Velocity Minerals Ltd. (TSX-V: VLC) / (OTCQB: VLCJF), the Bulgarian gold exploration & development company, with a strong PEA on its Rozino project, and 6 additional near-surface gold prospects, announced a key strategic investment by Atlantic Gold Corp. (TSX-V: AGB) / (OTCQB: SPVEF).
A Vote of Confidence in Velocity Minerals
Atlantic Gold is a C$400 M company with proven mine building capabilities. It produced 90,531 ounces of gold in 2018 at a very low all-in sustainable cost of US$521-US$566/oz. The mine was built on time and on budget and production metrics are exceeding Feasibility levels. The mine is being expanded to 200,000 ounces/yr.
This is a significant de-risking event for Velocity as it will receive a C$3.9 million equity investment at a premium to its market price, plus a C$5.1 million 5-year secured 8.5% convertible bond investment with a conversion price of C$0.25/share (a 35% premium). The convertible bond has no strings attached (no warrants or other equity kickers). In total Velocity will receive C$9 million from Atlantic Gold.
Velocity CEO Keith Henderson stated, “We are delighted to welcome Atlantic Gold as a strategic investor in the company. Atlantic’s development expertise in Nova Scotia complements our exploration success in Bulgaria. Our corporate strategies are aligned, with Velocity’s development objectives mirroring Atlantic’s successful hub-and-spoke approach of satellite deposits feeding a centralized processing plant. The proceeds from the financing will allow for the progression of our PEA-stage Rozino gold project toward feasibility and for exploration and resource definition of several additional projects. We believe that 2019 will be a transformative year for Velocity.“
$9 M in Proceeds Will Go a Long Way….
Upon deployment of the C$9 million, Atlantic Gold will own 39.2% of Velocity Minerals on a partially-diluted basis. Atlantic Gold and Velocity plan to work closely together to advance Velocity’s Rozino project through Feasibility studies and ultimately, if warranted, construction and commissioning.
Proceeds from the Strategic Investment will be used to fund the advancement of the Rozino gold project towards Feasibility and permitting, including resource expansion and definition drilling, engineering studies, and environmental monitoring and assessment. In addition, Velocity will proceed with exploration and assessment of satellite deposits where Velocity has negotiated option rights.
From the press release,
“Velocity envisions staged open pit mining of satellite deposits and processing in a central CIL plant. An existing, operating processing plant is available through an Exploration and Mining Alliance with its established Bulgarian operating partner. Velocity’s strategy is to build a production profile of more than 100,000 ounces of gold per year for over 10 years.”
Atlantic Gold was drawn to Velocity’s Rozino project due to the attractive features of its PEA.
PEA Based on Just a Six Year Mine Life
- AISC in the range of ~USD$550-650/oz, in the lower decile of industry costs
- Low initial capex
- Low strip ratio deposits with a 1.51 g/t Life of Mine (“LOM“) gold grade
- Significant Resource extension potential at existing deposits
- Simple metallurgy and conventional processing methods
- Potential for multiple open pits which could be treated through a central milling facility
- An under-explored gold belt, with little, if any modern gold exploration
Velocity has an additional important attribute, a local partner that it has an agreement with to process mineralized material through the partner’s currently operating CIL process facility. The facility is located near the Rozino deposit.
The Rozino project is arguably more robust than the PEA implies. It has an after-tax NPV(5%) of C$129 million and after-tax IRR of 33%, which is fairly compelling for a company with a market cap of C$14 M (pre-Altlantic Gold investment). But what makes it really interesting is the mine life. The considerable NPV of C$129 M is on just a 6 year mine life.
Ample Opportunities to Extend Mine Life at Rozino
With Atlantic Gold’s investment and strategic advice, along with funded exploration drilling, that mine life could possibly be doubled. Or, it could result in more production per year. I won’t try to estimate what that might mean for the NPV & IRR, but it would be significant. Higher production levels, if modeled in the next Feasibility report, could potentially lower already low all-in sustainable costs.
This move by Atlantic Gold is a tremendous vote of confidence in Velocity, the Rozino project and the team. It’s also a vote of confidence in Bulgaria. At a time where funding junior miners is extremely difficult, Atlantic could have chosen to fund dozens of projects, dozens of management teams. But, they chose Velocity Minerals. And, in looking at Atlantic Gold’s press releases over the past year, I don’t see any strategic investments into other juniors.
With a C$400 M market cap and C$40 M in cash, and Atlantic Gold’s operations exceeding targets, this is a company that has the staying power to see Velocity not just through Pre-Feasibility this year, but well beyond that. In my opinion the chances that Rozino becomes a mine, surrounded by satellite deposits that could possibly extend mine life beyond 6 years, has gone way up. To reiterate, this is s huge vote of confidence and a substantial de-risking event.
Will the market recognize this de-risking? Time will tell. But, C$9 million will take Velocity Minerals a long way towards potentially creating substantial shareholder value. This cash injection frees management from the arduous task of raise capital, allowing the team to focus on what they best — exploring and developing gold mines.