Closeup of big gold nugget

Beaufor mine restart plans and financing update

Monarch Mining Corporation 15 June 2021 Update
Download PDF

Monarch Mining Corporation

Beaufor mine restart plans and financing update

Corporate announcement

Gold mining

15 June 2021

Price

C$0.91

Market cap

C$63m

US$/C$1.21

Net cash (C$m) at 31 March 2021

19.0

Shares in issue

69.7m

Free float

84%

Code

GBAR

Primary exchange

TSX

Secondary exchange

OTC

Share price performance

%

1m

3m

12m

Abs

9.6

1.1

N/A

Rel (local)

5.3

-5.4

N/A

52-week high/low

C$1.16

C$0.60

Business description

Monarch Mining Corporation is a Canadian gold explorer with two near-term projects and two second tier projects in the Abitibi, Quebec, gold belt.

Next events

Q421 results

August 2021

Analyst

René Hochreiter

+44 (0)20 3077 5700

Monarch Mining Corporation is a research client of Edison Investment Research Limited

Monarch Mining Corporation has moved closer to cash generation by confirming the reopening of its Beaufor mine and its Beacon milling operation by June 2022. It has also commenced recruitment and bolstered its cash through a C$6m bought deal private placement of shares and warrants. A new resource estimate will be prepared during summer 2021, which could add to the mine life and our valuation, which we keep unchanged at C$0.99/share, with increased production certainty potentially offsetting share dilution from the placement.

Year end

Revenue (C$m)

PBT*
(C$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/21e

0.0

(4.0)

(5.9)

0.0

N/A

N/A

06/22e

21.0

(3.2)

(4.6)

0.0

N/A

N/A

06/23e

56.2

15.9

17.9

0.0

5.1

N/A

06/24e

74.6

21.6

19.4

16.3

4.7

17.9

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Listed in January 2021, no historical data.

Beaufor mine start-up

Monarch has moved into recruiting mode as it prepares for the restart of the Beaufor mine and Beacon mill in June 2022. The mine will be operated from a vertical shaft and a production ramp located 500m from the shaft. Beaufor has produced 1.1Moz of gold at an average grade of 7.5g/t Au since the early 1930s. The 42,500m drilling programme currently underway has already reported good intersections. With 34% of the program completed, some stellar intersections include 783 g/t Au over 0.2 m, 293 g/t Au over 0.5 m and 35.87 g/t Au over 9.8 m. BBA Inc. will prepare a new resource estimate in summer 2021.

Good demand for its bought deal financing

Monarch announced on 7 June that it intends to raise C$6m capital in a bought deal private placement of 7,500,000 units at a price of C$0.80/unit with Sprott Capital Partners and Stifel GMP as co-lead underwriters and joint bookrunners. Each unit consists of one ordinary Monarch share and one half of a warrant, with a full warrant entitling the holder to an option to purchase a further Monarch share at C$1.05/warrant within 24 months. The offering closes on 30 June 2021 and proceeds will be utilised for general and working capital purposes. The additional cash will increase the buffer until Beaufor is cash-generative and potentially accelerate Croinor production coming online, although the 7% increase in issued shares to 74.7m will lead to dilution after the placement is finalised at end June.

Valuation: C$0.99/share

Our valuation of C$0.99/share remains unchanged with increased certainty on the Beaufor re-start and comfort that the increase in cash should potentially offset the dilution from the bought deal. Our valuation offers meaningful upside if positive drilling results lead to mine life extensions. Monarch’s success in accessing capital markets increases the opportunity of delivering such positive results and the new resource estimates in summer 2021 will be telling.

Explorer and producer in early 2022

Monarch mining has the potential to become a 25–65Koz pa gold producer in one of the most prospective areas for gold exploration in the world (Exhibit 1). With its track record of adding 11oz of gold for every metre of exploration drilled in the Abitibi gold belt, there is every reason to believe that the current 63,200m drilling programme could add significant resources to its 917Koz measured, indicated and inferred (MI&I) resources.

