Friday, May 3, 2013

Victoria Gold

There are a number of plays which I have been looking at entering but I have been waiting for the bottom in this junior down cycle. I was very sure that we were months away from the bottom, and I was gearing up to pull the trigger. The recent fall (attacks) in the price of (paper) gold has sent me crawling back to my perch, far away, as I observe the happenings for a bit longer.

Its in these bottoms, whenever I can best perceive them, that I will go into a play on the fundamentals, going long over a greater period of time than normally characterizes my trading style.

Anyways, one of the companies I have been looking at for a while is Victoria gold and their Eagle Gold project. Victoria Gold, trading on the V under the symbol VIT has been trading in the 17-20 cent range lately with 340 million shares out and a market cap of about 60 million.

The Good

Their Eagle Gold project contains quite an amount of gold which includes a reserve of 2.3 million (all falling under the probable category) oz Au at 0.78g/t, 4.8 million indicated at 0.68 g/t, and 1.5 million inferred at 0.60 g/t.

In regards to the reserve, the CAPEX will be roughly $400 mill with life of mine sustaining costs at $133 mill. According to the reports, it would be an open pit mine which would move 29,500 tpd ore and produce roughly 200,000 oz Au per year at $542/oz, with the highest grades/yields coming from the first 3 years of the mine. The mine is proposed to open in 2014/15 with a life of 9 years. Processing costs are projected at around $12/t ore.

All in all not bad. Although the company has some money, somewhere around 40 million last I checked, they will need to raise much more cash to get it rolling. That being said, they are quite far along in their permitting processing with a feasibility study, first nations agreement, and an environmental assessment that has been approved by the Yukon government. They currently need to finish up with their construction permits and then construction of the mine. As well, they are still needing their quartz mining permit.

At .17 cents it has seemed like a undervaluation to me, and apparently to Kinross as well as they own 16% of Victorias shares. Sure the project is a bit low in the grade department, but majors like these kind of plays as take over candidates, where all the dirty work is done. I will be waiting to see if they can turn some of that 6 million inferred ounces into the indicated category as well.

Aside from the general market conditions, Yukon plays seem to receive further devaluation. The area fell out of favor a couple years ago and has never regained its form. That being said, the Yukon is my favored territory in Canada for miners. The first nations groups are more sophisticated in a bussiness sense then say those in Nunavut, as they have been through it before, and there are not the land claim battles going on the same extent as they are in the NWT.

The Concerning
Well...They need to raise a lot of money. It this sector and market condition that large number seems even larger. As well, I would imagine that large dilution will come of this, very high dilution. I recall reading that they were planning on selling gold forward. Not sure if it was just a presentation suggestion/food for thought but it seems that the general market sentiment is fairly bearish on the POG. At this point in time, gold is trading at 1470/oz and their 43-101 report was done based on a 1325/oz price.

Generally, that is fine when gold was trading at 1650/oz, but at nearly $200/oz less on a low grade project a $145 buffer zone just does not give the same comfort as, say, a $325 buffer zone. I actually felt they should have used a lower POG for their technical report. Some of the other projects I have been looking at were using $1250. We all saw how gold can fall in the course of a day. per full disclosure....What am I going to do? I plan on picking up some shares in the 17-20 cent range, but not a large position. Will add if I see something I like in regards to the POG and VITs ability to finance their project.

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