Monarques Gold Corporation (TSXV: MQR) Introducing Revenue and EPS Estimates

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1 Siddharth Rajeev, B.Tech, MBA, CFA Analyst April 17, 2018 Monarques Gold Corporation (TSXV: MQR) Introducing Revenue and EPS Estimates Sector/Industry: Junior Mining / Exploration Market Data (as of April 17, 2018) Current Price C$0.30 Fair Value C$0.97 Rating* BUY Risk* 4 52 Week Range C$ C$0.47 Shares O/S 232,864,396 Market Cap C$69.86 mm Current Yield N/A P/E (forward) N/A P/B 1.5x YoY Return -16.7% YoY TSXV -3.9% *see back of report for rating and risk definitions Highlights Monarques Gold Corporation ( Monarques, MQR, company ) reported revenues for the first time in the quarter ended December 31, Revenue were $10.30 million with a gross profit of $1.98 million (excluding depreciation). Our revenue forecast for FY2018 is $31.66 million, including $26.69 million from the Beaufor mine, and $4.97 million from custom milling. We estimate sales of 16,550 oz from the Beaufor mine in FY2018. In February 2018, the company released an updated prefeasibility study ( PFS ) on the Croinor gold property, which showed a 10% increase in proven and probable reserves, and a 16% decrease in operating cost to US$639 per ounce of gold. We are expecting several catalysts for the share price this year, including stronger production and financial results, resource estimates on the newly acquired McKenzie Break and Swanson properties, and drilling at the Beaufor Mine (30,000 m) and the Croinor Gold (20,000 m) property. At the end of December 31, 2017, the company had cash of $17.58 million. In March 2018, MQR closed a $5 million non-brokered equity financing. We estimate that MQR is currently trading at just $16 per oz versus the comparable average of $64 per oz.

2 Page 2 Reports Revenues for the First Time In the quarter ended December 31, 2017, Monarques reported its first ever revenues. The company reported revenues of $10.30 million with a gross profit of $1.98 million. EBITDA was $0.5 million. Net income was $0.7 million or $0.003 per share, compared to a net loss of $0.5 million, or $0.004 per share in the same period in the previous year. Revenues came from the sale of 5,444 oz of gold from the Beaufor mine ($8.64 million 84% of the total), and through custom milling at the Camflo mill. Production at the Beaufor mine was up 62% QoQ, from the 3,380 oz produced by the previous owner, Richmont Mines Inc. s (TSX RIC). The company reported an average sales price of US$1,245 per oz, and production costs of US$1,052 per oz. We were very pleased with the cost, as it is down 32% from US$1,540 in the prior quarter. We also consider the positive EBITDA in the first ever quarter of production to be highly encouraging. Data Source: Company The company entered into three custom milling arrangements in late 2017, as listed below: October 2017 contract with Eldorado Gold Corporation (TSX: ELD) to process 50,000 to 55,000 tonnes of ore from the Lamaque gold mine until December 31, The agreement was extended for 2018, but details were not disclosed. November contract with Wallbridge Mining Company Limited (TSX: WM) to process 35,000 tonnes of ore from the Fenelon gold property. December contract with Nottaway Resources Inc. to process at least 15,000 tonnes per month of ore from the Vezza mine. Current Portfolio The following map shows the locations of MQR s key assets, including the operating mine (the Beaufor Mine), two mills (Camflo and Beacon), four advanced stage gold projects (Wasamac, Croinor Gold, McKenzie Break and Swanson) and six exploration projects covering more than 300 sq. km in the Abitibi region.

3 Page 3 Source: Company The properties hold reserves of 31 Koz measured, and indicated resources of 2.95 Moz, and inferred resources of 0.36 Moz.

4 Page 4 Data Source: Company

5 Page 5 Updated PFS on Croinor In February 2018, the company released an updated PFS on the Croinor Gold property, prepared by InnovExplo Inc., Amec Foster Wheeler and WSP Canada Inc. The PFS was based on an underground operation (mine life of under 4 years average annual production of 31.5 Koz), with ore to be processed at the Beacon mill. At a US$1,280/oz gold price, the PFS indicated an after-tax net present value ( NPV ) at 5% of $18 million (previously US$15 million), and an after-tax internal rate of return ( IRR ) of 30% (previously 24%). As shown in the table below, the latest PFS showed improvements over the 2014 PFS in several parameters, especially a 10% increase in proven and probable reserves, and a 16% decrease in operating cost to US$639 per ounce of gold. Data Source: Company We believe the study is conservative as it did not include results from the drill programs conducted since A 2017 drilling program, we believe, has potentially increased the size of the deposit. The program returned several high-grade gold intersections over long widths such as: 13.1 g/t Au over 4 m, including 33.7 g/t Au over 1 m, at a vertical depth of 58 m 7.8 g/t Au over 9 m, including 37.8 g/t Au over 1 m and 12.7 g/t Au over 0.8 m, at a vertical depth of 197 m Drilling at Beaufor Mine In March 2018, the company announced results of a 52 hole / 7,157 m program, including five exploration holes (2,651 m) and 47 definition drill holes (4,506 m) at the Beaufor mine. The program was successful as it confirmed continuity of Zone Q and resulted in

