Victoria Gold Corp. (TSX: VGCX) is a gold mining company that operates through its fully owned Dublin Gulch property, situated in central Yukon, Canada. The Dublin Gulch property includes the Eagle Gold Deposit, the Olive Deposit, the Wolf Tungsten Deposit, and the Potato Hills Trend. Currently, the company derives its revenue from Eagle Gold Deposit.

Key Investment Rationale:

• Solid Growth in Production: During the FY21, the company produced 164,222 ounces of gold, higher than 116,644 ounces of gold produced in 2020. The 41% surge in gold production was attributable to the increase in ore mined and stacked along with higher ore grades. This was in line with the company’s guidance of 162,000 - 180,000 ounces of gold production.

        

                Source: Company Presentation

• Impressive FY22 Guidance: For FY22, the company expects its gold production in between 165,000 and 190,000 ounces, which is higher than 164,222 ounces of gold in FY21. All in sustainable costs (AISC) for 2022 are expected in between USD 1,225 to USD 1,425 per oz. Moreover, the corporation has initiated ‘Project 250’ targeted to increase the average annual gold production of 250,000 ounces in 2023. The company is focusing on exploring new opportunities like scalping of fine ore from the crushing circuit and adjusting the seasonal stacking plan for the above growth.

• Recent Operational Update: Recently, the company disclosed its Q1FY22 operational metrics and reported total gold production of 24,358 ounces, which is lower than 26,759 million in Q1FY21. The result is impressive considering a six-week maintenance program on the crushing and stacking facilities in Q1FY22, coupled with the arrival of exceptionally cold weather in Q1FY22, which hindered the overall production. Moreover, the company reported a lower waste mined at 2.3 million tonnes in Q1FY22, as compared to 4.7 million tonnes in Q1FY21, indicating better yields.

• Robust Profitability Margins: In FY21, the company reported its EBITDA margin, and operating margin of 57.1%, and 40%, respectively, as compared to the industry median of 39% and 20.3%, respectively. This indicates that the company has improved its cost management, which resulted in better margins than the industry median. Moreover, the company reported a net margin of 31% in FY21, as compared to the industry median of 13.7%.

Source: REFINITIV, Analysis by Kalkine Group 

• Prudent Capital Management: The company is focusing to utilize its free cash flow appropriately and hence it has repaid CAD 61 million of its total borrowings in FY21 and planning for further debt reduction in FY22. This is encouraging as it would lead to higher financial flexibility. Moreover, the management is keen to invest a part of its free cash flows towards the share repurchase program, paying a dividend to its shareholders, increasing investment in exploration programs, and acquiring stakes in junior exploration companies.

 

Source: Company Presentation

• Positive Macros: International Gold price has remained elevated since September 2021 and currently trading near the 52-weeks high due to rising inflation and weak macros outlook. Moreover, being a defensive asset class, gold is gaining traction due to the overvalued equity market coupled with persisting tensions between Ukraine and Russia. Considering the current inflation growth scenario and phenomenal returns generated by the yellow metal till date, the outlook for the Gold looks promising.
  

Risks associated with the Investment:

The company’s operations might be impacted due to substantially declining commodity prices, currency volatility, high input costs, etc. Moreover, changes in drilling and well-servicing technology, along with the impact of any adverse weather conditions, might also dampen the ongoing operation of the company.

FY21 Income Statement Highlights (Source: Company Report)

• Elevated Revenue: VGCX announced its full-year results, wherein the company posted its revenue of CAD 356.4 million, significantly higher than CAD 178.7 million in FY20. Total quantity of gold sold was reported at 158,736 oz in FY21, as compared to 102,551 oz in FY20. However, the average realized price stood at 2,243/oz in FY21, lower than 2,480/oz in FY20.

• Higher Gross profit: The company reported its gross profit of CAD 150.9 million, which is significantly higher than CAD 76.3 million in FY20, thanks to the higher revenue as mentioned above, partially offset by an increase in the cost of goods sold.

• Surge in Net profit: The company optimized impressive cost management, which resulted in lower corporate general and administrative expenses in FY21. Moreover, the company reported a gain on derivative instruments of CAD 12.1 million versus a loss of CAD 44.8 million in FY20. Hence, net profit was reported at CAD 110.3 million, as compared to CAD 14.8 million in FY20.

Top-10 Shareholders:  Top ten shareholders of the company together hold approximately 56.41% stake, Coeur Mining Inc, and T. Rowe Price Associates, Inc. emerged as the major shareholders in the company with an outstanding position of 17.37% and 11.42%, respectively.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

In FY21, the company showcased a robust operational performance both in terms of production and sales growth, aided by growing demand for Gold across the globe. The company expects to operate at full capacity during 2022, which further confirms the continuation of strong financial performance. The group expects that it would invest ~USD 55 million for its sustaining capital and ~USD 40 million for the growth capital in FY22, which are expected to provide long-term operational support for the company and is a key positive.

We have valued the stock using EV to Sales based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Wesdome Gold Mines Ltd, Karora Resources Inc, etc. for this purpose. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of VGCX at the last closing price of CAD 14.43 on April 13, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 13, 2022). Analysis by Kalkine Group

*Recommendation is valid on April 14, 2022, price as well.

   Technical Analysis Summary

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