Marathon Gold a ‘takeover target’ says National Bank Financial

Marathon Gold (TSX: MOZ; US-OTC: MGDPF) has completed a bought deal financing raising $34.5 million that will be spent on permitting, development and exploration at its wholly owned Valentine gold project in Newfoundland.

The company issued 23 million units at a price of $1.50 each, with each unit consisting of one share plus a half warrant exercisable at $1.90 per share for a one-year period. The offering was conducted by a syndicate of underwriters co-led by Canaccord Genuity, Sprott Capital Partners and RBC Capital Markets, and included National Bank Financial, Desjardins Securities, Haywood Securities, Scotia Capital, Beacon Securities, and Laurentian Bank Securities.

In April, Marathon released the results of a prefeasibility study on the Valentine project, which outlined a 12-year open-pit mine, producing an average of 175,000 oz. gold annually in the first nine years of operation.

The study estimated an initial capital cost of $272 million and average life-of-mine, all-in sustaining costs (AISCs) of US$739 per ounce. The net present value estimate for the project, at a 5% discount rate, came in at $472 million with a 36% internal rate of return. The PFS contemplated open pit mining from the Marathon and Leprechaun deposits only, but two other deposits have also been identified on the property (Victory and Sprite).

The Valentine gold project, 80 km southwest of the mining communities of Millerton and Buchans, is the largest undeveloped gold resource in Atlantic Canada. Measured and indicated resources stand at 54.9 million tonnes grading 1.75 grams gold per tonne for 3.09 million contained oz. gold and inferred resources of 16.8 million tonnes averaging 1.78 grams gold for 960,000 ounces.

“The company has grown measured and indicated resources 10-fold since December 2010 and has grown it by 67% since February 2017,” mining analyst John Sclodnick of National Bank Financial wrote in a research note on May 26. “Also, it has included just 60% of the M&I resources in the reserve estimate, so we see potential for reserve growth just based on currently defined mineralization, let along further exploration success.”

Sclodnick went on to describe Marathon as a “top developer pick for its high margin, scalable project” that is “located in a stable operating jurisdiction, with proven growth potential and a strong management team.”

“We view the stock as a prime takeout candidate and expect near-term share price appreciation driven by the exploration program.”

The analyst noted that when activities resume this summer after being suspended due to COVID-19 since March 14, the work program will include a 32.5 km exploration program focused on the Sprite Corridor – a 6 km tract between the Marathon and Leprechaun deposits, which contain the reserves.

The most exciting target on the property, he added, is the Berry zone, “which so far has shown mineralization and grades similar to the reserve deposits.” He also said that the “best feature” of the Berry zone is that it’s “directly beside the proposed mill, so shorter haul distances should lower mining costs, giving potential for this to become the source of the lowest cost ounces.”

Sclodnick has a price target on the stock of $2.50 per share.

At press time in Toronto, the company was trading at $1.57 per share within a 52-week trading range of 71¢ and $1.77. Marathon has about 199 million common shares outstanding for a market cap of about $313 million.

Management and the board own about 6% of the company’s shares, BCI Ventures 12% and Franco-Nevada (TSX: FNV; NYSE: FNV) about 2%. Institutional investors hold about 23% and retail and high net worth individuals owning the remaining 57%.