The preliminary economics indicate the project has positive financial metrics over an initial mine life of seven years with capital payback during the first 1.75 years of the project’s life.
Perth-based financial services company Hartleys has reiterated its price target of 38 cents per share for Matador (current price: 24 cents), highlighting upside to come.
The following is an extract from Hartleys’ research update on Matador:
Matador Mining Limited (MZZ) has released a Scoping Study for the Cape Ray Gold Project in Newfoundland, Canada. The study is underpinned by a new, recut resource of 837koz @ 2g/t Au that allows for an underground component at two of the four deposits making up the Central Zone, maximising the economics of the project. MZZ will produce 484koz Au over a 7-year LOM through a 1.2Mtpa plant, and receive an additional ~A$26M in silver credits. Average annual production is ~69koz with ~88kozpa produced in the first 4 years, and ~44kozpa thereafter. Preproduction capital and development costs total ~A$167M with underground development to cost ~A$7M in Year 3 and again in Year 5. LOM sustaining capital, which includes pre-stripping on a number of pits, will total ~A$40M. AISC is expected to be in the region of US$776/oz (~A$1,273/oz).
Updated resource and new mine inventory
The new resource stands at 837koz @ 2g/t Au and is broken into open pit (0.5g/t cut-off) and underground (2g/t cut-off) components, with the exception of the lower grade PW Zone at Central and Window Glass Hill resource, which are stated at a 0.25g/t cut-off. The previous resource, from February 2020, was wholly open pit focussed and comprised 1.2Moz @ 2.2g/t Au. While the new resource has seen a 29% drop in contained ounces from reworking some of the Central Zone, and in terms of confidence, has 43% of ounces in the Indicated category compared to 58% in the February 2020 resource; however, it maximises the mineable ounces in a preliminary mine inventory. The 503koz inventory comprises a modest 29koz @ 3.5g/t Au underground component which bolsters project economics, with the rest in open pits averaging 2g/t Au. The new resource converts to a mining inventory at ~58% with 43% of LOM production sourced from Inferred material, highlighting a requirement for further drilling, like all projects at this stage of development.
How does the Study Stack up to our Expectation?
The study broadly meets our expectation. Given the previous resource released in February was intended to underpin the Scoping Study, we did not previously model an underground. The mine inventory is slightly smaller than we anticipated but will certainly grow with further drilling at Cape Ray. As highlighted in Figure 1, we have updated our assumptions and lowered assumed production in line with the Scoping Study. The greatest divergence in modelling comes from assumed commodity prices. MZZ has assumed a LOM gold price of ~A$2,545/oz, close to current spot. Our assumed LOM price is ~A$1,981/oz, and accounts for a 24% difference in LOM revenue.
Executive Chairman appointment strengthens the business
The Cape Ray Scoping Study demonstrates a promising start for MZZ. It has since appointed proven mining executive Ian Murray as Executive Chairman. Given the strides Murray made at GOR.asx, MZZ is in solid hands to continue its growth. Exploration is set to continue with further resources likely, and required in order to reach the 100kozpa for 6+ years benchmark that some look for in a standalone, undeveloped gold asset. Declining grades in the latter years of LOM can be strengthened through further discovery and/or plant expansion. The project potentially produces healthy cashflows in the first 4 years (see Figures 2 & 3). Our Price Target remains 38cps, highlighting upside to come. Our base case valuation is 36cps and 73cps at spot prices.