Monarques Gold Corporation (TSXV: MQR) Recent Weakness in Share Price Offers an Attractive Entry Point

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1 Siddharth Rajeev, B.Tech, MBA, CFA Analyst May 29, 2018 Monarques Gold Corporation (TSXV: MQR) Recent Weakness in Share Price Offers an Attractive Entry Point Sector/Industry: Junior Mining / Exploration Market Data (as of May 29, 2018) Current Price C$0.28 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$65.20 mm Current Yield N/A P/E (forward) N/A P/B 1.5x YoY Return -17.6% YoY TSXV -4.5% *see back of report for rating and risk definitions Highlights In Q (quarter ended March 31, 2018), Monarques Gold Corporation ( Monarques, MQR, company ) reported revenues of $9.82 million, down 4.6% QoQ. Revenues from the Beaufor mine were down 9.1% QoQ, and were lower than our expectations, but revenues from custom milling were up 18.7% QoQ, and beat our expectations. We are adjusting our revenue forecast for the full year from $31.66 million to $30.45 million. The company recently announced its decision to start up its Beacon mill (by Q4-2018), which will significantly enhance the company s overall production capacity. At the end of March 2018, the company had $18 million in cash. Based on an Enterprise Value of just $18 per oz, we estimate that MQR s shares are trading significantly below comparables. We believe the current price offers investors an attractive entry point. 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.

2 Page 2 Revenues of $9.82 million in Q3 In Q3-2018, Monarques produced 4,932 oz of gold at the Beaufor mine, down 9.4% QoQ. However, Q3 production was up 46% from the 3,380 oz produced in Q1 by the previous owner, Richmont Mines Inc. s (TSX RIC). The drop in QoQ production was due to the breakdown of ore haulage equipment at the Beaufor mine, and a planned shutdown for maintenance at the Camflo mill. The equipment has since been repaired and production has resumed at the normal rate. According to the company, the average grade dropped from 4.9 gpt to 4.7 gpt, due to a higher dilution factor from a stope, and a higher than expected proportion of low-grade ore development. Source: FRC / Data Source: Company Q3 revenues totaled $9.82 million, down 4.6% QoQ. Revenues came from the sale of 4,823 oz of gold from the Beaufor mine ($7.85 million 80% of the total), and through custom milling at the Camflo mill ($1.97 million 20% of the total). Revenues from the Beaufor mine were down 9.1% QoQ, but revenues from custom milling were up 18.7% QoQ. The company had 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. Management has indicated that the above contracts, plus ore from the Beaufor mine, will allow the company to operate the Camflo mill at full capacity in We are adjusting our FY2018 full year production forecast from 16,550 oz to 15,482 oz. As a result, our revenue forecast dropped from $26.69 million to $24.86 million. However, we are raising

3 Page 3 our forecast on revenues from custom milling from $4.97 million to $5.59 million. Overall, we are adjusting our consolidated revenue forecast from $31.66 million to $30.45 million. 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. Source: FRC / Data Source: Company Financial Statements EBITDA and EPS In Q3, the company reported an average sales price of $1,624 per oz ($1,583 per oz in Q2), and production costs of $1,642 per oz ($1,338 per oz in Q2). Costs increased primarily due to increased maintenance costs due to equipment failures and lower grades. As a result, gross margins dropped in Q3, as shown in the table below. Source: FRC / Data Source: Company Financial Statements EBITDA was -$1.58 million in Q3 versus $0.19 million in Q2. The company reported a net loss of $2.16 million (EPS: -$0.01) in Q3 versus net profit of $0.67 million (EPS: $0.00) in Q2. We are adjusting our EPS forecast for FY2018 from $0.31 million (EPS: $0.00) to

4 Page 4 a net loss of $2.49 million (EPS: -$0.01). Portfolio Update 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. MQR s Portfolio Source: Company The properties hold reserves of 31 Koz, measured, indicated resources of 2.95 Moz, and inferred resources of 0.36 Moz. On May 17, 2018, Monarques announced its decision to start up its Beacon mill. The mill is expected to be running by Q4-2018, and the estimated CAPEX to upgrade the facility is $1.5 million. We consider this a very positive sign as it significantly enhances the company s overall capacity. In April 2018, the company retained a third party to study various potential scenarios, including custom milling, for the development of the Wasamac gold project.

5 Page 5 Source: Company The company had 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%). 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 Upcoming Catalysts 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 discovery of new subparallel zones. Zone Q is the primary zone currently in production. The following outlines management s key objectives for the year:

6 Page 6 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 acquired 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 property (20,000 m). Evaluate the viability of advancing the Wasamac gold deposit into production. Balance Sheet At the end of Q3-FY2018 (quarter ended March 31, 2018), 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. Source: FRC / Data Source: Company Financial Statements The company has no debt, but there is an outstanding payment due (related to acquisitions) of $6.79 million, of which, $1 million is current. Stock Options and Warrants Valuation Risks We estimate MQR has 7.77 million options outstanding (weighted average exercise price of $0.28) and million warrants outstanding (weighted average exercise price of $0.41). Currently, 2.72 million options and 8.57 million warrants are in-the-money. The company can raise up to $2.45 million if these options and warrants are exercised. We estimate MQR s shares currently trade at just $18 per oz versus the comparables average of $64 per oz. Considering that there has not been any material change in the company s fundamentals since our previous report on April 17, 2018, we maintain our fair value estimate of $0.97 per share and BUY rating on MQR s shares. 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. The production cost at the Beaufor mine must be lowered to make the project more attractive. Exploration and development risks at MQR s other assets. Access to capital and share dilution. We are maintaining our risk rating at 4.

7 Page 7 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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