Victoria’s Eagle to land in two years

With a feasibility study now in hand for its Eagle gold deposit on the wholly owned Dublin Gulch property in central Yukon, Victoria Gold (VIT-V) has solidified a plan that could take it from junior developer to gold miner by the end of 2014.

With a stripping ratio of 1.45 to 1, an open-pit, heap-leach operation at Eagle is forecast to produce 192,000 oz. gold per year over a nine-year life at total cash costs of US$615 per oz. Capital costs for the 29,500-tonne-per-day mine are calculated at $382 million, including a 10% contingency.

At a 5% discount rate, the project’s pre-tax net present value (NPV) is $380.8 million and its internal rate of return (IRR) 24.1%. Payback would be achieved within 3.1 years. At an 8% discount rate, Eagle’s NPV declines to $273.1 million before taxes.

The study, prepared by lead consultant Tetra Tech, used a base-case, long-term gold price of US$1,325 per oz. and a U.S.-Canadian dollar exchange rate of US92¢.

“At current gold prices, the IRR of the project is 43% and the NPV is over $900 million,” Victoria Gold president and CEO John McConnell said during a conference call to discuss the feasibility study. “But more importantly, it will be cash flowing in the first couple of years over $240 million per year.”

The study projects higher capital and operating costs than did a prefeasibility on Eagle released in March 2010, but an increase in throughput in the feasibility offsets those higher costs.

The low-grade Eagle deposit is located on Victoria’s wholly owned Dublin Gulch property, 375 km north of Whitehorse. Despite its remoteness, it enjoys year-round road access, is located with 25 km of grid power, and is 85 km from Mayo, which has a gravel airstrip.

Victoria Gold could begin construction at Eagle this year for a late 2014 production start.

Probable reserves at Eagle total 91.6 million tonnes grading 0.78 gram for 2.3 million contained oz. gold.

Payable life-of-mine production comes to 1.7 million oz. gold. Higher-grade ore would be mined in the first few years, resulting in production of 212,000 oz. per year for the first five years at a cost of US$542 per oz. Higher oxidation of shallower ore in the pit is also squeezing out more ounces and lowering costs in the first years of operation. The study forecasts life-of-mine recovery at 72.6%, but rates would be much higher in the first three years.

The company is studying ways to improve the project’s economics, including adding a second heap-leach pad, looking at using leased or used equipment, upgrading deeper inferred resources to indicated to potentially increase reserves and decrease waste and improving metallurgical recoveries.

The next steps include continuing the permitting process and nailing down financing.

Victoria is now going through the environmental assessment process and expects to receive a mining licence — which will allow for non-water-related construction — in the second half of 2012. A water licence is expected to follow in 2013.

As for financing, chief financial officer Marty Rendall said that initial discussions with potential lenders has been encouraging.

“The question isn’t can we finance the project, it’s how are we going to finance it to minimize both dilution and risk,” he said on the conference call.

The company sees 40% or more as a realistic target for debt financing. Rendall said all options are being considered to come up with the remainder, including alternative debt, an equity offering, forward sales, royalty sales, asset sales and bringing in a partner.

While the feasibility news didn’t move Victoria Gold’s stock, analysts reacted positively to the study.

Adam Graf, senior mining analyst at Dahlman Rose, has a $6.55 target on the stock and a “buy” rating. Paolo Lostritto, a mining analyst at National Bank Financial, has an “outperform” rating on Victoria and a $1 target.

Lostritto noted that a production decision at Eagle, which he believes is likely, will depend on the company’s outlook on gold and its ability to secure financing.

“Given that this project is in North America and would commence production in 2014, we believe there is some strategic value, but ultimately, a construction decision on Eagle will be predicated on the board’s outlook on gold prices.”

The company traded flat at 43¢ on the announcement. Victoria Gold has a 52-week trading range of 32¢–97¢, with 339.3 million shares outstanding.

To aid in the transition to producing miner, the company has brought on new chief operating officer Andrew Kaczmarek — an engineer with extensive experience in project development, construction and operations, including with heap-leach mines.

Victoria has also been exploring other targets on the 650-sq.-km Dublin Gulch property, which it acquired through a 2009 merger with StrataGold.

Its most recent results include 38 metres grading 1.22 grams gold from 47 metres depth on the Shamrock target and 23 metres of 0.72 gram gold from 86 metres depth on the Olive prospect. The two targets are part of the east- to northeast-trending Potato Hills belt, which intersects the Dublin Gulch granodiorite stock that hosts the Eagle deposit, where mineralization occurs in quartz veins.