EDISON EQUITY RESEARCH: VICTORIA GOLD

EDISON EQUITY RESEARCH: VICTORIA GOLD - DEFINING SHAMROCK AND OLIVE TO ENHANCE EAGLE

In April 2016 Victoria Gold will initiate an exploration and resource definition programme over its Shamrock-Olive target area, 2km from the proposed Eagle mine. On completion, the company will have a far greater understanding of how the Shamrock-Olive area could complement and enhance Eagle’s economics, which will be published in an updated feasibility study (FS) by year end. Victoria Gold completed a C$3.6m flow-through share financing in December; funds will be used to complete the upcoming work programme.

We roll forward our assumption for the production start date at Eagle by one year, now FY19. This allows for the work programme results to be analysed and incorporated into a new Eagle FS due by end CY16. We maintain our US$/C$ forex rate of 0.73 and retain our gold price forecasts as in our sector report Gold: The value of gold and other metals and use a 10% discount rate to reflect general equity risk. On this basis, our valuation adjusts down 5% to C$1.39 per share (previously C$1.47). At a flat gold price of US$1,000/oz, Victoria Gold’s base-case valuation is C$0.45, a 125% premium to its current share price. Our upside valuation uses these adjustments but factors in extra crushing capacity and raises the head grade in the early years of production (due to Olive and potentially Shamrock ore being treated). It is C$2.18 (previously C$2.30) per share. This latter scenario is our attempt to estimate the value uplift resulting from the forthcoming 2016 drill campaigns and updated Eagle FS due by end 2016. The assumptions that underpin our upside valuation are given on page 2.

To view our full report, please click here 

Click here to view all of Edison Investment Research's published reports