Gold Co. On Verge of Construction Gains Research Coverage

Source: Raj Ray 10/01/2024

This firm, advancing its shovel-ready gold project in Cote d’Ivoire, is rated Outperform by BMO Capital Markets, according to its initiation report.

Montage Gold Corp. (MAU:TSX.V) gained additional analyst coverage as BMO Capital Markets initiated on it with an Outperform rating and a CA$2.50 per share target price, reported analyst Raj Ray in an Aug. 15 research note.

“Montage offers a scarce, high-quality investment opportunity amongst gold development-stage peers,” Ray asserted.

The Canadian company is currently trading at about CA$1.90 per share, at a discount to peers on an enterprise value:ounce basis, noted the analyst.

“As the company derisks, we believe the discount will continue to narrow,” Ray added.

From the current share price, the return to target is 32%.

Large-Scale, Low-Cost Project

Ray reviewed the factors that make Montage Gold a compelling investment opportunity.

The British Columbian explorer-developer owns and is advancing its 100%-owned, fully permitted Koné gold project in Côte d’Ivoire, the analyst wrote. In a significant derisking event in July, Montage received the last permits it needs to start construction there.

The feasibility study (FS) of Koné, updated earlier this year, outlines an open-pit operation producing an annual average of 223,000 ounces (223 Koz) of Au over a 16-year mine life, with 300 Koz per year produced during the first eight years, at an all-in sustaining cost of US$998 per ounce (US$998/oz).

Plant throughput is estimated at 11,000,000 tons per annum, and gold recovery is expected to be 89% using leach and carbon in pulp processing. Regarding overall processing costs, Koné ranks toward the top of the list of lowest-cost African producers.

“The Koné project has the potential to be one of the next big gold mines in West Africa,” wrote Ray. “The attractiveness of the project is the large scale, potential for additional higher-grade resources, simple flowsheet design with relatively low processing costs, and access to key infrastructure,” the analyst wrote.

Resource Expansion Potential

The Koné project resource already is sizable and likely could be expanded, Ray highlighted. Encompassing the two main deposits, Koné and Gbongogo Main, the resource amounts to 4,900,000 ounces of gold (4.9 Moz of Au) in the Indicated category and about 0.4 Moz of Au in the Inferred category.

Montage is fast tracking its exploration work this year to grow the resource and add high-grade resources to the mine plan, especially in the 38 kilometer corridor between the two deposits, noted Ray. The project’s highly prospective location, in Birimian greenstone belts, works in the company’s favor in this regard.

“We are of the view that given the prospectivity in the region and the strength of the exploration team, additional high-grade resources and satellite deposits could be appended to the mine plan in the next 12 months,” Ray wrote.

Attractive, Improvable Economics

The analyst purported that while the economics for Koné in the FS are attractive, they could improve in two ways: by optimizing the feed process and by adding high-grade satellite deposits to the mine plan.

Current economics in the FS, using a long-term gold price of US$1,850/oz, are a US$1,089 million (US$1,089M) after-tax net present value discounted at 5% (NPV5%) and a 31% internal rate of return (IRR).

Using BMO’s long-term gold price of US$1,650/oz, Koné after-tax NPV5% is US$592M, and the IRR is 27%.

Catalysts To Watch For

Montage is in the process of financing negotiations ahead of a construction start at Koné, perhaps in Q1/25. Finalizing of a funding package would further derisk the project and potentially catalyze Montage’s share price, Ray noted.

Also, investors can expect Montage to release additional drill/exploration results from Koné on an ongoing basis throughout the rest of this year.

Team With West Africa Experience

Montage’s management and board members have varied experience and a strong track record in making discoveries and constructing projects in West Africa, having worked together previously either at La Mancha, Endeavour Mining Corp. (EDV:TSX; EVR:ASX) or both, wrote Ray.

The Montage team includes Martino De Ciccio as chief executive officer (CEO), Peder Olsen as chief development officer, Constant Tia as chief financial officer and Silvia Bottero as senior vice president of exploration. Lundin Gold Inc. (LUG:TSX; FTMNF:OTCMKTS) CEO Ron Hochstein, with development experience in Ecuador, is on the board.

Ownership, share structure

Management and insiders own 4.9% of Montage’s shares outstanding. The company has two cornerstone shareholders, The Lundin Group (Nemesia S.A.R.L.) with 19.9% and Zijin Mining Group Co. Ltd. with 9.9%. Montage also has two strategic shareholders; Perseus Mining Ltd. (PRU:TSX; PRU:ASX) owns 9.6%, and Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) owns 6.4%.

Montage has 241.7 million shares outstanding. Its market cap is CA$459M.

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1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Barrick Gold Corp.
2. Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for BMO Capital Markets, Montage Gold Corp., August 15, 2024

Analyst’s Certification I, Raj Ray, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients. Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Company Specific Disclosures Disclosure 18: A redacted draft of this report was previously shown to Montage Gold (for fact checking purposes) and changes were made to the report before publication. Methodology and Risks to Target Price/Valuation for Montage Gold (MAU-TSXV) Methodology: Our target price for Montage is based on a 0.9x P/NAV5%. The P/NAV multiple is in line with the average multiples we use for development stage gold companies. Risks: Key Risks: 1) Exposure to emerging economies, which present certain risks and uncertainties; 2) Project execution of Koné; 3) Potential impact of inflation on project development capital and costs; 4) Potentially unfavourable project financing terms vs. our estimates.

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