Marathon Gold: A Reason For Optimism

About: Marathon Gold Corporation (MGDPF), Includes: FNV, SPVEF, STBMY
by: FI Fighter

Gold is struggling to break through $1,300/oz, but shares of MOZ.TO are holding up well this year, up 25.97%.

St Barbara recently agreed to acquire Atlantic Gold for C$722 million (C$802 million enterprise value).

There are parallels and similarities that can be drawn between Atlantic Gold and Marathon Gold, which could benefit the latter if further M&A activity picks up across the sector.

The PEA results and Franco-Nevada investment from earlier this year provide Marathon Gold a strong foundation to work with.

Although the spot price of gold continues to battle in the $1,300/oz range (and lose), one particular gold company that has fared well so far this year is Marathon Gold (OTCQX:MGDPF).

Shares of MOZ.TO (native ticker symbol of MGDPF) are up an impressive 25.97% year to date.

As I mentioned in my previous article, Marathon Gold is currently entering a rather "boring" phase of its development, with a Pre-Feasibility Study (PFS) not slated for release until sometime in Q1 2020.

Source: Marathon Gold April 2019 Corporate Presentation

Naturally, it would be very easy for the market (and speculators) to lose track of and forget about Marathon Gold and the company's flagship Valentine Lake Project, located in Newfoundland, Canada.

Possible Takeover Candidate?

However, given the dearth of exploration work that has been conducted in recent years by the broader gold industry, it's safe to say that projects such as Valentine Lake that can offer the rare trifecta of having: size/scale + high-grade + safe jurisdiction are special, and not a "dime a dozen".

Further, given how successful the Marathon Gold team has been in growing the total resource base (having now eclipsed 4 million ounces) in recent years, it isn't far-fetched to speculate that, should Mergers and Acquisitions (M&A) season ever take flight again in the gold space (e.g. 2016), a company such as this might make it at/near the top of any list for acquisition targets.

Source: Marathon Gold April 2019 Corporate Presentation

Speaking of M&A, although there have been some noteworthy deals in recent months, they have been more the "mega-merger" type of transactions, more than anything else.

However, perhaps somewhat out of the blue, just earlier this week, St Barbara (OTCPK:STBMY) woke up and surprised the gold sector from its slumber by announcing its intention to take over Atlantic Gold (OTCPK:SPVEF) for C$722 million (C$802 million enterprise value), at a share price of C$2.90/share, which represented a hefty premium of 41.1%.

Source: Atlantic Gold May 2019 Press Release

Atlantic Gold is a gold producer, operating the Moose River Consolidated Project (MRC Project), located in Nova Scotia, Canada.

Commercial production for the MRC Project was declared in March 2018, and Atlantic Gold has set 2019 production guidance between 92,000 and 98,000/oz, with All-In Sustaining Costs (AISC) in the range of $521-566/oz.

While a production profile of ~100k oz/year is already respectable for a new gold producer just starting out, it's arguable that it's the district scale potential and Phase 2 expansion capability to ramp up to +200k oz/year at the MRC Project that ultimately enticed St Barbara enough to proceed with a takeover bid at this time.

Source: Atlantic Gold April 2019 Corporate Presentation

And, although it's much earlier days in the Marathon Gold story compared to Atlantic Gold (developer vs. producer, which is akin to apples vs. oranges), the former has seemingly already made enough traction in progressing its Valentine Lake Project to prompt speculation as to whether or not it could (eventually) fetch a similar type of offer to the one received by the latter (C$722 million; C$802 million enterprise value), or perhaps even more.

After all, Newfoundland is just a stone's throw away from Nova Scotia (and both are provinces of Canada).

Source: Google Maps

The current market cap of MOZ.TO is ~C$156 million (but keep in mind, Marathon Gold still needs to raise initial CAPEX/secure financing for a mine build, which Atlantic Gold has already completed).

Shares of MOZ.TO are trading at C$0.97/share, up ~10% since May 14, when news broke out that St Barbara intends to acquire Atlantic Gold.

Solid Foundation

Again, Marathon Gold still has a lot of progress to make to get to where Atlantic Gold is currently at, since at this time, the only economic study published for the Valentine Lake Project is a Preliminary Economic Assessment (PEA).

Source: Marathon Gold April 2019 Corporate Presentation

Although the above numbers are crude and will be refined greatly in future economic studies (beginning with the PFS due in Q1 2020), they do provide speculators with building blocks to work with, such as a supporting case that the Valentine Lake Project can already provide a long life of mine plan (12.2 years) with the production capability in place to average in excess of 200k oz/year from the start of Year 1.

Source: Marathon Gold April 2019 Corporate Presentation

Further, in terms of district scale potential, Marathon Gold has so far outlined and delineated gold ounces across 4 primary deposits at the Valentine Lake Gold Camp: Marathon, Leprechaun, Victory, and Sprite.

Source: Marathon Gold April 2019 Corporate Presentation

With continued exploration success at the Valentine Lake Gold Camp (which seems likely), there exists further potential to add a lot more ounces in the future; the most prominent royalty and streaming company in the business, Franco-Nevada (FNV), seems to believe so, anyway, after agreeing to purchase a 2% Net Smelter Royalty (NSR) from Marathon Gold for C$18 million earlier this year, back in February.


Although gold and gold mining stocks are a long ways away from entering any kind of new bull market, and we are certainly not in the middle of M&A season, the most recent St Barbara/Atlantic Gold deal must be seen as a boon for the sector as a whole.

In particular, at least on the surface so far, a company like Marathon Gold, with its Valentine Lake Project, looks like it might have the right ingredients in place needed to replicate a similar type of success story as Atlantic Gold for itself, one day in the future.

The "Orphan Period" that all developers (such as Marathon Gold) looking to transition into becoming producers must embark on is typically a most boring one, but for Marathon Gold and its shareholders, perhaps, this most recent news event is foreshadowing an end result that will make it a little easier and provide the optimism needed to help one hold onto shares while playing the waiting game.

Disclosure: I am/we are long MGDPF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.