ridgeback on Sep 22, 2022 7:39am
Sprott update
BUY TARGET (-0.90): C$1.60/sh RISK RATING (unc):HIGH
With equity raised of making no changes to our model other than diluting for the equity raise, we maintain our BUY rating and lower our PT from C$2.50/sh to C$1.60/sh based on our unchanged 0.7xNAV5-1,850 for Valentine.
Dilution is the clear driver here as our 1xNAV fully-funded fully-diluted (FF FD) drops from ~C$3.30/sh to ~C$2.00/sh in 2025.
We maintain this NAV multiple given (i) the DFS remains outstanding, leaving (ii) the non-equity funding quantum unquantified, including splits between debt and revenuelinked funding, and (iii) the potential reliance of economics on Berry contributing as soon as Y1 and thus being linked to permitting.
We estimate sources and uses below – leaving gearing at 65% leaves a C$65m funding buffer, although this drops to a C$28m gap if C$92m of deal-warrants priced at C$1.35/sh aren’t exercised, acting as a ceiling ahead of that.
Nonetheless, we note the premiums on royalties/streams are as high as equity discounts (exemplified here) are low, hence do see room to lift this valuation depending on the shape of the final funding package and the updated DFS.
Similarly given the lower share price now, M&A potential likely increases, and of course the higher capex increases gearing to the gold price.
Figure 1: SCPe sources and uses for Valentine showing a C$65m buffer, or C$28m gap ex warrants Source: SCP estimates New board appointments + $150m equity raise ahead of DFS and debt funding; PT lowered
New board appointments: Today Peter MacPhail, former Alamos COO, joined the board. Peter oversaw Young Davidson construction, Island Gold expansion. David Ross was promoted to VP Geology, and Anne Marie Waterman promoted to VP HR.
Raise: Yesterday, Marathon closed C$150m (136m units at C$1.10/share) bought deal financing, incl. half warrants for C$1.35/share for C$92m with 24m expiry. Additional underwriter option granted for purchase of 20m shares at C$1.10/unit for gross C$22.5m. Proceeds to be used to partially fund Valentine Project, working cap, and general corporate uses.
Drilling: Last week, Marathon reported results from 36 infill diamond drill holes across a 1.5km strike at Berry. Highlights from 29 holes testing Main Zone QTP-Au mineralization hit 5.4m @ 10.8 g/t (5.8 g/t cut), 0.9m @ 60.3 g/t (30 g/t cut), and 15.3m @ 1.1 g/t. Additionally, seven shallow holes defining the mineralized thickness hit 4.2m @ 18.5 g/t (8.3 g/t cut), 8.5m @ 3.5 g/t, 16.2m @ 3.3 g/t, 12m @ 6.9 g/t (6.8 g/t cut) and 4.8m @ 15.6 g/t (15.5 g/t cut). A total of 9,808m of drill results have been released since the July 2022 MRE update.
All 36 holes hitting above 0.3 g/t Au July 2022 MRE cut-off, with 32 holes intercepted > 0.7 g/t Au.
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 620koz in inventory
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$2.00/sh
Funding: uses Funding: sources Updated (+57%) DFS capex C$480m 2Q22 cash + ITM options* C$157m SCPe G&A until first pour C$10m Sen. debt @ 65% gearing C$279m SCPe pre-pro'n explor'n C$0m Equipment lease facility LOM SCPe fin. costs + wkng cap C$23m 3Q22 net equity raise C$141m Total uses C$513m Total proceeds C$578m *Cash from options expiring pre first pour Buffer C$65m
Comment by
JamesLogan on Sep 22, 2022 8:57am
Ouch. Looks like we have to hope that the Fed makes a huge mess out of the economy driving it into a recession to the point where they're forced to cut rates before inflation is brought down to 2 percent. It looks like they're on their way to doing just that. Gold prices should be back over $2000 sometime within the next 12-18 months.