London, UK, 23 October 2020
Monarch Gold (MQR): Wasamac a winner
Monarch Gold (MQR) has a diverse portfolio of assets across (former) producers, development and exploration in the established and highly prospective Abitibi gold belt, with its 2.6Moz Wasamac project the main focus at present. The 2018 feasibility study (FS) pointed to average annual production of 142koz over the 10-year life of the mine. A favourable operating cost base and optimal logistics and infrastructure generate a competitive, low-cost base. Crucially, in addition, and not included in the 2018 FS, significant additional value can be unlocked if Monarch uses a toll milling option, at a capex cost estimated by management to be around half what it could be to build its own mill. Assuming successful funding, the project could be in production as soon as 2025. Further upside is provided by four other projects whose location and access to infrastructure offer potentially similarly favourable economics and flexibility.
On the basis of the toll milling option and our assumptions, we calculate that Wasamac alone is capable of generating free cash flow of c C$127m per year for seven years, from FY26 to FY32 (inclusive) with average (maximum potential) dividends of C$0.25/share, assuming a notional 60:40 debt: equity fund-raising. This implies a valuation for Wasamac alone of C$0.78/share when discounted back to FY21 at a rate of 10% per year. This valuation then rises to a maximum of C$1.28/share in FY27 a year after Monarch could pay its first dividend as shown in Exhibit 11. If Monarch is successfully able to leverage its cash flow from the mine into its other assets in the region, then our valuation of C$0.78/share would rise to C$0.98/share.
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