Marathon Gold board gives nod to Valentine mine build in Newfoundland

Marathon Gold (TSX: MOZ) is moving ahead with its proposed Valentine open-pit gold mine in central Newfoundland after the company’s board approved construction.

“The company’s decision to proceed with construction of the Valentine Gold project considers the impact of almost two years of market inflation on the project’s costs, as well as a necessarily cautious approach to project management, contingency and scheduling,” President and CEO Matt Manson said in a statement.

Marathon now expects that building the mine would cost between $470 million and $490 million, including early works to be carried out in the fourth quarter of 2022.

The new estimate contrasts with the lower $305 million initial capital cost figure in the project’s March 2021 feasibility study, which outlined a conventional surface mine with two open pits and a 13-year milling operation.

The fresh estimate also incorporates certain scope changes relating principally to updated staffing levels and the impact of moving from the 22-month construction schedule contained within the feasibility study to the current 28-month construction schedule.

Funding gap

“We estimate that Marathon is now facing a $200 million to $225 million funding gap,” said John Sclodnick, mining analyst at Toronto-based Desjardins.

He noted that the gap will be largely filled by an equity raise, and potentially shareholder Sprott may upsize its project debt financing.

In April, Marathon closed a $185 million term loan credit facility with Sprott Private Resource Lending.

Marathon said it was assessing the potential of the new Berry deposit – located between the Marathon and Leprechaun deposits – to become a third mining pit. The “3-Pit” mine plan is expected to show an increased mineral reserve, an extended mine life, and a higher gold production profile compared to the existing plan.

Berry’s assessment will constitute updates to the feasibility study, life-of-mine capital, operating costs, and financial evaluation, Marathon said.

The company estimates the study will take between 18 and 24 months — enough to bring Berry into the project’s mine plan after commissioning the mill. Valentine is considered the largest undeveloped gold project in Atlantic Canada. It is located about 80 km southwest of the communities of Millertown and Buchans.

Marathon shares were trading at $1.47 as of mid-morning in Toronto on Thursday, down from $1.69 when markets closed on Wednesday. Its shares have traded in a 52-week window of $1.12 and $3.73. It has a market cap of $377 million.