Common Stock: Marathon Gold (TSX:MOZ)
Current Market Price: $1.63 CAD
Market Capitalization: $293.9 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Marathon Gold Stock – Summary of the Company
Marathon Gold is a mineral exploration company focused on the acquisition, exploration, and development of mineral properties in North America. They have one flagship asset, the Valentine Gold project in Newfoundland, Canada. Exploring and eventually bringing this project into production is the sole focus of the company. Marathon was founded in 2009 and is headquartered in Toronto, Canada.
Revenue and Cost Analysis
The company has no producing properties and therefore has no revenue from operations. They consistently run a net loss and are likely to continue to do so for the foreseeable future.
The company had a net loss of $4.7 million in 2019, compared to a net loss of $2.8 million in 2018. Their largest expenses are compensation related, including share based compensation.
Marathon Gold – Royalty and Streaming Agreements
The company owns a 2% net smelter royalty from The Golden Chest Mine in Idaho, which they sold in 2015.
In 2019, the company sold a 2% net smelter royalty on the entire Valentine project to Franco-Nevada. They have the right to buy back .5% before December 2022.
Marathon Gold – Mineral Reserves
The Valentine project has measured gold resources totaling 1,890,000 ounces of gold.
Balance Sheet Analysis
Marathon has a strong balance sheet with sufficient liquidity and low liability levels.
At the end of 2019 the company had current assets totaling $28.9 million, including $27.9 million in cash. The company’s cash position increased significantly year over year due to financing raised from the sale of a net smelter royalty in 2019. Current liabilities totaled $4.7 million.
Marathon has long term assets comprised mostly of property and equipment. The company’s long term mineral exploration and evaluation assets had a value of $84.7 million at year end 2019. Total assets were valued at $113.7 million, compared to $10 million in total liabilities.
Marathon Gold – Debt Analysis
The company does not have any debt as of year-end 2019.
Marathon Gold Stock – Share Dynamics and Capital Structure
As of March 2020, the company had 179.1 million common shares outstanding. In addition, they had 13.3 million options and 8.5 million warrants outstanding. Fully diluted shares outstanding was 200.9 million shares.
Marathon has a dilutive capital structure. Investors should carefully consider their place in the capital structure and the effects of dilution before investing.
Marathon Gold Stock – Dividends
The company has never paid a dividend and Is unlikely to pay a dividend for the foreseeable future.
Management – Skin in the game
Insiders at Marathon have both purchased and sold shares in the company over the past 2 years. The amounts are almost equal, so this does not give a signal to investors.
Marathon Gold Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$10 million/ 103 million = .09
A debt to equity ratio of .09 indicates that the company has very little debt in its capital structure and uses mostly equity financing to fund itself.
Price to Book Ratio
Current Share Price/Book Value per Share.
$1.63/$.52 = 3.2
Based on fully diluted shares outstanding, Marathon has a book value per share of $.52. At the current market price, this implies a price to book ratio of 3.2, meaning Marathon stock trades at a premium to the book value of its assets.
Working Capital Ratio
Current Assets/Current Liabilities
$28.9 million/$4.7 million = 6
A working capital ratio of 6 indicates a strong liquidity position. Marathon should not have a problem meeting its near-term obligations.
Gold Market – Economic Factors and Competitive Landscape
Gold mining is a highly competitive, capital intensive business. The company will need to compete fiercely for both new projects and capital. However, given the current economic environment of global money printing and zero or negative interest rates, it would appear gold companies are poised to benefit from a strong economic tailwind.
Marathon Gold Stock – Summary and Conclusions
The Valentine project is a high potential property in a secure jurisdiction. The project appears to be moving along at a reasonable pace and Marathon is in a good financial position to continue advancing the project.
The company has strong liquidity and low liabilities. They did raise capital via the sale of a royalty limiting upside for investors. However, having the backing of a company like Franco Nevada can also be viewed as a positive.
Major risks for investors are concentration risk, the company is a single asset company and dilution risk, the company already has significant amount of dilutive instruments outstanding, and will certainty need to raise more capital to bring a mine into production.
However even considering the risks above, and the fact the stock in no bargain, currently trading well above book value, I would consider a small allocation to Marathon stock within a well-diversified portfolio of gold exploration stock. If the mine does eventually produce, I believe the upside is sufficient to compensate investors for the risk.
Disclaimer
This is not investment advice. Nothing in this analysis should be construed as a recommendation to buy, sell, or otherwise take action related to the security discussed. If I own a position in the security discussed, I will clearly state it.
This is not intended to be a comprehensive analysis and you should not make an investment decision based solely on the information in this analysis. I hope this serves as a useful starting point for a more comprehensive analysis, and hopefully draws attention to aspects of the company that were overlooked or merit further investigation. This is by no means intended to be a complete analysis. Again, this is not investment advice, do your own research.
