Company Name: Common Stock:Victoria Gold Corp (TSX:VGCX)
Current Market Price: $8.15
Market Capitalization: $475 million
*Note: All values in this article refer to Canadian Dollars (CAD), unless otherwise stated
Victoria Gold – Summary of the Company
Victoria Gold Corp is a gold mining stock with a single flagship asset, the Dublin Gulch property. This property has 2 proven gold deposits, the Eagle deposit and the Olive deposit. In July 2019, the company began production at the Eagle deposit. Both deposits will be mined using open pit mining. The property is in the central Yukon territory of Canada. The company also has other exploration and development projects. Victoria Gold Corp was founded in 1981 and is headquartered in Toronto, Canada. The company has 281 employees. In February of 2020 VGCX stock “graduated” and was listed on the Toronto Stock Exchange.ImageUpload an image file, pick one from your media library, or add one with a URL.UploadMedia LibraryInsert from URL
Revenue and Cost Analysis
In mid 2019 Victoria began production, but it is still in the ramp up phase of its operation and has yet to declare any commercial revenue.
Since the company has no revenue yet, thus they are running an operating loss. In 2019, the net loss was $9.8 million. This was an improvement fro the 2018 loss of $12 million. It is worth noting that operating expenses appear reasonable for the stage of the company, this is reflected it the annual improvement of the operating loss.
Once producing, the company estimates an all in sustaining cost of USD $800 per ounce for the 11-year estimated life of the mine
Royalty and Streaming Agreements
In 2018 Victoria Gold entered into a royalty agreement with Osisko. Osisko purchased 5% of the property’s production, eventually falling to 3%, in exchange for $98 million.
Reserves
Between the Eagle and Olive deposits, Victoria Gold estimates they have 3.2 million ounces of “proven and probable” gold reserves.
Victoria Gold – Balance Sheet Analysis
Victoria Gold has a very weak balance sheet. Debt levels are high and credit facilities are already fully drawn. Current liquidity levels are very low and it is unclear how the company will finance itself in the future should production of the Eagle mine not ramp up on schedule.
CAPEX
The initial capital spent on the Eagle mine was spent between August 2017 and July 2019. The total pre-production capital cost was $487.2 million.
An Additional $209.5 million in sustaining capital will be required over the life of the mine.
Debt Analysis
The company has significant levels of debt. They have a senior note valued at USD $100 million. This facility is already fully drawn and the first of 15 quarterly payments is due in May 2020.
They also have a subordinate credit facility valued at USD $75 million. This facility is already fully drawn. Accrued interest payments will begin in May 2020 and the principal is to be repaid in 2024.
Additionally, they have a equipment finance facility valued at $USD 50 million, to be repaid over a 4-6 year period.
Total balance sheet debt is $291 million (CAD)
Victoria Gold Stock – Share Dynamics and Capital structure
Victoria Gold had 59.3 million common shares outstanding at year end 2019. They also have significant amounts of options, share based compensation, and warrants outstanding. Total diluted shares outstanding are estimated to be around 69.1 million.
VGCX has a dilutive capital structure. Given the current state of the company’s balance sheet it is highly likely they will need additional funding. Investors should consider carefully where that funding will come from and how it will effect their position as common shareholders.
Victoria Gold Stock – Dividends
Victoria Gold has not paid any dividends to common shareholders as of yet.
Management Structure – Skin in the game
In 2019 insiders at Victoria Gold were net sellers. This is usually viewed as a bearish signal for the equity.
Victoria Gold Stock – 3 Metrics to Consider
Cash Coverage Ratio
Cash/Current Liabilities
$16.8 million/$80.2 million = .21
A cash coverage ratio of .21 is very low. This indicates that the company has liquidity issues and may face problems meeting its current liabilities.
Working Capital Ratio
Current Assets/Current Liabilities
$25.5 million/$80.2 million = .31
A working capital ratio of .31 is another indication of severe liquidity issues. The company has $50 million in current debt due in 2020. This credit facility is already fully drawn and the company may have problems making this payment.
Price to Book Ratio
Current Share Price/Book Value per share
$8.13/$4.55 = 1.79
Based on the fully diluted shares outstanding estimate, Victoria Gold has a book value per share of $4.55. At the current market price VGCX has a price to book ratio of 1.79. This means the stock is currently trading well above the book value of its assets.
Gold Market – Economic Factors and Competitive Landscape
Gold mining is a highly competitive, capital intensive business. The company will need to compete fiercely for both new projects and capital. However, given the current economic environment of global money printing and zero or negative interest rates, it would appear gold companies are poised to benefit from a strong economic tailwind.
Victoria Gold Stock – Summary and Conclusions
No Doubt Victoria Gold has a prized asset. The Dublin Gulch property has the potential to be the largest gold mine in the Yukon Territory. But this is the company’s only property, increasing risk for investors.
It was not cheap or easy to bring the first mine online. In order to get the Eagle deposit operational, the company had to severely impair its balance sheet. Its credit facilities are fully drawn and liquidity levels are very low. It is unclear how the company will pay back the $50 million in debt that is due in 2020.
It is likely the company will need additional financing. Common stock investors should think carefully about their position within a dilutive capital structure of a company that has already proven willing to sell off future earnings via a royalty.
If the company can resolve its liquidity issues, and does not need to over dilute in order to do so, then VGCX has a lot of upside potential. Although it currently trades well above the book value of its assets, it may be a acceptable to make a small allocation within a very well diversified portfolio of gold stocks. But make no mistake, this is a very high risk, high return investment.
Disclaimer
This is not investment advice. Nothing in this analysis should be construed as a recommendation to buy, sell, or otherwise take action related to the security discussed. If I own a position in the security discussed, I will clearly state it.
This is not intended to be a comprehensive analysis and you should not make an investment decision based solely on the information in this analysis. I hope this serves as a useful starting point for a more comprehensive analysis, and hopefully draws attention to aspects of the company that were overlooked or merit further investigation. This is by no means intended to be a complete analysis. Again, this is not investment advice, do your own research.
