Victory Gold hits the spot at Gold Pike

In the gold mining game some juniors search for the next big elephant in far-flung places that have seen nary a drill collar, while others take a more conservative approach.

Toronto-based Victory Gold (VGO-C) falls into the latter camp. Its Gold Pike project sits in one of the most renowned mining districts in North America, sandwiched between three well-known producers on the mining circuit.

Gold Pike sits on the famed Destor-Porcupine fault zone, which is part of the Abitibi greenstone belt that has been responsible for over 110 million oz. gold production. Specifically, Gold Pike is part of the Timmins gold district, and located halfway between Brigus Gold’s (BRD-T, BRD-N) Black Fox mine, and Lake Shore Gold’s (LSG-T, LSG-N) Fenn-Gib project. And just to the southwest is 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 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, however, Victory has efficiently found gold. Twenty-two of its first 25 drill holes at the property have returned gold 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 capitalization of only $7 million and 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. 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 through his affiliation with Lexam VG Gold (LEX-T).

After finding market success through a merger with Robert McEwen’s Lexam to form Lexam VG, founder Tom Meredith wanted a new entrepreneurial venture. Guy, who serves as Lexam’s exploration manager, offered up Gold Pike.

But as the old adage goes, everything that can change will change, and that was just the case with Gold Pike. The project did produce  gold since Guy last worked there — but only briefly.

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

In total, Royal Oak managed 10,000 oz. gold production, although it registered an impressive average grade of 3.4 grams per tonne between 1992 and 1993. The mine was then shuttered owing to low gold prices.

Royal Oak was more concerned with turning ore into quick cash, and the company did not completely understand the project’s geology. So when Victory acquired the property in 2010, most of the historical data it inherited was left over from the Noranda days.

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

The company is focusing on 300 metres of strike extending in a southeasterly direction. The area was chosen because the Noranda data showed stellar intercepts, including 9 metres grading 8.16 grams and 27 metres grading 3.18 grams.

Victory’s own drill program, launched in 2011, confirmed the Noranda results with 65-metre highlight assays grading 7.13 grams gold and 50 metres grading 1.44 grams gold.

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

Victory put that money straight into the ground, and drill results from 2012 were highlighted by 72 metres grading 2.02 grams gold and 32 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. It aims to outline 500,000 oz. gold between surface and the 250-metre level, and another 500,000 oz. between the 250-metre and 500-metre level.

The program could cost $1.5 million. And with $300,000 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 release in the first half of 2013.

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

Victory’s bullishness on the property can be seen in its haste to meet 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% and reach 70%, it will have to spend another $2 million on exploration by 2018.

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

Look for Victory shares to move up to the TSX Venture Exchange later this year.