6 Page 6 discovery of new subparallel zones. Zone Q is the primary zone currently in production. Key results from exploration drilling, which intersected new veins subparallel to Zone Q, include: g/t Au over 2.10 metres, including g/t Au over 1.10 metres 7.55 g/t Au over 4.00 metres, including g/t Au over 1.00 metres Key results from the definition drilling include: g/t Au over 4.75 metres, including g/t Au over 0.50 metres g/t Au over 3.30 metres, including g/t Au over 0.80 metres g/t Au over 2.50 metres, including g/t Au over 0.55 metres 8.82 g/t Au over 2.50 metres, including g/t Au over 0.60 metres Upcoming Catalysts The following outlines management s key objectives for the year: Increase profitability of the Beaufor mine by increasing production, reducing production costs, and increasing grade through more selective mining. Produce resource estimates on the newly acuired McKenzie Break and Swanson properties from Agnico Eagle Mines Limited (NYSE: AEM). Both properties have historic resource estimates. Drilling programs at the Beaufor mine (30,000 m) and the Croinor (20,000 m) property. Evaluate the viability of advancing the Wasamac gold deposit into production. The company is evaluating the potential for custom milling instead of constructing an on-site processing facility. MQR has retained a firm to conduct a study and evaluate toll milling options (see image below).

7 Page 7 Financials Source: Company We are introducing our FY2018 revenue and EPS estimates in this report. As the company has yet to fully disclose its production ramp up plan, nor provided any production guidance on Beaufor for 2019, we are not presenting our FY2019 forecasts in this report. Our revenue forecast for FY2018 is $31.66 million, including $26.69 million from the Beaufor mine, and $4.97 million from custom milling. We estimate sales of 16,550 oz from the Beaufor Mine in FY2018. Our net income forecast for FY2018 is $0.31 million (EPS: $0.00).

8 Page 8 Source: FRC At the end of Q2-FY2018 (quarter ended December 31, 2017) the company had cash and working capital of $17.58 million and $9.57 million, respectively. The following table summarizes the company s liquidity position. The company has no debt, but there is an outstanding payment due (related to acquisitions) of $6.55 million, of which, $1 million is current. In March 2018, the company closed a non-brokered private placement with Ressources Québec for $5 million, by issuing million units at a unit price of $0.39. Each unit consisted of a common share and half warrant (exercise price of $0.45 per share for 3 years). Stock Options and Warrants We estimate MQR has 7.91 million options outstanding (weighted average exercise price of $0.28) and million warrants outstanding (weighted average exercise price of

9 Page 9 $0.41). Currently, 2.96 million options and 8.57 million warrants are in-the-money. The company can raise up to $2.49 million if these options and warrants are exercised. Valuation We estimate MQR s shares currently trade at just $16 per oz versus the comparables average of $64 per oz. MQR is undervalued relative to 12 of the 13 companies used in the study below. Prepared by FRC / Data Source: Various Companies Our current fair value on MQR is $0.97 per share versus our previous estimate of $1.06 per share. Our valuation dropped primarily because of share dilution from the recently completed financing. Risks The following risks, though not exhaustive, may cause our estimates to differ from actual results: The value of the company is dependent on gold prices.

10 Page 10 The production cost at the Beaufor mine is relatively high. Exploration and development risks at MQR s other assets. Access to capital and share dilution. No NI economic studies have been conducted on Simkar. We are maintaining our risk rating at 4.

11 Page 11 Fundamental Research Corp. Equity Rating Scale: Buy Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold Annual expected rate of return is between 5% and 12% Sell Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale: 1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. These companies should be considered speculative. 5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products. Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding. These stocks are considered highly speculative. Disclaimers and Disclosure The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any forward looking statements are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. FRC does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subject company. Fees were paid by MQR to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports are protected contractually. To further ensure independence, MQR has agreed to a minimum coverage term including four reports. Coverage cannot be unilaterally terminated. 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