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Study of Proposed Pd-Cu Mining Project Robust

Source: Adam Schatzker

April 10, 2023 (Investorideas.com Newswire) The newly released, updated feasibility study shows the Canadian project has higher costs now, but it has already been significantly derisked, noted a Research Capital Corp. report.


Generation Mining Ltd. (GENM:TSX; GENMF:OTCQB; 9GN:FSE) released an updated feasibility study (FS) of its Marathon palladium-copper project in northwest Ontario, Canada, reported Research Capital Corp. analyst Adam Schatzker in an April 4 research note.

"The study is fairly robust as it relies more on actual quoted prices rather than estimates and reflects more than 40% of the detailed engineering drawings having been completed," Schatzker wrote.

Notable Potential Gains

After incorporating the changes between the previous 2021 FS and the new, revised version, Research Capital lowered its target price on Generation to CA$1.95 per share from CA$2.55. In comparison, the metals explorer is currently trading at about CA$0.58, the price difference reflecting a material projected return of 236%. Generation is rated Speculative Buy.

"Overall, we continue to believe Marathon is a good copper-palladium project, in a top-tier jurisdiction, that is mostly permitted for construction," Schatzker commented.

The analyst presented the key takeaways from the updated Marathon FS.

Differences Between Studies

The new FS reflects several differences from the 2021 one. In the new iteration:

  • Capital costs are CA$224 million ($224M) higher
  • The assumed palladium price is higher, at US$1,800 per ounce versus US$1,725
  • Life-of-mine operation costs are 23% higher
  • The Canadian dollar to U.S. dollar exchange rate is 5.5% lower

Research Capital revised its valuation model to reflect the increased costs but maintained its estimates for the metals prices and the exchange rate, noted Schatzker. This resulted in a lower NPV discounted at 6%; it is now CA$747M, down from CA$1,174M. The internal rate of return is 18%.

Effects of Inflation

All of the cost increases associated with Marathon are due to inflation, a phenomenon all mining project developers are facing, Schatzker wrote.

Given recent inflation, we think there is some logic to considering higher metal prices, especially for copper in this case," he added.

For instance, he pointed out, a mere US$0.25 per pound increase in the copper price assumed, to US$3.75 per pound from US$3.50, what Research Capital is using, would add CA$70M to the NPV.

Derisking is Noteworthy

Generation has already derisked much of Marathon. It has done this, in large part, explained Schatzker, by entering offtake agreements for concentrate and by publishing a higher-quality FS. Given the derisking, Research Capital raised its target price:NAV multiple to 0.65 times from 0.50 times.

Unfinanced Amount a Challenge

The biggest persisting risk the Canadian mining firm faces with Marathon is "a financing gap," Schatzker wrote, CA$270M of cash needed for construction, which financing secured to date does not cover.

"This is the most significant obstacle for Generation in the near term as the company has a fairly aggressive schedule to develop the project," wrote Schatzker.

Generation is working on this, having discussions with lenders and private equity funds. Some lenders, management indicated, "may consider the CA$240M stream arrangement as an equity contribution which could leave more room for additional debt," relayed Schatzker.

He concluded his report with this: "While Generation is going down the path of financing, building, and operating the Marathon project on its own, we cannot rule out a partnership or takeover of the company, both of which could be beneficial to shareholders."

Disclosures:

1) Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with: None. Please click here for more information.

3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures For Research Capital Corp., Generation Mining Ltd., April 4, 2023

Analyst Certification I, Adam Schatzker, certify the views expressed in this report were formed by my review of relevant company data and industry investigation, and accurately reflect my opinion about the investment merits of the securities mentioned in the report. I also certify that my compensation is not related to specific recommendations or views expressed in this report.

Research Capital Corporation publishes research and investment recommendations for the use of its clients. Information regarding our categories of recommendations, quarterly summaries of the percentage of our recommendations which fall into each category and our policies regarding the release of our research reports is available at www.researchcapital.com or may be requested by contacting the analyst. Each analyst of Research Capital Corporation whose name appears in this report hereby certifies that (i) the recommendations and opinions expressed in this research report accurately reflect the analyst's personal views and (ii) no part of the research analyst's compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report. Adam Schatzker has visited Generation Mining Limited in the past 18 months.

Relevant Disclosures Applicable to Companies Under Coverage Relevant disclosures required under IIROC Rule 3400 applicable to companies under coverage discussed in this research report are available on our website at www.researchcapital.ca

General Disclosures The opinions, estimates and projections contained in all Research Reports published by Research Capital Corporation ("RCC") are those of RCC as of the date of publication and are subject to change without notice. RCC makes every effort to ensure that the contents have been compiled or derived from sources believed to be reliable and that contain information and opinions that are accurate and complete; RCC makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained therein and accepts no liability whatsoever for any loss arising from any use of or reliance on its Research Reports or its contents. Information may be available to RCC that is not contained therein. Research Reports disseminated by RCC are not a solicitation to buy or sell. All securities not available in all jurisdictions.

Potential Conflicts of Interest All Research Capital Corporation ("RCC") Analysts are compensated based in part on the overall revenues of RCC, a portion of which are generated by investment banking activities. RCC may have had, or seek to have, an investment banking relationship with companies mentioned in this report. RCC and/or its officers, directors and employees may from time to time acquire, hold or sell securities mentioned in our Research Reports as principal or agent. RCC makes every effort possible to avoid conflicts of interest, however readers should assume that a conflict might exist, and therefore not rely solely on this report when evaluating whether or not to buy or sell the securities of subject companies.

RC USA INC. Information about Research Capital Corporation's Rating System, the distribution of our research to clients and the percentage of recommendations which are in each of our rating categories is available on our website at www.researchcapital.com. The information contained in this report has been drawn from sources believed to be reliable but its accuracy or completeness is not guaranteed, nor in providing it does Research Capital Corporation assume any responsibility or liability. Research Capital Corporation, its directors, officers and other employees may, from time to time, have positions in the securities mentioned herein. Contents of this report cannot be reproduced in whole or in part without the express permission of Research Capital Corporation. US Institutional Clients - Research Capital USA Inc., a wholly owned subsidiary of Research Capital Corporation, accepts responsibility for the contents of this report subject to the terms and limitations set out above. US firms or institutions receiving this report should effect transactions in securities discussed in the report through Research Capital USA Inc., a Broker - Dealer registered with the Financial Industry Regulatory Authority (FINRA).

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