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:

• Strong 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 fine ore from the crushing circuit and adjusting the seasonal stacking plan for the above growth.

• Impressive Performance amidst short-term challenges: 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 during Q1FY22, which hindered the overall production. Moreover, the company reported a lower waste mined of 2.3 million tonnes in Q1FY22, as compared to 4.7 million tonnes in Q1FY21, indicating better yields.

• Bullish Exploration Outlook: The company has ample backlogs at third party laboratories with delayed assay results. Results from the remainder of the 2021 exploration campaign are expected during the second quarter of 2022. Within the 2022 exploration program, the company will focus on extended drilling along the western margins of the Eagle Reserve along with an extensive program at the Raven target, including an estimated 25,000 m of diamond drilling. These are likely to result in improved prospects for the company in the coming days and would support its upcoming exploration activities.

• Positive Macros: International Gold price has remained elevated since September 2021 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.

• Robust Profitability margins: In Q1FY22, the company reported its EBITDA margin and operating margin of 61.90%, and 39.6%, respectively, as compared to the industry median of 39.9% and 26.80%, 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 27% in Q1FY22, higher than the industry median of 15.40%.

   Source: REFINITIV, Analysis by Kalkine Group

• Reported Higher Liquidity: At the end of Q1FY22, the company reported cash and cash equivalents of CAD 40.7 million, which is higher than CAD 31.3 million in Q4 FY21. The company reported its working capital surplus of CAD 118.2 million in Q1FY22 v/s capital surplus of CAD 62.8 million in Q4FY21. The increase in cash and cash equivalents was due to additional cash from financing activities amounting to CAD 47.8 million on account of shares issued for cash and draws made on credit facilities and long-term debt. This is likely to support the company’s upcoming working capital requirements and capital investments.

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.

Q1FY22 Financial Highlights:

 Q1FY22 Income Statement Highlights (Source: Company Report)

• Elevated Revenue: VGCX announced its first quarter FY22 result, wherein the company posted its revenue of CAD 59.4 million, slide from CAD 62.7 million in pcp. Total quantity of gold sold was reported at 25,518 oz in Q1FY22, lower than 27,538 oz in pcp. This was partially offset by higher average realized price of CAD 2,328/oz in Q1FY22, versus CAD 2,274/oz in Q1FY21.

• Higher Gross profit: The company reported its gross profit of CAD 26.2 million, which improved from CAD 24.8 million in pcp, thanks to the higher revenue as mentioned above coupled with a lower cost of goods sold.

• Dip in Net profit: The Corporate general and administration costs stood higher than the previous corresponding period due to a surge in salaries & benefits costs along with office & administrative expenses. The company reported an unrealized and realized loss on derivative amounting CAD 6.1 million, as compared to an unrealized and realized gain on derivative instruments amounting CAD 19.5 million in pcp. Hence, the company posted a lower net income of CAD 16.0 million v/s CAD 31.8 million in pcp.

Top-10 Shareholders:  Top ten shareholders of the company together hold approximately 57.18% stake, Coeur Mining Inc, and Orion Resource Partners (USA) LP. emerged as the major shareholders in the company with an outstanding position of 17.17% and 9.34%, 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:

The company expects that it would operate at full capacity during 2022, which further confirms the continuation of strong demand dynamics. Moreover, VGCX is planning to invest ~USD 55 million for its sustaining capital and ~USD 40 million for the growth capital in FY22. These 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 13.94 on May 25, 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 May 25, 2022). Analysis by Kalkine Group

*Recommendation is valid on May 26, 2022, price as well. 

  Technical Analysis Summary

Disclaimer

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