Exhibit 1: Location of Monarch’s projects, Abitibi, Quebec

Source: Monarch Mining, 2021

Furthermore, the board members have a proven track record of creating value for shareholders through M&A, for the acquisition of distressed/forgotten assets and the ability to monetise them. CEO Jean-Marc Lacoste, CFO Alain Lévesque and VP corporate development Mathieu Séguin have been active in investment banking and held positions as company directors with experience in M&A activity for most of their careers. The culture of the board is one of M&A and serial deal-making, targeting uplifts in value to the company’s shareholders. Based on planned exploration, we feel confident that the company can extend resources and achieve mine life extensions to generate significant valuation uplift as management will push hard for accretive, cash-generative corporate activity.

Main risk: Highly geared to mine life

We see the principal risk and sensitivity to Monarch Mining as extending the life of the mines, or failure to do so, and bringing the Croinor mine into production before FY24, which is our base case (see Exhibit 2). This is in addition to the normal risks of execution and the gold price.

We note that Monarch’s first project, Beaufor, is at a pre-production stage and our valuation is conditional on management executing the project according to the assumptions we set out in our recent initiation note and within the cost and timing parameters given.

Our various sensitivity analyses showed a base case value of around C$0.99/share, with conservative upside to C$1.81/share through mine life extensions and capital raises on some of the properties. We plan to review our valuation when the current placement is finalised at the end of June. As a maximum downside, however, we calculate that based on our current model the gold price would need to fall to US$800/oz for the share value to reflect a break-even based on the economics of Beaufor and Croinor.

The overriding key sensitivity lies in achieving the life extension of Croinor and bringing in funding to do this. For the purposes of our model (at a notional price of C$0.90), assuming funding of C$22m in FY22, we estimate that this could add C$0.21/share to our current valuation (see Exhibit 2) before any mine life extension and a further C$0.38/share with a two-year life extension.

Exhibit 2: Base case valuation and sensitivities to bringing Croinor into production in 2022 and earlier funding

C$/share

Funding options

No extension for
Beaufor or Croinor

Two-year extension
for Croinor

Three-year extension
for Croinor

 

Core

Full

Core

Full

Core

Full

Beaufor start-up October 2021 and Croinor in 2025

No capital raise

0.69

0.99

1.16

1.46

1.37

1.67

Beaufor start-up in October 2021 and Croinor in 2022

Capital raise of C$22m in 2022 with a 60:40 debt:equity split

0.90

1.20

1.28

1.58

1.51

1.81

Source: Edison Investment Research

Conclusion: High risk, high reward

Monarch has a well-established, highly experienced management team. We see no reason why the exploration programme will not add significant new resources to the company’s MI&I resources statement and management is aware that this is the way to add the most value to the fledgling company. Although the gold price has receded from its highs of August 2020, the positive correlation of the share price to the gold price shows how highly geared the share is to this driver. The confirmation of Beaufor’s production commencing in June 2022, and Monarch’s success in accessing capital markets and enhancing its cash position, should increase comfort levels.

Financials

Our forecasts for Monarch remain unchanged and will be updated after the bought deal share placement has been finalised and the June 2021 final results are released.

Exhibit 3: Financial summary

C$000s

Sep 2020

2021e

2022e

2023e

2024e

Year end 30 June

Pro forma

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

20,998

56,214

74,626

Cost of Sales

0

0

(11,256)

(31,339)

(43,739)

Gross Profit

0

0

9,742

24,875

30,887

EBITDA

 

 

(1,883)

(3,790)

(2,758)

16,250

22,078

Operating Profit (before amort. and except.)

