The market has virtually ignored the significant value added by Marvel Gold Ltd (ASX:MVL) from the spin-out of Evolution Energy Minerals Ltd (ASX:EV1), according to Bridge Street Capital Partners.
At an enterprise value (EV) of $11 million, Bridge Street believes Marvel sits at a deep discount against three other pre-development Mali resource plays.
Bridge Street has taken an average EV/resource ounce from its peer group (A$77/oz), applied a 25% to 50% discount for no other reason than to be conservative; then added 67% of the market value of Marvel’s holding in Evolution Energy (again to be conservative), to wind up with a possible target of 10 cents to 13 cents per share (current share price: 7.4 cents).
The following is an extract from Bridge Street’s research update:
Investment view
The spin-out of Evolution Energy Minerals (ASX: EV1) has successfully concluded with significant value imputed for MVL shareholders. MVL now holds 31% of EV1, worth around $26m or around 4.4c/MVL share. We understand the company may distribute the EV1 shares to MVL shareholders pro rata, but a final decision has not yet been made.
Looking at the following comparison, from an MVL perspective the market has virtually ignored the significant value added from the EV1 spin-out. Against three other pre-development Mali resource plays at an EV of $11m (ex EV1) MVL sits at a deep discount. And we rate the exploration potential at and around Tabakorole as very promising and with geologist Chris Van Wijk the potential for additional ounces must be very good. Furthermore we think the company might not be too far away from starting a scoping study for Tabakorole.
Not to say we aren’t attracted by the other Mali gold plays. OKU is particularly interesting as the company works to move the resource base forward to justify the start of a feasibility study. We think Chesser ounces are of good quality but appear stranded unless it can do a deal with a nearby mill. Yet the EV/resource ounce from OKU and CHZ are 8 to 10 times that of MVL’s Tabakorole. On this basis, MVL is simply too cheap, with an EV of $11m (subtracting the value of EV1 shares) and an EV/resource ounce of $11/oz.
We are always reluctant to publish valuations and target prices on exploration plays. But to take an average EV/resource ounce from its peer group (A$77/oz) apply a 25% to 50% discount, for no other reason that to be conservative; then add 67% of the market value of MVL’s holding in EV1 (again to be conservative), we wind up with a possible target of 10c to 13c/share. Removing all discounts a 21c/MVL share could be inferred.
We have re-published our work on MVL from last month, discussing the recent resource upgrade and exploration plans for 21/22. We understand that with the wet season now over, drilling has recommenced, and is aiming to further extend the resource at Tabakorole and test soil geochem anomalies surrounding the deposit.
Recent discussions with MVL have confirmed the company has 3 auger rigs and an air core/RC rig on site with quite an aggressive program underway.
Air core and RC drilling will follow up targets generated by multi-element soil geochem and recent high resolution ground magnetometry.