Victoria Gold (VGCX) - "FOCUS" Creates $1Bn Gold Producer

Operating Canada's newest gold mine.' Is this the largest mine in Yukon history?

Victoria Gold is a gold developer. Over the last 10 years, McConnell and his team have developed it into a C$1Bn company. McConnell is an impressive individual and a deep thinker. There is nothing superficial about his approach, nor his attitude to doing things the right way. He has a calmness to him which exudes confidence.

Matthew Gordon talks to John McConnell, August 2020

Victoria Gold has a variety of 100%-owned gold exploration projects spread across the Yukon:

1. Falcon (VBW Claim) -  an analogous precious metals exploration target akin to the Company's Eagle Gold Deposit.
2. Canalaska (No, not the uranium company) - a contiguous block of 179 quartz claims covering an area of approximately 3,400ha.
3. Clear Creek - 233 contiguous quartz claims totalling ~4,500ha.
4. Donjek - contiguous block of 169 quartz covering 3,500ha.

Victoria Gold's wholly-owned subsidiary, Gateway Gold, owns a land package in Nevada, US, called Santa Fe, that previous produced 350,000oz gold and 700,000oz silver in the late-80s/early-90s.

Within the Dublin Gulch claim block, Victoria Gold has numerous other gold-siver and polymetallic exploration projects in the prolific Mayo Mining District of Central Yukon Territory, Canada: Olive-Shamrock, Eagle West, Eagle Extension, Catto, Popeye, Wolf-Tungsten, Bluto, Rex-Peso, Spinach, Nugget, and Lynx.

Then, it's on to the main event: Victoria Gold's producing gold mine: the Eagle Gold Mine, which is 'the newest mine and largest gold mine in Yukon history.' It is 100% owned, and the company intends to ramp it up significantly, eventually employing around 400 people; the company claims this will make Victoria Gold a significant economic contributor to the local communities and the Yukon.

What are the main facts and figures?

1. Poured its first gold on 17th September 2019.
2. In full production, the mine will produce 210,000oz gold pa.
3. AISC is an extremely impressive US$774/oz gold, meaning Victoria Gold can be very economic even in a significantly reduced gold-price environment.
4. A Reserve of 3.3Moz gold.
5. A mine-life of a fairly average 11 years.

The company believes these figures and the company's fundamentals demonstrate 'the ideal combination of significant mineral endowment, a desirable location with existing infrastructure and a strong, experienced management team.'

It hasn't all been plain sailing for the gold producer. Back in 2010, it acquired the Eagle Gold Mine and decided it would be the focus. Back before the gold bull market, capital was extremely hard to come by, and Victoria Gold had to battle to survive. The acquisitions of Strata Gold and Gateway Gold, who owned numerous Nevadan properties, could have been a major distraction, but Victoria Gold made the smart decision to focus, something companies so often struggle with, by selling off everything else (8-or-so projects), keeping a royalty on some of the properties (such as the one sold to Banyan Gold). These assets are still slowly being explored. None of them are into production or significantly developed yet.

It raised $65M through the sale of all these assets and ploughed it into the development of Eagle Gold from a resource to a reserve. McConnell is a mining engineer by experience, and it is clear he wanted to build something rather than explore and pray for a takeout. This has proved to be an inspired decision.

In 2018, it was time to pull the trigger and get Eagle financed. What did the debt terms look like?

1. Two credit facilities totalling US$175M (approximately C$219M);
2. An equipment financing facility for up to US$50M (C$63M);
3. A C$98M royalty financing
4. A private placement of Victoria common shares to two separate subscribers for a total of C$125M.

Osisko (royalty financing and C$50M in shares) and Orion (subordinated debt facility and C$75M in shares) are involved. Separately, Victoria Gold reached an agreement with Caterpillar Financial with respect to a proposed equipment financing for up to US$50M, primarily for new Cat® equipment.

With a much higher gold price today, Victoria Gold is fully aware it can refinance the c. US$225M of debt on better terms, and it has now set out to begin the refinancing process having contacted 30 banks and received proposals from 15. Ideally, it would like to refinance "the entire package." A "Hollywood problem" is that at today's skyrocketing gold prices, the debt is being paid back so quickly that companies need to ask themselves if it is worth the time, effort and resources to conduct such a re-rate. It will cost c. $1M in banker, lawyer, and independent engineer fees to refinance Victoria Gold. The company is looking at things on a weekly basis to decide if it should refinance or focus on repaying the debt as it stands as quickly as possible.

An area of controversy is the $23M COVID-19 fund raised in April/May. McConnell insists that without this capital to see the company through, they "would have lost everything." It certainly seems reasonable, then.

The company is now looking to get back to normality, expecting to be at the full run-rate of 210,000oz pa in 2021. The plan is to build a mid-tier gold mining company. McConnell owns "a lot of shares in the company" (almost 1%), so it might well be in his best interests to create shareholder value. However, if someone was to come along and offer the largest shareholder Orion US$30 per share for Victoria, McConnell might well be looking for a new job.

There are plenty of deliverables for Victoria Gold to hit, but if it can achieve its claimed production figures and AISC while paying down a decent amount of the debt, shareholders will be very satisfied indeed.

What did you make of John McConnell and Victoria Gold?

Company Page: https://www.vgcx.com/