RE:Checkout Taylor Dart's rec on Seeking Alpha - VITFFIt appears phoenix_trader that if you included a link or any excerpt it didn't post so for those that are interested give this link a try:
Victoria Gold: Ignore The Weak Q1 Results (TSX:VGCX:CA) | Seeking Alpha According to Taylor, Q2 should be a much improved quarter for Victoria. If the price of gold continues to average $2300 or higher in 2024 and until at least the end of 2025 then Victoria's share price will be much higher than it is today.
Excerpts:
Valuation
Based on ~69 million fully diluted shares and a share price of US$5.65, Victoria trades at a market cap of ~$390 million and enterprise value of ~$540 million. This leaves the company trading at ~0.50x P/NAV vs. an estimated net asset value of ~$780 million, a very reasonable multiple even for a higher-cost single-asset producer that's struggled to deliver on its production targets the past three years. However, it's important to note that while 2024 is an average year for the Eagle Mine in the Yukon, 2025 is expected to be a phenomenal year. In addition, while AISC are likely to come in above $1,550/oz this year and over 10% above the industry average, life-of-mine AISC are expected to come in below $1,400/oz even adjusting for inflationary pressures and below $1,200/oz next year. Hence, although Victoria is undoubtedly penalized as a high-cost single-asset producer today, we should see a much better year ahead in 2025.
So, what's a fair value for the stock?
Using what I believe to be conservative multiples of 0.90x P/NAV and 5.0x P/CF (2024/2025 average estimates) and a 65/35 weighting to P/NAV vs. 2024/2025 average P/CF, I see a fair value for the stock of US$9.50. This points to a 68% upside to fair value, making Victoria significantly undervalued at current levels. Looking at gold price sensitivity charts below with free cash flow estimates for FY2025, this fair value estimate implies that the stock only trades at ~6x free cash flow in FY2025 which I would argue is a very conservative multiple for a Tier-1 jurisdiction producer. And if Victoria were to trade on purely a free cash flow standpoint, its fair value would increase to US$10.00 to its 18-month target price, pointing to nearly 90% upside from current levels ($2,250/oz gold price assumption).
Looking out longer term, Victoria has an additional upside to its current production profile if it brings either Raven or Brewery Creek online, and I have assumed that Brewery Creek comes online first as this requires significantly less capex. Using these assumptions and the same $2,250/oz gold price assumption (~240,000 ounces per annum from Eagle + Brewery Creek), Victoria’s fair value would increase to US$12.80 with the company capable of generating closer to $140 million in free cash flow per annum.
Hence, whether one looks at solely the 2025 numbers using relatively conservative gold price assumptions ($2,250/oz) or longer-term potential with a second online and the benefit of a slightly higher multiple (two mines vs. one), Victoria makes for a very interesting buy-the-dip candidate with a very reasonable valuation, especially if it can start delivering on guidance and see an uplift in sentiment which would contribute to a more favorable trading multiple. For now, Victoria remains above its ideal buy zone, but I would expect any sharp pullbacks from here to present a buying opportunity.
So now that the stars all seem to be aligning for Victoria, what are the key hurdles left to cross?
1.) Can the price of gold average $2300 or higher to the end of 2025?
2.) Can Victoria get to at least the mid-point of guidance 175K ounces in 2024?
3) Will Victoria avoid aonther year of wildfires or other mine operation mishaps that negatively affect meeting guidance and by extension debt reduction?
4.) Once it's clear (by Q4) that things are truly back on track, can Victoria management avoid or fend off a hostile takeover attempt in 2024 by one of the vultures that has to be sitting on the sidelines waiting to see if this weak calf can get up and get moving?
5.) Will Victoria management stick to their plan to seriously pay down debt in 2024 and 2025?
6.) Since wage cost and inflation are a huge part of Victoria's budget, can they perhaps find a way to reduce staffing by perhaps automating some of their operational processes?
The remainder of 2024 is going to be interesting and I expect if all goes well, a $7.00 handle on this stock today is going to look like a Walmart clearance sale in 2025!
My opinion only, please DYODD.
HB77