Victoria Gold - Production Ramp-Up and Cost Control Fuel Optimism

• Victoria Gold operates the Eagle gold mine in the Yukon, currently producing 170,000 ounces per year
• The Company aims to increase production to over 200,000 ounces per year
• All-in sustaining costs are currently around $1,450 per ounce
• They are focused on optimizing operations and reducing costs
• The company is now cash flow positive with $18 million in free cash flow this past quarter

About Victoria Gold

Victoria Gold Corp owns a 100% interest in the Dublin Gulch gold property located in central Yukon Territory, Canada, approximately 375 kilometers north of Whitehorse and 85 kilometers from Mayo. The 555 square kilometer property is accessible by road year-round and sits within Yukon Energy's electrical grid.

The Dublin Gulch property is the site of Victoria Gold's Eagle and Olive Gold deposits. The Eagle Gold Mine contains proven and probable reserves of 2.6 million ounces of gold extracted from 124 million tonnes of ore grading 0.65 grams per tonne gold. Additionally, the Eagle and Olive deposits contain measured and indicated mineral resources totaling 4.7 million ounces of gold within 245 million tonnes at an average grade of 0.59 grams per tonne gold, which includes the proven and probable reserves. An inferred mineral resource totals 0.7 million ounces of gold within 35 million tonnes grading 0.62 grams gold per tonne.

Interview with President & CEO, John McConnell

Optimizing Eagle Mine Operations Amid Challenging Market Conditions

Victoria Gold, a Canadian gold producer operating the Eagle mine in the Yukon, is working to optimize its operations and reduce costs in order to improve profitability amid a volatile gold market and inflationary pressures, according to President and CEO John McConnell in a recent interview.

The Eagle Mine, the company's flagship asset, is currently producing around 170,000 ounces of gold per year. Victoria Gold aims to increase production to over 200,000 ounces annually going forward. However, McConnell explained that the company has pulled back on more ambitious expansion plans due to substantial increases in capital costs due to inflation and supply chain issues. "A project that we thought was going to be 15 to 20 million was all of a sudden...50 to 60 million," he said, adding that Victoria Gold first wants to "learn to walk before we run."

All-in-sustaining costs at the Eagle Mine are approximately $1,450 per ounce at present. McConnell noted that this reflects a "new reality" across the industry, with average global all-in sustaining costs likely closer to $1,450 compared to $1,150 several years ago. He cited Covid-related supply chain disruptions and rising fuel, labor, equipment, and other input costs as the key drivers of Victoria Gold's increased operating expenses. For example, year-to-date parts costs from Caterpillar are up 40%.

Given the limited ability to influence the gold price, McConnell emphasized that the company is focused on enhancing productivity and efficiency at the Eagle Mine in order to reduce costs.

"I can make sure we produce gold for the lowest possible cost per ounce, that's our aim."

Recent initiatives have centered on improving the site's crushing, conveying and stacking system, which has been a major bottleneck. Covid travel restrictions had previously constrained Victoria Gold's ability to bring in expert vendor assistance. But now with greater access, the company has redesigned aspects of this key process. McConnell also highlighted small but continual enhancements across the operation, from adjusting equipment configurations to ensuring best practices around waste rock removal and trucking.

"On almost a weekly basis we make improvements to the system," he noted. The introduction of new fleet management technology offers additional visibility into productivity by truck, loader and personnel. According to McConnell, "We'll start to see improvements in operating costs from those efficiencies."

Financial Health Supports Operational Focus

Victoria Gold's improving financial position provides further room to concentrate on optimizing the Eagle Mine. The company generated positive free cash flow of $18 million this past quarter, even after making debt repayments and acquiring a new royalty package for $8.5 million in cash.

McConnell conveyed comfort with the company's current balance sheet. Ongoing efforts to pay down debt remain a priority for free cash flow allocation. Victoria Gold also put in place gold price protection via hedging and other instruments to guard against downside risk. "We've protected ourselves that if the gold price was going to drop to say $1,600, at our current operating costs...we'd be able to continue," McConnell explained.

While these moves limit some upside exposure, he argued that "it's the right thing to do." With gold potentially heading to $3,000 by 2024 in the eyes of some European investors McConnell has spoken with recently, he is willing to forego a portion of these theoretical gains to ensure Victoria Gold's financial stability.

Path Back to Favor in the Market

Shares of Victoria Gold have retreated significantly from previous highs, pressured by repeated guidance misses over the past three years as well as recent sector-wide weakness. However, McConnell believes meeting guidance for 2023 puts the company on the right track to regain investor confidence.

"I think the market is waiting for us to demonstrate that the mine really is running well," he said. Moreover, further debt repayment and consistent execution would provide additional validation. "We'll get rewarded and we'll see a rerating in our share price," McConnell predicted.

Guidance for 2023 stands between 160,000-180,000 ounces of production. Victoria Gold is on pace for output just below the midpoint of that forecast. While McConnell acknowledged past operational stumbles, he maintained that the company's priority now is steady gold production at low all-in-sustaining costs.

"I think our production record at Eagle is the most important thing to be judged on," he stated. "I can't really do anything about the price of gold...but I can make sure we produce gold for the lowest possible cost per ounce."

Achieving this aim could go a long way towards restoring Victoria Gold to its previous stature among investors in a volatile market. "Our partners still have checks waiting for good projects and good people," McConnell remarked. Demonstrating consistent execution at Eagle would further validate Victoria Gold's capacity on both fronts.

The Investment Thesis for Victoria Gold

• Eagle mine now producing with all-in sustaining costs below $1,500 per ounce.
• Focus on optimizing production and reducing costs using new technology.
• Free cash flow positive this quarter even after debt repayments and new royalty acquisition.
• Reducing debt and hedging exposure to limit downside risk in a volatile gold environment.
• Trading at a fraction of past valuation; hitting guidance could prompt share price re-rating.

After past struggles, Victoria Gold now aims to showcase steady execution and lower costs at its Eagle Mine. While pursuing only measured expansion plans given inflated capital requirements, enhancing productivity can still grow free cash flow generation. Supported by a cleaned-up balance sheet and extensive hedging, Victoria Gold's share price could rerate significantly if the company regains its footing as a reliable mid-tier gold producer in a volatile market. However, operational consistency remains vital to validating a constructive investment case.