Site visit: Victoria’s Eagle truly ‘shovel ready’

MAYO, YUKON — When it comes to visiting mine sites in northern Canada there aren’t too many that boast better access than Victoria Gold’s (TSXV: VIT; US-OTC: VITFF) Dublin Gulch property, which is reached via a civilized, 80 km drive along mostly paved roads from the small town of Mayo in the central Yukon. The company has been de-risking the project since 2009, and its 100-person, all-season exploration camp looks ready to transition into a full-blown construction and development site at a moment’s notice.

Pulling into Dublin Gulch on a chilly afternoon, however, it is readily apparent that Victoria isn’t operating at full capacity. The company came close to scoring financing for a heap-leach development on its Eagle deposit in 2013, but plummeting gold prices have forced management to pull back, preserve a healthy capital position and measure its options.

“There are a few important elements that separate us from a lot of the junior resource companies you’ll run into on the market these days. We have a strong cash position and haven’t raised money in over four years,” president and CEO John McConnell says while handing out hard hats and safety vests. “That takes Eagle through to the feasibility stage and working through the entire permit process. We also enjoy infrastructure advantages, as we’re one of the few projects in the Yukon you can reach by car.”

Victoria was awarded its water-use licence in late 2015, which marked the end of a permitting journey that took the company nearly five years. Government approval means that Eagle is ready for production pending an answer to the all-important question on financing.

Victoria’s mine plan involves a $400-million development that would make doré from a conventional open-pit operation with a three-stage crushing plant, in-valley heap leach facility and carbon-in-leach adsorption-desorption gold recovery plant.

The operation would produce 212,000 oz. gold annually over a 10-year mine life at all-in sustaining costs of US$729 per oz. Assuming US$1,325 per oz. gold, the operation would feature a US$227-million after-tax net present value and an 18% internal rate of return. The numbers might look a bit grim, but Victoria’s study assumes a US92¢ Canadian dollar, which means foreign exchange would go a long way in offsetting lower gold prices.

“The issue facing us is clearly how a junior company in the current market can finance this project. We’d made quite a bit of progress around three years ago at higher gold prices, and many of those lenders are still in play. Unfortunately there’s still a financial gap there, which we’d typically fill through the equity markets,” McConnell adds.

“Given the state of the equity environment, however, it just doesn’t seem possible right now. We’ve looked at selling a royalty or stream, and we definitely have interest in the project from some gold producers. I’m reasonably optimistic we can arrange a financing later this year to start construction in early 2017,” he adds.

McConnell steers a pickup truck up a steep cut on the way to the top of the Eagle deposit, and points out the location of Victoria’s proposed open-pit and nearby waste-rock facility, as well as the site of the valley-leach system the company modelled from Kinross Gold’s (TSX: K; NYSE: KGC) Fort Knox heap-leach mine in Alaska’s Fairbanks mining district.

Victoria amended its Eagle feasibility study in mid-2015, but the filing was more of a regulatory requirement than a change to the mine design. The company’s development plan is well established and based on probable reserves of 91.6 million tonnes grading 0.78 gram gold per tonne for 2.3-million contained oz.

Gold mineralization at Eagle occurs in extensional quartz veins that are most abundant on the hanging and footwall contacts of the narrowest part of the Dublin Gulch granodiorite near its western limits. Subordinate quantities of mineralization occur in quartz veins within nearby metasediments. Several other showings occur on the property, with most showing similar characteristics to Eagle.

There isn’t much opportunity to re-engineer the Eagle mine plan in light of lower gold prices, but Victoria can leverage exploration potential across Dublin Gulch’s larger 345-sq.-km property package.

“A year ago I asked our geological team to go through all of our targets and run a ranking process. Very quickly we saw the Olive area rise to the top of our list because there were historic results there, and it’s right on surface, 3 km from the main Eagle deposit,” McConnell points out while driving back to Victoria’s site office.

“We invested in a significant amount of drilling there [in mid-2015], but more importantly it allowed us to do a lot of metallurgical work. We knew that the mineralization at Olive was different with a lot more sulphides in the system, but it turns out it is still amenable to heap leaching,” he continues.

Victoria says Olive and the neighbouring Shamrock deposit could form a single, near-surface zone that boosts Eagle’s overall economics due to higher grades. The company drilled the area in 2014, with assay highlights including: 96 metres grading 1.22 grams gold from 27 metres deep in hole 14-586C, 99.8 metres of 1.02 grams gold from 46 metres in hole 14-588C and 90 metres of 1.18 grams gold from surface in hole 14-600C.

Assuming a higher-grade starter pit could be delineated at the Olive-Shamrock zone, payback could accelerate on initial development costs and give a better overall return on investment.

“Olive could make a material difference at Eagle due to its grades,” McConnell says, and points out an area populated by sparse trees that could become an Olive-Shamrock open pit.

“Since it is near-surface we’re likely also looking at a really low stripping ratio, and it won’t require much additional capital investment, since we can roll it into our main mine plan,” he adds.

In late December Victoria completed a $3.6-million non-brokered private placement that will fuel exploration efforts at Olive-Shamrock later this year. The company issued 17.6-million flow-through shares priced at 17¢, and 3.4 million flow-through shares priced at 18¢. McConnell says a “high demand” for the financing helped Victoria increase the placement from its original $1.8-million gross value.

With the financing, Victoria can incorporate Olive-Shamrock into an updated feasibility study by year-end, while keeping a $12-million cash position.

The company’s shares have traded within a 52-week window of 11¢ to 23¢ per share, and closed at 15.5¢ at press time. Victoria has 361 million shares outstanding for a $56-million market capitalization.

“We definitely have a nice position in terms of our leverage to gold price, but we aren’t simply waiting around for markets to bounce back. Everything we do, and the money we spend, is geared towards de-risking the project and creating a shovel-ready scenario,” McConnell says. “After receiving our water rights we are essentially completely de-risked in terms of permitting, and the camp and site infrastructure we’ve developed will allow us to start construction tomorrow, if we obtain financing.”