Victoria Gold — Update 7 April 2016

Victoria Gold — Update 7 April 2016

Victoria Gold

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Victoria Gold

Drilling underway, consultants appointed

Feasibility study to be updated

Metals & mining

7 April 2016

Price

C$0.28

Market cap

C$101m

US$/C$:0.73

Net cash (C$m) at 31 August 2015
(excludes restricted cash)

12.9

Shares in issue

361.1m

Free float

76%

Code

VIT

Primary exchange

TSX-V

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

20.0

74.2

86.2

Rel (local)

18.8

66.1

110.7

52-week high/low

C$0.28

C$0.12

Business description

Victoria Gold’s flagship project, Eagle Gold, is located in the 100%-owned Dublin Gulch property in the Yukon Territory, Canada. Victoria Gold also intends to explore its other claims while developing Eagle and is looking to monetise its Santa Fe project in Nevada, US.

Next event

Updated Eagle FS

Q3 CY16

Analysts

Tom Hayes

+44 (0)20 3077 5725

Charles Gibson

+44 (0)20 3077 5724

Victoria Gold is a research client of Edison Investment Research Limited

Victoria Gold has appointed consultants and project engineers to update its 2012 Eagle feasibility study (FS). The results are due to be included in a new FS, expected during Q316. The update will also include new drilling results being completed over the potential satellite ore feed deposits of Shamrock and Olive, both situated within 5km of the future Eagle plant. This 8,000m drill programme will run to mid-/end-June. Both the FS update and drill programmes are fully funded.

Year end

Revenue
(C$m)

PBT*
(C$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

02/14

0.0

(1.6)

(0.9)

0.0

N/A

N/A

02/15

0.0

(1.7)

(0.3)

0.0

N/A

N/A

02/16e

0.0

(2.1)

(0.6)

0.0

N/A

N/A

02/17e

0.0

(1.9)

(0.5)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Move to update FS driven by market conditions

Victoria Gold’s Eagle Gold project is fully permitted and, effectively, ready for development. However, as with many other mining companies, rather than attempting project financing in the current market, Victoria Gold has decided to manage its cash resources and bolster project economics through adding higher-grade satellite ore deposits situated within 5km of the planned Eagle mine site – close enough to easily truck ore to heap leach pads.

Updated FS to include new project data

The company anticipates the main driver for value growth at Eagle will be through adding satellite pits at Shamrock and Olive. A second heap-leach pad is also envisaged, allowing for greater grade control with highest grades (likely from Eagle and Olive) treated on the Eagle pad, and lower grade run-of-mine material blended and treated on a second ‘low-grade’ pad. The FS announced in 2012 used C$/US$ forex rates with oil and equipment prices as of Q411, all much higher than today.

Valuation: Current share price limits dilution

Our current base case valuation is for Eagle only and is based solely on the 2012 Eagle FS. On this basis, and using our in-house gold price deck, we value Victoria’s shares at C$1.39 (using a 10% discount rate). For illustration, assuming Victoria undertakes a 50/50 debt/equity financing strategy to raise the then projected C$430m in capex, at a share price of C$0.28, this yields a diluted valuation of C$0.71 per share (C$0.51 at US$1,220/oz Au). Both undiluted and diluted valuations are 396% and 154% respectively above Victoria’s current share price of C$0.28. Note that these valuations are based on pre-optimised outdated feasibility study results and could increase as a result of new lower oil and equipment costs being used.

Exhibit 1: Financial summary

C$'000s

2013

2014

2015

2016e

2017e

28-February

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

0

Cost of Sales

15,796

(2,779)

(8,522)

(2,146)

(2,146)

Gross Profit

15,796

(2,779)

(8,522)

(2,146)

(2,146)

EBITDA

 

 

(3,391)

(2,491)

(1,985)

(2,146)

(2,146)

Operating Profit (before amort. and except.)

(3,391)

(2,491)

(1,985)

(2,153)

(2,153)

Intangible Amortisation

0

0

0

0

0

Exceptionals

18,308

(364)

(6,537)

0

0

Other

(1,475)

(1,438)

867

(100)

0

Operating Profit

13,442

(4,293)

(7,655)

(2,253)

(2,153)

Net Interest

1,046

940

320

82

259

Profit Before Tax (norm)

 

 

(2,345)

(1,550)

(1,665)

(2,071)

(1,895)

Profit Before Tax (FRS 3)

 

 

14,488

(3,353)

(7,335)

(2,171)

(1,895)

Tax

(4,843)

30

(118)

0

0

Profit After Tax (norm)

(8,663)

(2,959)

(916)

(2,171)

(1,895)

Profit After Tax (FRS 3)

9,645

(3,323)

(7,453)

(2,171)

(1,895)

Average Number of Shares Outstanding (m)

339.7

340.1

340.1

353.9

361.1

EPS - normalised (c)

 

 

(2.6)

(0.9)

(0.3)

(0.6)

(0.5)

EPS - normalised and fully diluted (c)

 

(1.2)

(0.4)

(0.1)

(0.3)

(0.3)

EPS - (IFRS) (c)

 

 

2.8

(1.0)

(2.2)

(0.6)

(0.5)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

110,076

112,949

114,903

117,680

121,280

Intangible Assets

9,163

0

0

0

0

Tangible Assets

100,853

112,949

114,903

117,680

121,280

Investments

60

0

0

0

0

Current Assets

 

 

33,621

25,498

16,341

14,518

9,111

Stocks

0

0

0

0

0

Debtors

14,265

11,008

185

185

185

Cash

12,489

14,175

14,752

12,928

7,521

Other

6,867

315

1,404

1,404

1,404

Current Liabilities

 

 

(6,087)

(3,908)

(4,260)

(4,084)

(4,172)

Creditors

(6,087)

(3,908)

(4,260)

(4,084)

(4,172)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(4,616)

(3,784)

(2,798)

(2,798)

(2,798)

Long term borrowings

0

0

0

0

0

Other long term liabilities

(4,616)

(3,784)

(2,798)

(2,798)

(2,798)

Net Assets

 

 

132,994

130,755

124,185

125,315

123,420

CASH FLOW

Operating Cash Flow

 

 

(8,946)

(3,986)

(2,859)

(2,774)

(2,065)

Net Interest

1,046

940

320

82

259

Tax

4,097

(553)

(798)

0

0

Capex

(3,587)

4,428

3,459

(2,739)

(3,600)

Acquisitions/disposals

14

37

0

0

0

Financing

107

821

454

3,607

0

Dividends

0

0

0

0

0

Net Cash Flow

(7,269)

1,687

577

(1,824)

(5,407)

Opening net debt/(cash)

 

 

(19,664)

(12,489)

(14,175)

(14,752)

(12,928)

HP finance leases initiated

0

0

0

0

0

Other

94

0

0

0

0

Closing net debt/(cash)

 

 

(12,489)

(14,175)

(14,752)

(12,928)

(7,521)

Source: Company accounts, Edison Investment Research

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Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

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US

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Level 25, Aurora Place

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NSW 2000, Australia

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New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: TMT

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