Victory Gold hits the right spot

In the gold mining game some juniors go off to look for the next big elephant in far flung places that have seen nary a drill collar… while others take a more conservative approach.

Victory Gold (VGO – CNSX) falls into the latter camp as its Gold Pike project sits in one of the most renowned mining districts in North America and is sandwiched between three well known producers on the mining circuit.

Gold Pike sits squarely on the famed Destor-Porcupine fault zone, which is part of the Abitibi Greenstone Belt that has been responsible for over 110 million oz. of gold production. More specifically, Gold Pike is in the Timmins gold district and sits roughly equidistant between Brigus Gold’s (BRD-T, BRD-X) Black Fox Mine, and Lake Shore Gold’s (LSG-T, LSG-X) Fen Gib project. And just a few kilometers to the southwest lies St. Andrew Goldfields’ (SAS-T) Hislop mine.

It is a busy area for gold mining and it’s only getting busier with Brigus putting significant capital into its Gibson deposit and St. Andrew’s drilling out Hislop North. Both of those prospective zones lie less than 2-km west of Gold Pike.

But while a good address is important even prime gold real estate can disappoint if management doesn’t have the right people on the ground.

With noted geologist Ken Guy guiding exploration Victory has been able to efficiently find gold with 22 of its first 25 drill holes at the property having returned mineralization.

That kind of immediate success with the drill distinguishes Victory from many other juniors.

“We’re not looking for gold,” Victory’s president John Kontak says, “We’re drilling it out…and for a company with a market cap of only $7 million and with just 35 million shares outstanding that’s a pretty good position to be in.”

The company’s drilling success can in part be credited to Guy’s project specific knowledge as he was a member of the Noranda team that put 35 holes into the ground at the property back in the 1980s. With many of those holes returning intercepts longer than 20 metres at grades over 2 grams the project remained on Guy’s mind.

Guy would come full circle with Gold Pike via his affiliation with another junior —Lexam VG Gold (LEX-T).

After enjoining market success thanks to a merger with Robert McEwen’s Lexam to form Lexam VG, the founder of VG Gold, Tom Meredith, wanted a new entrepreneurial venture. Guy, who continues to serve as Lexam’s exploration manager, offered up Gold Pike as a prime candidate.

But as the old adage goes, everything that can change will change, and that was just the case with Gold Pike. Since Guy last worked there the project had actually gone into production — albeit rather briefly.

A company named Royal Oak Mines dug a small open pit to mine a near surface, high grade section of the orebody and trucked the ore roughly 60-km west for processing at the Pamour mill.

In total, Royal Oak managed to get just 10,000 oz. of gold production, although it registered an impressive average grade of 3.4 grams per tonne between 1992 and 93. The mine was quickly shuttered due to low gold prices.

Since Royal Oak was more concerned with turning ore to cash as quick as it could, the company was a bit lacking when it came to contributing to a better geological understanding of the project. So when Victory acquired the property in 2010 most of the historical data it inherited was still that which was left over from the Noranda days.

Armed with the data, and the results from its own drilling, Victory plans to tidy up Royal Oak’s unfinished business. With the former company’s small open pit only going to a depth of 75 metres, there is still plenty left to delve into.

The company’s current focus is on roughly 300 metres of strike extending in a southeasterly direction. The area was chosen because the Noranda data showed stellar intercepts like 8.6 metres grading 8.16 grams and 27 metres grading 3.18 grams.

Victory’s own drill program, launched in 2011, quickly confirmed the Noranda results with highlight assays of 65.4 metres grading 7.13 grams gold and 50 metres grading 1.44 grams gold.

Results like that caught the eye of some key mining investors on Bay Street, as Pinetree Capital (PNP-T), Accilent Capital and Dundee’s CMP Fund ponied up roughly $1.2 million in capital for a stake in the company’s equity in October of last year.

Victory put that money straight into the ground, and drill result from 2012 were highlighted by 71.5 metres grading 2.02 grams gold and 32.1 metres grading 1.77 grams gold.

Assays from the remaining holes are pending.

Going forward Kontak says the company is focused on finishing off its 12,000 metre drill program — a program that aims at outlining 500,000 oz. of gold between surface and the 250 metres level and another 500,000 oz between the 250 and 500 metre level.

To finish the program it will cost roughly $1.5 million but with roughly $300,000 currently in the kitty, Victory will need to do an equity raise to meet that goal.

Once that happens it will work towards releasing the first compliant resource estimate on Gold Pike. Kontak says the company is targeting a release of such an estimate in the first half of 2013.

Victory has an option to earn into 70% of Gold Pike, which would leave the remaining 30% in the hands of Matachewan Consolidated Mines (MCM-V).

Victory’s bullishness on the property can be seen in the haste with which it has met its funding requirements. It earned its initial 50% stake two years ahead of schedule by spending $450,000 on exploration and issuing 500,000 in shares and $60,000 in cash to Matachewan.

And while it has until 2015 to spend another $1 million on exploration and move up to a 60% stake, it has already met $400,000 worth of the requirement. To get the remaining 10% that would take it up to 70% it will have to spend another $2 million on exploration by 2018.

Management’s confidence in Gold Pike is also evidenced in its stake in the company, as management and insiders hold roughly 30% of Victory’s equity. The trio of Pine tree Capital, Accilent Capital and Dundee’s CMP Fund, hold roughly 20%.

Look for Victory shares to move up to the Venture exchange sometime later this year.