Marathon Gold a strong acquisition candidate, CIBC says

Research analysts at CIBC see Marathon Gold (TSX: MOZ) as a “top take-out target” due to its advanced stage Valentine gold project in central Newfoundland, and believe construction on the project could begin early next year.

“The key catalyst for construction to begin is the conclusion of the Environmental Assessment (EA) process,” analysts Allison Carson and Sehaj Anand wrote in a research note following a site visit to the project on October 19. “Barring any additional requests for information or other delays, we expect this process to conclude in Q4/21, which will allow construction activities to begin in early 2022.”

The analysts also noted that the company “is essentially funded for construction, and we view future dilution risk as low.”

The project consists of a series of five mineralized deposits along a 20-km system and a feasibility study released at the end of March outlined an open pit mining and conventional milling operation from two pits over a thirteen year mine life.

The 100%-owned project has total measured resources inclusive of reserves of 32.59 million tonnes grading 1.83 grams gold per tonne for 1.92 million oz. contained gold and indicated resources inclusive of reserves of 24.07 million tonnes grading 1.57 grams gold per tonne for 1.22 million ounces. Inferred resources add 29.59 million tonnes at 1.72 grams gold per tonne for 1.64 million ounces. The company plans to update the project resource by the middle of next year.

In their research note, the CIBC analysts pointed out that “one key update” on the site visit “was the potential for the Victory deposit to grow.”

“Based on a better understanding of controls on mineralization, Marathon has been drilling further south, closer to the contact between the hanging wall and footwall than previous drilling,” they wrote. “Though no assay results are back yet, initial results demonstrate extensional quartz-tourmaline-pyrite veining in the core, the typical host of mineralization at the project. We view this as a positive indication that additional mineralization could be found at Victory, which currently hosts a small resource of 150,000 oz. at 1.32 grams per tonne.”

The feasibility study outlined average gold production of 173,000 oz. a year at all-in sustaining costs of US$833 per oz. over the 13-year-mine life.

Initial capex was estimated at $305 million (US$229 million). Using a gold price of US$1,500 per oz., the study estimated an after-tax net present value at a 5% discount rate of $600 million and post-tax internal rate of return of 31.5%. If the gold price were US$1,750 per oz., the NPV would rise to $868 million and the IRR to 42.2%. .

“We continue to view Marathon as a top take-out target due to its advanced stage, robust project economics, location, fully funded status and exploration upside,” the analysts commented. “We believe exploration upside is a key component making it an attractive M&A candidate. With a resource update expected in mid-2022, we will look for a potential initial reserve at Berry and results from drilling at Victory.”

The company released the latest infill drill results from the 1.5 km long Berry deposit on September 28, with highlights of 11 metres of 9.90 grams gold per tonne from 80 metres in hole VL-21-1041 and 13 metres of 2.51 grams gold from 111 metres downhole in VL-21-1052.

CIBC has a 12-18 month price target on the company of $4.50 per share.

At presstime in Toronto Marathon was trading at $3.08 per share within a 52-week trading range of $2.12 and $3.73 per share.

The company has about 244 million common shares outstanding for a market cap of roughly $753 million.