Investment Thesis for Moneta Porcupine
Moneta Porcupine has a total gold resource of 4.3Moz in the Timmins camp, with a significant portion of it on patented land. There is potential to expand the resource along strike and at depth. Moneta has a market cap of $39M, and with $7M in cash is trading at an EV/resource multiple of $6/oz. This compares favourably to peer development stage companies at an average of $50/oz, and acquisitions over the last five years at $85/oz.
Why does it trade at such a discount to peers and recent acquisitions?
The 2012 Preliminary Economic Assessment (PEA) appears to have been scaled up to produce the maximum annual and life of mine (LOM) production possible from the known resource, which resulted in low grade and high CapEx. This was common of PEAs produced at the time, as the gold price was approximately US$1,700/oz. One of the open pits in the PEA was designed to be 900m long by 800m wide by 270m deep. A second open pit was designed to be 2.3km long by 1.1km wide by 400m deep. With pits this deep, the average strip ratio for the LOM operation is approximately 6:1. The market in general views this as much too high for a 1g/t operation. The Malartic mine (grade of 1g/t) has a LOM strip ratio of 2:1, and Detour’s (also 1g/t) is 3:1. Comparing these two operating mines to the 2012 Moneta PEA might give some the impression that Moneta is a long way from being economic. The PEA has not been updated since 2012, and the project was almost dormant for 3 years until the announcement of a 40,000m drill program in Sept 2016.
Why should anything be different now?
The company has approximately $7M in cash and recently (May 2017) hired a geologist named Gary O’Connor as Co-CEO and COO. Mr. O’Connor is a widely-respected geologist in mining and investment circles, with a 30-year track record of drilling out multi-million ounce deposits and bringing them to the production stage. For the first time in almost four years, the company has both the cash and the technical expertise required to improve the economics of the known mineralization (by increasing ounces and reducing strip), and also potentially make new discoveries on a very geologically rich land package.
Who are the obvious candidates to acquire Moneta?
There are likely more than a few companies that would be interested in buying 4Moz of gold on a large land package, including patented claims, without any royalties, in one the world’s best mining camps – but two spring to the forefront, at least to my mind, for Moneta: Osisko Mining and Kirkland Lake Gold.
Case for Acquisition by Osisko
Osisko (previously Oban) has been aggressively acquiring deposits in the vicinity of Moneta over the last few years. In 2016, Osisko acquired Niogold (just across the border from Moneta, in Quebec) which had a resource of 2.1Moz gold at 1.2g/t. The estimated strip ratio for Niogold was 9.5:1. Despite the extremely high strip ratio (compare to Moneta which has twice the ounces and a strip of 6:1), Osisko paid $32/oz, or a premium of 360% to Moneta’s current valuation of $7/oz. Today Osisko has a market cap of $840M, cash of $190M, global resources of 5.2Moz, and trades at a multiple of $125/oz. Even if Osisko were to acquire Moneta for shares at a 100% premium to today’s close of $0.165/share, the implied valuation for Moneta would be only $80M – i.e. Osisko would increase its total ounces by more than 80% for only 10% dilution.
Case for Acquisition by Kirkland Lake Gold
From 1994 until 1996, the claims in the Southwest Zone of Moneta’s property were optioned to Lac Minerals (which became Barrick). In 1997, based on more than 100 drill holes and over 33,000m of drilling, Barrick produced a resource estimate in the Southwest zone of 625,000 ounces at a grade of 6g/t, over an average width of 3.8m. Metallurgical testing showed that 95% recoveries could be achieved at the nearby Holt-McDermott mill.
Barrick determined that this high-grade resource was open for expansion at depth and on strike, but would be difficult to define using surface drilling; Barrick suggested building a decline to track the mineralization from underground. Most of the resource is within 300m of surface, so it seems that it would be accessible for mining by ramp. It also appears that Barrick’s resource estimate was quite detailed, including level plans for ore extraction, and even crown pillar widths – with ore defined in proven, probable, and potential categories.
Today the Holt-McDermott mill is owned by Kirkland Lake Gold and is running at only 60% capacity, or 1,900tpd. The Holt mine supplies 1,300tpd at a grade of 4.5g/t and is expected to produce 70,000 ounces this year. Unfortunately for Kirkland, the Holt mine has a relatively onerous 10% royalty due to Franco Nevada. Moneta’s Southwest zone could potentially replace this production for Kirkland, and do so at a 50% higher grade and without any royalties. This high-grade Southwest zone in and of itself could justify Moneta’s current $40M market cap, with a massive land package hosting an additional 3.5Moz (likely more) coming along for free.
Kirkland Lake Gold today has a market cap of $2.2Bn, cash of $280M, and trades at an EV/resource multiple of $180/oz. The acquisition of Moneta, even at 2 or 3 times the current market valuation, would be a very small tuck-in for Kirkland, but has the potential to be very accretive as it could i) replace and/or increase the mill feed to Holt ii) increase total gold inventory by 36%, from 11Moz to 15Moz.
credit goes to original author: Santaclara
Disclosure: I am/we are long MPUCF.