 

(1,883)

(3,790)

(2,758)

16,250

22,078

Amortisation

0

(2,500)

(1,328)

(1,477)

(1,509)

Exceptionals

188

250

1,500

500

0

Other

0

0

0

0

0

Operating Profit

(1,695)

(6,040)

(2,586)

15,273

20,569

Net Interest

(69)

(206)

(430)

(390)

(531)

Profit Before Tax (norm)

 

 

(1,952)

(3,996)

(3,188)

15,860

21,547

Profit Before Tax (FRS 3)

 

 

(1,764)

(6,246)

(3,017)

14,883

20,038

Tax

467

0

0

(3,397)

(8,053)

Profit After Tax (norm)

(1,485)

(3,996)

(3,188)

12,464

13,496

Profit After Tax (FRS 3)

(1,297)

(6,246)

(3,017)

11,486

11,985

Average Number of Shares Outstanding (m)

66.3

68.0

69.7

69.7

69.7

EPS - normalised (c)

 

 

(2.2)

(5.9)

(4.6)

17.9

19.4

EPS - normalised and fully diluted (c)

 

 

(2.2)

(5.7)

(4.5)

17.4

18.9

EPS - (IFRS) (c)

 

 

(2.0)

(9.2)

(4.3)

16.5

17.2

Dividend per share (p)

0.0

0.0

0.0

0.0

16.3

Gross Margin (%)

N/A

N/A

46.4

44.2

41.4

EBITDA Margin (%)

N/A

N/A

(13.1)

28.9

29.6

Operating Margin (before GW and except.) (%)

N/A

N/A

(13.1)

28.9

29.6

BALANCE SHEET

Fixed Assets

 

 

36,504

36,504

37,989

38,313

65,944

Intangible Assets

14,319

14,319

14,319

14,319

14,319

Tangible Assets

13,282

13,282

14,767

15,090

42,721

Investments

8,903

8,903

8,903

8,903

8,903

Current Assets

 

 

20,920

19,439

13,627

29,628

17,093

Stocks

1,192

1,192

1,167

3,123

4,146

Debtors

2,122

2,122

2,129

5,698

7,565

Cash

14,000

14,520

8,727

19,201

3,777

Other

3,605

1,605

1,605

1,605

1,605

Current Liabilities

 

 

(2,698)

(2,695)

(2,558)

(7,070)

(9,856)

Creditors

(2,666)

(2,666)

(2,529)

(7,041)

(9,826)

Short term borrowings

(32)

(29)

(29)

(29)

(29)

Long Term Liabilities

 

 

(10,671)

(8,797)

(9,123)

(9,949)

(10,275)

Long term borrowings

(26)

(29)

(29)

(29)

(29)

Other long-term liabilities

(10,644)

(8,768)

(9,093)

(9,919)

(10,245)

Net Assets

 

 

44,056

44,452

39,935

50,922

62,906

CASH FLOW

Operating Cash Flow

 

 

0

(3,464)

(2,550)

15,561

22,300

Net Interest

0

(206)

(430)

(390)

(531)

Tax

0

0

0

(2,897)

(8,053)

Capex

0

(500)

(2,813)

(1,800)

(29,140)

Acquisitions/disposals

0

0

0

0

0

Financing

0

4,690

0

0

0

Dividends

0

0

0

0

0

Net Cash Flow

0

520

(5,793)

10,474

(15,424)

Opening net debt/(cash)

 

 

0

(13,941)

(14,461)

(8,668)

(19,142)

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

(0)

0

Closing net debt/(cash)

 

 

(13,941)

(14,461)

(8,668)

(19,142)

(3,718)

Source: Monarch Mining accounts, Edison Investment Research. Note: We do not show historical figures and instead show pro forma FY20 figures published in September 2020, reflecting that on 10 November 2020 Yamana bought the Wasamac mine and Camflo mill from Monarch Gold and, as such, there are no historical numbers that are relevant to Monarch Mining.


General disclaimer and copyright

This report has been commissioned by Monarch Mining Corporation and prepared and issued by Edison, in consideration of a fee payable by Monarch Mining Corporation. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Monarch Mining Corporation and prepared and issued by Edison, in consideration of a fee payable by Monarch Mining Corporation. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues