PRECIOUS METALS

Marathon gets equipment financing for Valentine

Marathon Gold has locked-in US$81 million of equipment financing for its Valentine gold project in Newfoundland, Canada, which will provide some certainty for the operation amid the inflationary environment.

 Marathon Gold's Valentine

Marathon Gold's Valentine

"This agreement will provide financing for the project's mobile mining equipment through project development and into the first several years of mining operations at an attractive overall cost of capital for Marathon," the company's president and CEO Matt Manson said.

The deal is in the form a credit-approved commitment letter with Caterpillar Financial for equipment lease financing.

Canaccord Genuity Capital Markets analyst Michael Fairbairn said he had anticipated that Marathon would look to lease equipment to minimize initial capital and associated potential shareholder dilution.

"Today's commitment letter represents another domino as Valentine's financing package continues to fall into place," he said.

"Marathon ended Q1/22 with ~C$73 million [US$57 million] in cash and no debt. We expect Marathon will fund Valentine construction through a combination of cash on hand, debt, and equity," he said.

Marathon's Valentine project saw its initial capital expenditure rise 12% from an April 2020 pre-feasibility study to C$305 million in an April 2021 feasibility study—and has since risen further.

In an April update, Marathon said the industry-wide issue of cost inflation and construction market volatility would mean that previous estimates for total life-of-mine capital costs of C$662 million, cash operating costs of US$704 per ounce, and all-in sustaining costs of US$833/oz would likely be between 15-20% higher.

"Marathon also intends to re-characterize certain capital costs that were previously captured as early sustaining capital items to initial capital costs," it said at the time.

"This will increase the initial capital cost but reduce AISC and de-risk the project's ramp-up to positive cash flow," it added.

At a panel hosted by CG in late May, Manson—along with Artemis Gold's vice president for capital markets, Nicholas Campbell, and Osisko Mining's chairman and CEO John Burzynski—said that over the past 12-18 months, the inflationary environment has resulted in about a 20-30% increase in initial project capital expenditure estimates.

Marathon closed a 6.5-year US$185 million credit facility for Valentine in March.

"We also model a C$230 million equity raise, which we forecast will close [Marathon's] remaining financing gap and still leave a ~C$30 million buffer on its balance sheet should cost overruns occur," Fairbairn said.

"Importantly, Marathon has a strong institutional shareholder base, which we believe will help with the company's upcoming equity financing. In addition, mining legend Pierre Lassonde is a substantial shareholder after having purchased shares in multiple rounds of financing," he said.

Given Lassonde's roles as a co-founder and long-time chairman of Franco Nevada, former president of Newmont Mining, and former chairman of the World Gold Council, his investment in Marathon is a strong endorsement for the project, Fairbairn noted.

CG's forecast is that Valentine will reach commercial production in 2025 and produce roughly 160,000 ounces annually at US$914/oz cash costs and US$1,177/oz AISC over a 16-year mine life.

The April 2021 feasibility study presented a 13 year mine life, with a run rate of 173,000oz from 2024-2033, and AISC of US$833/oz.

Valentine is due for a mineral resource update mid-year this year, early site works to begin in Q3, and a new technical report in Q4.

The Cat Financial lease will be available to Marathon upon release of the project for its federal Environment Assessment process, review of the project's updated feasibility study, satisfaction of a cost to complete certification, and other customary conditions, the company said.

Marathon's share price was C$1.67 on June 13, giving the company a market capitalization of C$426.58 million. CG has a price target for the company of C$3.60/share.

A growing series of reports, each focused on a key discussion point for the farming sector, brought to you by the Kondinin team.

A growing series of reports, each focused on a key discussion point for the farming sector, brought to you by the Kondinin team.

editions

Mining Journal Intelligence Investor Sentiment Report 2024

Survey revealing the plans, priorities, and preferences of 120+ mining investors and their expectations for the sector in 2024.

editions

Mining Journal Intelligence Mining Equities Report 2023

Access an exclusive, inside look on the quarterly mining IPOs and secondary raisings data and mining equities performance tables with an annual Stock Exchange Comparisons supplement.

editions

Mining Journal Intelligence World Risk Report 2023 (feat. MineHutte ratings)

A detailed analysis of mining investment risks across 121 jurisdictions globally, built on 11 ‘hard risk’ metrics and an industrywide survey.

editions

Mining Journal Intelligence Global Leadership Report 2023: Social licence

Gain insights into social licence trends and best practices from interviews with 20+ top mining company executives and an industrywide survey.