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.

Key Highlights:

• Decline in cash costs and AISC: The group managed its operations efficiently which resulted in the lower cash costs of USD 618/ oz of gold sold in Q1FY22 as compared to USD 713/ oz of gold sold in Q1FY21. Also, the all-in-sustaining costs (AISC) which include operating costs of mine, exploration costs, etc was reported at USD 1,504 per ounce of gold during Q1FY22, which is lower than the AISC of USD 1,586 per ounce of gold in pcp. The reduced costs are a key positive, especially in the rising inflationary environment.

• Debt reduction: The management is focused on debt reduction, especially in the hard times of rising interest rates across the globe, which makes debt servicing expensive. The group reported its long-term debt of CAD 177.49 million during Q1FY22, which is lower than the long-term debt of CAD 194.61 million in pcp. In FY21, the debt was reduced by approx. CAD 61 million and the management is targeting further debt reduction in coming quarters.
  

Source: Company presentation 

• Strong liquidity profile: The group’s quick ratio for Q1FY22 was reported at a higher level of 0.58x, as compared to the quick ratio of 0.27x in Q1FY21. Further, the company’s current ratio was stated at 2.01x for the reported period (Q1FY22), against the current ratio of 1.20x in pcp. The higher quick ratio and current ratio represent the company’s ability to meet its short-term obligations falling within one year time, without any hindrance, ensuring the smooth running of the business operations.

Source: Refinitiv, Analysis by Kalkine Group

• Improving profitability margins: In Q1FY22, the group managed its costs of operation and production which are well depicted across cash costs per ounce sold and AISC, which resulted in improved profitability margins during Q1FY22, when compared to Q1FY21.

Source: Refinitiv, Analysis by Kalkine Group 

Risks associated with investment

The group is majorly exposed to the volatility in the commodity prices and any unfavorable sustained movement in the prices, can hamper the company’s financial health. Also, the company is facing other key challenges such as currency volatility, change in mining laws, accidents in the mines, etc. to name a few.   

 Financial overview of Q1FY22 (Expressed in CAD)

Source: Company Filing

• The group reported total revenue of CAD 59.45 million in Q1FY22, which is lower than the revenue of CAD 74 million in Q1FY21. The decrease in the overall quantity of gold sold majorly impacted the overall declining revenue, which was slightly supported by the higher average realized price of gold in Q1FY22.

• During Q1FY22, the gross profit increased to CAD 26.29 million when measured against the gross profits of CAD 24.83 million in pcp.

• The group reported lower net income of CAD 16.04 million in Q1FY22 as compared to the net income of CAD 31.80 million in Q1FY21.
  

Valuation Methodology (Illustrative): EV/ Sales based

Analysis by Kalkine Group

Stock Recommendation:

The management is optimistic about the future outlook and estimated the production from the Eagle gold mine for FY22 to be between 165,000 oz and 190,000 oz. The group has initiated ‘Project 250’ which intends to increase the production rate to 250,000 oz/ year during FY23, which is a key positive. During Q1FY22, the company reported increased cash and cash equivalent of CAD 40.69 million as compared to CAD 21.55 million in pcp, and reported higher liquidity ratios. Further, the company had already reduced approx. CAD 61 million of debt in FY21 and constantly emphasizing to reduce it further.  On the valuation front, the stock is measured on the EV/ Sales based relative valuation multiple, and the stock is offered at 2.0x as compared to the industry (basic materials) mean of 3.3x, stating the stock is undervalued. We have considered Orla Mining Ltd., Wesdome Gold Mines Ltd, etc. as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock of VGCX at the last closing price of CAD 13.33 on June 16, 2022. Additionally, the 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 of June 16, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV 

Technical Analysis Summary

Disclaimer

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