A Pre-Resource Gold-Silver Junior with Potential for a Large Resource – Resuming Coverage

Report Highlights

• Gold is trading near record highs. We are more bullish on gold stocks than the metal itself, with gold producer valuations averaging 17% lower than the past three instances when gold surpassed US$2k/oz.
• M&A activity in the junior gold sector is on the rise. Recent transactions in the sector involved Yintai Gold’s (SZSE: 000975) acquisition of Osino Resources (TSXV: OSI/gold in Namibia) for $368M, Silvercorp Metals’s (TSX: SVM) acquisition of Orecorp (gold in Tanzania) for $186M, and Zhaojin Mining’s (SEHK: 1818) acquisition of Tietto Minerals (ASX: TIE/a brand new gold producer in Côte d’Ivoire) for $422M. We estimate an average price of $82/oz for these deals. MTH is trading at just $4/oz, making it the most undervalued junior gold stock on our list.
• Upcoming catalysts include financing, and drilling, followed by a maiden resource estimate.
  
  
  *See last page for important disclosures, rating and risk definitions. All figures in C$ unless otherwise specified.
  
  

  Tenoriba Gold-Silver project (Mexico)
  

 Project Location

Source: Company

Tenoriba is located in the prolific Sierra Madre metal belt

The region hosts several well-known multi-million ounce mines, and advanced stage deposits owned by majors

Exploration has identified four initial targets (Carneritos, Masuparia, El Moreno, and Cerro Colorado) along a 6 km trend of gold-silver mineralization. A review by experienced geologists confirmed Tenoriba's potential for hosting a high-sulfidation epithermal deposit across a 15 sq. km area, concluding the following: “Tenoriba is a high-quality exploration project with potential to host an economic high-sulfidation epithermal deposit”.

We note that Tenoriba also has potential for a porphyry copper-gold deposit at depth, as high sulfidation systems typically originate from porphyry metal systems. A 2018 drill program had returned 3.6% copper over 7.2 m.

High-sulfidation deposits typically host low cost, bulk tonnage, open pit, heap leachable deposits

Tenoriba vs Other H-S Projects in Mexico

Tenoriba's size compares favorably to the surface projections of other multi-million ounce high-sulfidation projects in Mexico

Similarities with Alamos Gold’s Mulatos mine, and Agnico Eagle’s La India mine

Target Areas

Source: Company

Four targets have been identified along a 6 km mineralized trend

2021 Soil Anomaly Map

Source: Company

A 2021 soil sampling survey returned grades of up to 6.3 g/t gold; we note that this is exceptionally high for soil samples

In 2022, the company completed 27 drill holes (totaling 3,244 m) testing five target zones within three areas (Carneritos, Masuparia, and El Moreno). Additionally, preliminary metallurgical tests returned promising gold recoveries of up to 90%.

2021-2022 Drill Location Map
Source: Company

Drill Intercepts (cut-off grade: 0.18 g/t AuEq)

Source: Company

90% of drill holes intersected mineralization, with an average grade of 0.61 g/t AuEq; this grade compares favourably to similar heap leach projects

Exploration Target and Upcoming Plans

MTH is planning a three-phase drill program aimed at potentially delineating a maiden inferred resource, possibly in 2025. Based on historical results, management has calculated an exploration target of 1.8 Moz AuEq within Carneritos, Masuparia, and El Moreno.

Proposed Drill Locations

Management is planning resource definition drilling in H2-2024, contingent upon securing financing

Exploration Target

*The study used a weighted average true drill interval thickness of 34 m.

Source: Company

Management’s exploration target covers just 8% of the project’s mineralized area (1.2 sq. km out of 15 sq. km)

FRC’s Speculative/Preliminary Estimate

Based on our review of prior drilling results, and the dimensions of the three targets, we believe management’s exploration target is conservative. There is a strong likelihood that the property hosts significantly higher tonnage, given that the exploration target only accounts for 8% of the identified 15 sq. km area. Should 25% of this area prove mineralized, we anticipate the project could potentially host up to 5.4 Moz AuEq.

These tables present our base-case estimate, and its sensitivity to key inputs

Source: FRC

Financials

Source: Company/FRC

MTH intends to raise up to $1M- $1.5M for follow-up drilling

Valuation and Rating

Source: FRC / S&P Capital IQ / Various

Gold juniors are trading at $39/oz, based on 100% of M&I + 50% of inferred resources

MTH is trading at $4/oz, a 90% discount to the sector average

For conservatism, we are basing our valuation on 25% of MTH’s exploration target

Applying the sector average EV/oz of $39/oz to 25% of MTH’s exploration target, we arrived at a valuation of $0.16/share

We are resuming coverage with a BUY rating, and a fair value estimate of $0.16/share. We are more bullish on gold stocks than the metal itself, with gold producer valuations averaging 17% lower compared to the past three instances when gold surpassed $2k/oz. The lack of an NI 43-101 compliant resource estimate may deter investors. However, we believe the company’s exploration target, and our preliminary/speculative estimates, should enhance market confidence. We anticipate the stock will gradually align with our fair value as investor awareness of the company grows.

Risks

We believe the company is exposed to the following key risks (not exhaustive):

• Volatility in gold prices
• No NI 43-101 compliant resource estimate
• Exploration and development
• Access to capital
• Share dilution