Black Swan at Victoria Gold's Eagle Mine
Finding, exploring, de-risking a mining project is hard, expensive work. John McConnell and his team at Victoria Gold (VGCX.T) did the work, built the mine and were producing gold in profitable amounts.
Yesterday, what may be disaster struck. The details of exactly what happened at the Eagle Mine are hazy right now but what is being reported is that there was effectively a “landslide” in their “heap”. Fortunately, no one was injured but the Eagle Mine is shut down indefinitely.
No one should be surprised that Victoria’s shares fell off the proverbial cliff. This possible disaster is a potential company killer. Just sorting out what happened and trying to figure out why may take months. Was there a discharge of the leaching solution into the creeks nearby? What other environmental effects will there be?
Those questions need to be answered and then the question of “Can this be fixed?” will take the company’s attention.
The sheer scale of the Eagle Mining operation makes “fixed” a genuinely difficult question. Essentially, the Eagle Mine, which I visited in its early construction stage, involves taking down a large hill, trucking it to a crusher and transporting the crushed rock to a leach pad where it was stacked and a cyanide solution applied. To work profitably, Eagle required millions of tons of rock to be processed.
This picture, taken from the Victoria Gold website, gives a sense of the scale of the operation:
The Victoria Gold press release on June 24 was commendably terse. Which does nothing to reassure the market but which is very much the correct move when the extent of the “failure” and its impact have not yet been assessed.
Predictably, as soon as the news broke there was a stampede to the exit with over 10% of VGCX’s total shares outstanding trading with an hour left in the trading day (and as I write apparently the CIRO has kicked in the circuit breaker and halted the stock.) Not before the shares dropped $6.00.
The Boards are alive with all sorts of entirely uninformed speculation. “Eco-disaster” to “just a bit of dirt shifting”, all sorts of clever surmise as to whether this is an opportunity to take a quick double.
The actual fact is that a very valuable mine has suffered an entirely unforeseeable failure. It means 500 people are going to be laid off for some time. It means investors are looking at big paper losses.
Whether or not Victoria survives this failure is partially an engineering question, partially a financial issue, but right from the go it is a test of management. Here Victoria is very lucky to have John McConnell as CEO. Eagle has been McConnell’s project from the earliest days of test drilling right through to production. McConnell is a mining engineer by training with huge experience with mines in Canada’s North. With his management team, McConnell will, at speed, assess the situation and devise a plan to go forward.
Every resource company investment comes down to an investment in management. I have a tiny position in VGCX. I am holding it. Right now my loss is baked in. The question I will be trying to answer in the next few days is whether to buy more VGCX at literal “Fire sale” prices. The answer to that question will be determined by the extent of the actual damage, environmental issues and plan going forward.
At a guess, VGCX is wildly oversold.
I can think of no mining executive I would rather have in charge of the EagleMine recovery effort. McConnell will be honest with his shareholders and with the market at large. Which, at this stage, matters a lot.
[Disclaimer: I hold a small position in Victoria Gold. I have no intention of selling and may add to that position at anytime. This is not investment advice. Do your own due diligence…but don’t call the CEO, McConnell is a bit busy at the moment.]