Marathon Gold (V.MOZ) has gone from being a gold explorer to a gold mine developer over the last two years. Phillip Walford, the company’s President and CEO, is supervising this transition and was very pleased with the company’s updated Preliminary Economic Assessment (PEA).
The updated PEA, released October 30, 2018, contained a lot of very good news:
- 2,723,300 recovered gold ounces, up 827,000 ounces from the May 2018 PEA
- After-Tax NPV (5%) $493 Million, up $126 Million from the May PEA
- Preproduction Capital 355 Million, down 25 million from May PEA
- Mine life 12.2 years, up 2 years from May PEA
In the press release, Walford is quoted as saying “The very positive improvements in production and mine life are attributable to this year’s successful drilling program to extend the open pit resources at the Marathon Deposit, a major gold deposit that continues to grow thereby driving expansion of the project. Early near-surface higher grade resources with a low strip ratio at the Marathon Deposit enable high gold production in the early years of the operation and a fast payback of capital.”
As Walford points out in the release, “The Marathon Deposit has the potential to develop an underground mine but, for now, it is more cost effective to find open pit resources at $10 per new ounce rather than more costly underground resources. We have proved that the mineralization extends beyond a kilometre in depth and is still open to depth.”
“The updated PEA developed when we were conducting trade-off studies to improve the May 18, 2018 PEA,” said Walford in our phone interview. “The addition of new drilling after the first PEA resource at the Marathon Deposit resulted in a larger pit that went deeper to the southwest for longer. The expanded pit included most of our higher grade underground resource from the previous resource. The combination of a larger pit at the Marathon Deposit as well as other changes from the trade-off studies gave a superior project which justified a revised PEA.”
“The growth we have seen at the Marathon Deposit has been very exciting and there is more to come as it is still open to the southwest,” said Walford. “From the Marathon Deposit southwest the Sprite Deposit we have 4 km of widely spaced drilling with gold intersections showing good potential for this area with more drilling.”
While the market initially bounced up on the release of the updated PEA it quickly reversed and Marathon saw very little real improvement in its share price. Which frustrates Walford, but he has been in mining long enough to have seen this happen before in this kind of market. The best thing to do is keep progressing the project as was done in the past.
“We’re talking to analysts all the time,” said Walford. “They understand that our resource is expanding and that the price of gold is reasonable. They understand that we are technically doing everything right. And they understand that the size of the project and the jurisdiction are very attractive. The value will be recognized.”
The transition from being an exploration company to being a development company has gone quite smoothly for Marathon. Robbert Borst, a mining engineer with considerable experience, has been added as COO and further additions to the technical staff are planned to match the requirements of the Preliminary Feasibility Study planned for completion in the 3rd Quarter of 2019 and the Feasibility Study that will follow.
“We’ve always approached it as we will mine the deposit,” said Walford. “We’ve completed 8 years of environmental work with no red flags and we are working on optimising the metallurgy for the Preliminary Feasibility Study. We expect to have all the metallurgy information from the new program in April 2019. So far the indications are that it is confirming previous high recovery rates.”
As with many development companies, Marathon is quite open to being bought out by a senior company. “It may happen as we continue to de-risk and grow the project, but you can never assume that will happen,” said Walford. “The company must do what is best for the shareholders and that means in our case continuing the develop the project.”
In a sense, Marathon is at that awkward stage where its updated PEA is very attractive but its resource is not quite at the mythical magic number of 5 million ounces which is reputed to trigger senior miners’ interest. So Walford’s job is to increase shareholder value and that means taking the next step in the 43-101 process.
Typically, if a larger company is going to buy the asset they will move when the Pre-Feasibility Report is done but before the Final Feasibility is completed. A Pre-Feasibility Report brings together all the information on a project from drill results to metallurgy and gives management and a potential acquirer the technical and economic indicators for the project.
Walford was just back from the CIM event in St. John’s Newfoundland where the Premier of Newfoundland had presented a new and very supportive vision for mining. Permitting in Newfoundland is straightforward and efficient. However, Marathon is looking at a major project and there will be federal permits required as well.
“The government of Newfoundland said they would help with the federal permits,” said Walford. It helps that there are no First Nations land claims which touch on Marathon’s project.
Right now, Marathon could go in a number of directions. Acquisition by a major is a live possibility. Though acquisition by a mid-tier miner – Osisko springs to mind – would also make a lot of sense. Or, and this is a very real possibility, a mid-tier firm might take a strategic interest, the 19.9%, which creates a couple of seats on the board and the inside track whether Marathon is sold or goes on to mine. If you look at the trajectory of Victoria Gold, with a slightly smaller resource at 2.7 million ounces of gold, there is no question that serious gold deposits attract interest regardless of the location and work required to build a mine.
Walford has always said he and Marathon are exploring and developing to increase shareholder value. Drilling out more ounces adds value and Marathon is very, very good at adding those ounces. Nailing down the details in a Pre-Feasibility study will mean that potential partners and acquirers will be able to evaluate the significant progress Marathon has made to date which will also add shareholder value.