When a whole sector of the market falls out of favour with investors even the best news can fail to move a company’s share price. Precious metals explorers and developers, no matter how good their stories, have had an incredibly hard time gaining market traction over the last couple of years. Which creates a real challenge for CEO’s like Phil Walford of Marathon Gold (T.MOZ).
“We’re seeing much more interest from our confidentiality agreement holders than the retail market,” said Walford in a telephone interview. Which has to be frustrating because Marathon Gold is doing exactly what a gold development company needs to.
Just how solid Marathon’s prospects are was recently confirmed when Franco-Nevada paid $18 million for a 2% net smelter returns royalty on the future production of a mine at the Marathon property in Newfoundland.
“The deal came about because of what we are doing,” said Walford. “One of Franco’s senior geologists knew Sherry Dunsworth, our Senior VP Exploration, and he could see the potential for the project. Franco did a lot of due diligence.”
The Franco royalty deal was a huge endorsement, from a senior player, of what Marathon had done to date and what they were planning to do. It was also a non-dilutive way to raise money to fund this season’s drilling, much of next season and the costs of taking the Marathon project to Prefeasibility.
In the press release announcing Franco-Nevada’s participation, Walford is quoted as saying, “Franco-Nevada’s purchase of the NSR is a major endorsement of the Valentine Lake project by one of the best-known and regarded public royalty companies. The proceeds from this strategic financing transaction will allow Marathon to fast-track the completion of the Prefeasibility Study in early 2020.”
The fact that the Marathon deal was smaller than the usual Franco-Nevada transaction really underscored the faith Franco had in the project and in Marathon. And while it might have been small for Franco, it was significant for Marathon, “With the Franco money we have 20 million in the treasury,” said Walford. “That funds drilling, the Prefeasibility study, metallurgy and most of the environmental assessment.”
Because Marathon is in good shape financially it can continue drilling its property. “We’ll have three drills on infill,” said Walford. “We’ve been getting very good results to date.”
“At our Leprechaun deposit we’re concentrating on converting inferred material to measured and indicated,” said Walford. “Essentially, the inferred gives us our drill targets.”
At the Marathon deposit itself, there have been questions about the continuity of the mineralization. “We have a drill density ranging from 10 meter by 10 meter spacings up to 20 by 20,” said Walford. “We’re getting good definition.”
“We’re going to be doing the infill drilling first. At Marathon we can drill vertically because the veins are relatively flat and fairly continuously mineralized,” said Walford. “We are building a very good model and we are seeing continuity in the high grades.”
“We’ll do more exploratory drilling in the Fall,” said Walford. “But, right now, we are drilling to add ounces for the pre-feasibility study.”
From a news flow perspective, Marathon will have a stream of results because none of its holes goes past the 300-meter mark and with three drills turning there will be a lot of core to report. We can anticipate many more releases like Marathon’s April 2 release on drilling at Leprechaun.
In that release, Walford states, “These new high-grade gold intercepts are expected to add significantly to the next resource update for the Leprechaun Deposit, not only by upgrading the inferred resources to measured and indicated resource categories but also at a much higher grade than is in the present block model.”
Adding ounces and improving grade are what exploration/development companies are supposed to do on their properties. So why isn’t the market more positive?
Explanations ranging from the price of gold, the presence of competing investment opportunities like cannabis and crypto, and a generational transition where the precious metals investors are ageing out of the risky junior resource market, all make sense. However, there is nothing Marathon or any of the other junior resource companies can really do to fix a “broken” market.
What Marathon can do is continue to de-risk its Marathon asset. That means doing the infill drilling but also working on the deposit’s metallurgy. “We should start seeing metallurgy reports in the next two weeks,” said Walford. “Those reports will continue through May. We’ll have reports on the recoveries of the heap leach and milling work to add to our Preliminary Feasibility Study.”
The company is also preparing to do its environmental assessment report and it has begun public consultations, with meetings held in Buchans, Millertown, and Grand Falls-Windsor with a very positive atmosphere.
With funding in hand, while the market’s indifference is galling, Marathon can push forward on its Newfoundland project without having to go back to the market for funds. While Walford is frustrated with a market which barely reacts to even the best news, the fact is that the Marathon project can move forward on all fronts without the market’s support for at least a year and a half. By which point the pre-feasibility study will be complete, the deposits fully drilled off and the project thoroughly de-risked. The market may not properly value this progress but the confidentiality agreement holders will understand and appreciate the value in Marathon.