Newfoundland is a geologically intriguing destination where the suture of two ancient continents (Laurentia and Avalon), once divided by the prehistoric Iapetus Ocean, hosts a number of gold occurrences, most notably Marathon Gold Corporation's (TSE:MOZ) +4 million ounces Valentine development.
Canaccord Genuity (TSX:CF, LSE:CF) recently increased Matador’s price target to A$0.65 (from A$0.60) following the gold explorer’s recent placement and substantial increase in landholding at Newfoundland.
The following is an extract from Canaccord research update:
In the past 12-18 months a mini Newfoundland gold rush has ensued in the tailwinds of MOZ and the likes of New Found Gold (CVE:NFG) following its January 2020 discovery at the Queensway Project, which returned 19m @ 93g/t Au and a number of similar hits since. This has sent its value soaring post-IPO. While nearology to NFG can account for some investor euphoria in central Newfoundland, there is much enthusiasm on the TSX. Those wanting ASX exposure to this hot spot need only look at Matador Mining, the sole ASX-listed player in Newfoundland at present.
Very well funded, proven management, highly prospective ground: Following a recent $16m placement, MZZ is fully funded to undertake a large 45,000m program exploring along the Cape Ray Shear. We estimate current cash at A$23m postplacement. Shares from the placement were issued at a 28% premium to the last close (18% premium to 10-day VWAP) as 'flow-through shares' under the Income Tax Act (Canada), and facilitated by a Canadian flow-through share dealer. A flow-through share refers to an ordinary share that is issued under a written agreement, whereby the company agrees to incur flow-through mining expenditure, and to renounce tax losses associated with that expenditure to the investor. The investor will be entitled to deduct the amount renounced for Canadian income tax purposes and as a result, the flowthrough shares are issued at a higher price. MZZ has recently appointed Canadian geologist, Kerry Spakes, as Technical Advisor to the Board, bolstering its already impressive team in our view. It recently doubled its extensive landholding in Newfoundland. As well as blocks adjacent to the Cape Ray Project, it has added the Hermitage Project to the books. The Hermitage Project is to the east of the Cape Ray Gold Project, along 27km of continuous strike on the Hermitage Flexure, a splay off the main Cape Ray Shear Zone. Hermitage is on a similar structural setting to NFG's Queensway Project as well as LAB-TSX's Kingsway Project.
Plenty of news flow to come: MZZ now embarks on its largest ever diamond drill program at Cape Ray. The program, which will run into the North American winter, is aimed at extending the gold mineralisation footprint at the known deposits while testing multiple new greenfield targets, all within 15km of existing resources (840koz). The company notes that in 2020, the average drill hole depth was only 120m, with 80% of the gold mineralisation encountered less than 80m from surface. The first drill target is following up on potential high-grade extensions to the 232koz Window Glass Hill deposit, which remains open along strike and at depth.
Review of Newfoundland explorers: We have assessed a growing pool of at least 24 explorer/developers active on the island. Market capitalisations range from C$7m to C$1.8bn with only five claiming resources on Newfoundland itself. Nearology to strong drill results appears to have played its part in some strong valuations (which is common globally). Strangely, land holding appears to carry as much weight as a credible resource (see summary charts overleaf).
Valuation and recommendation: We have updated our model for the recent placement and revised our exploration value in light on the substantial increase in landholding. Our price target (risked, NPV10%) has increased to A$0.65 (from A$0.60). We maintain our SPECULATIVE BUY rating.