London, UK, 24 March 2021

Monarch Mining Corporation (GBAR): Initiation - Monarch's magicians

Monarch Mining Corporation was spun out of Monarch Gold (MQR) in January 2021. MQR sold its Wasamac and Camflo assets to Yamana for C$200m but retains a suite of potentially high-return projects as Monarch Mining. Its portfolio is located in the well-established and highly prospective Abitibi gold belt. Beaufor should start production in FY22, with minimal capex outlay. Once in production, its cash flows, combined with existing cash (Monarch Mining is debt free) will be invested in Croinor, expected to start up in FY24. Our valuation is C$0.99/share, comprising C$0.69 for Beaufor and Croinor and C$0.30/share for second-tier assets McKenzie Break and Swanson. With financing, Croinor could be brought forward, accelerating cash flows. Meanwhile, ongoing exploration, given the highly prospective locations, is likely to add to available resources and potentially to mine-life extensions, offering considerable valuation upside.

Our valuation with production to FY27 produces free cash flow of over C$70m from the two key projects, Beaufor and Croinor, with C$1.15/share in total dividends starting in FY24. This implies a valuation for the Beaufor/Croinor combination of C$0.69/share using a 10% pa discount rate. McKenzie and Swanson potentially add a further C$0.30/share. With additional funding, the Croinor start up could be accelerated to FY22, which would increase our core valuation by C$0.21/share, while a two-year mine-life extension could add another C$0.38/share. Combined, these imply full valuation upside of C$1.58/share. This excludes any potential future upside from exploration, M&A or further mine life extensions.  

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