I don't think I've made a long post on VEC ever? But I've done a...

I don't think I've made a long post on VEC ever? But I've done a bit of analysis over the break I think I'd share it here for others. Quite a few numbers so bare with me I'll try go through my thought process.

Few mentions of the deal being too good for the price its at, and also that market hasn't even caught on and its in the wrong league.
I've done some more research over the weekend and have to agree with these claims. To me, fair value is minimum 5cents and realistically somewhere between 5-7cents at this stage. Will be higher as we derisk.  

Its no longer playing with the micros like CAI, GMD, DDD, ANL, BSR and so on, its stepping up a league so I've decided to see how it stacks up against the bigger guys.

Firstly, if there are issues with the following image on computer please let me know, I'll break it up into smaller images. But it should work if you "open image in new tab" and click the zoom icon.


Essentially its a list of companies with base resources >1.5Moz gold that are at or beyond resource definition/expansion project phase.

EV/JORC Reasoning:
As the project progresses, companies tend to trade at a greater premium to the resource size i.e a larger EV/JORC Ratio.



After going through my system came to conclusion some conservative EV/JORC ratios
Explorers: EV = Minimum 15 X Resource Estimate
Defined Resource: EV = Minimum 20 X Resource
Scoping/PFS/BFS/DFS: EV = Minimum 30 X Resource

After DFS these ratios go all over the place and there are so many variables to consider but as a very rough and conservative guide
Construction/Financing/Development: EV  = 50 X Resource
Production = 100 X Resource.

The Table:
The right side of the EV/JORC table pretty much applies theses ratios to each company to see how its EV would be trading if it moved one step back in project lifecycle or show potential if it accelerated steps further into the project.

The left side has also accounted for project ownership, to see how many NET ounces each company holds. Right now VEC has 4.2M Net Ounces of gold @4.43g/t average across all projects.
About 1M of the Net Ounces are resource estimates, given management has over delivered over and over again safe to say we have 4M Net Ounces locked in the bag at the least.
This also excludes the Leopold mine which produced 1.4Moz at 30g/t which is madness. Anything from the tailings there is an added bonus.
In summary Gross 6Moz @4.43g/t. - excluding Leopold
Accounting for ownership 4.2Moz @4.43g/t - excluding Leopold.
EV of $46M incl. Debt and fully diluted shares
EV/JORC @ current price = 10.92.
Now for a project that has a DFS done by AngloGold (Company thats on track to produce 4Moz of Gold this FY) and commenced mine construction with 70% of the equipment already purchased and delivered on site worth $70M and Project Financing out the way. Essentially this project is at Construction Stage which is incredible.
I've still decided to say VEC is in Resource Definition/DFS phase being conservative. Applying the EV/JORC of DFS (30) you get an EV of $126M which is 133% higher than what we currently are.
Being even more conservative applying a EV/JORC of Defined Resource Project Stage (20) you get an EV of $84M which is about 66% higher than where we are.
These are already conservative EV/JORC ratios, and I've been conservative with the project stage too, also assumed Nizi - Leopold doesn't exist (which could end up massive), also assumed mineralization doesn't extend on Adidi (even though AngloGold said it does) so really is a low ball, but I'm looking for at the very least 66% from here.

Our Resource:
So whats the closest thing to 4.2Moz  @4.43g/t ??
Well I really couldn't find anything on ASX near it (either grade was low and resource was large or vice versa), so I had to go on Canadian Markets to dig around for someone our size.
I found INV:TSX a gold company 3.09Moz @4.05g/t EV of $49M and EV/JORC of 15.78 which I thought was incredibly cheap for a company in the DFS stage - hence why its highlighted.
WGX another one thats highlighted, a producer trading at EV/JORC 49.17 which I felt was cheap too...but thats another discussion. Gold Producers aren't my niche and for much smarter people than me.

As for ASX players, best I could find is WAF 2.5Moz @4.85g/t in Resource Definition trading at $217M EV with a EV/JORC of 88.1.
This is the EV my eyes are on for the longer game. Realistically speaking VEC has a similar grade with double the size. So even at a $200M EV it'll be trading at half the EV/JORC ratio which I'm fine with. The table provides a similar figure (construction phase: EV/JORC of 50) which will put VEC at a $210M EV (assuming no extension mineralization, and leopold is useless - which I doubt)
To move toward WAF EV:
- Convert HOA to Binding Agreements post D.D
- Convert SAMREC to JORC
- Extension Drilling on two projects where Anglogold expects further gold mineralization
- Do our own PFS
- Construction and Financing already done.
In theory most of the hard work is already done and these steps I believe will be ticked off without any serious issue.
SAMREC is used by some of the largest gold companies in the world and its conversion to JORC should pose any issues, its been done before with no issues by Randgold and Anglogold resources.


Also thought I'd throw this in showing Institutional buying in Q3 for gold, they could be looking for a solid move next year.


And my most recent gold chart, very nice ST rally of late. If that wedge breaks its time for a gold rush.


Adidi mines history:
There was health and safety issue with mining so in 2007 they brought in corporates to manage it to defer sovereign risk, so Anglogold stepped in.

AngloGold also expecting more gold from the mine

However in June 2013 they copped a beating and had to sell off alot of their non-producing assets due to the drop in gold $1900 to $1200.



Also nearby 1km away from our mine is another 3Moz resource. So it's likely we do have a significant extension to our mine if VEC wants to go for the extension drilling route.



In summary, nothing is trading at an EV JORC of 10.92. Even explorers that haven't done confirmation drills yet are trading multiples higher with substantially lower grades.
Theres companies in resource definition trading in 30's, 40's, 50's EV/JORC ratio.
And here we are with one project in financing and construction one of the largest highest grade assets at $46M EV. We also have one of the best nearology plays on ASX inside the ground of Kibali.

As for my disclosure I was a buyer on acquisition date at 2.5 too, essentially was a trading parcel. Still yet to sell a share but will let go of the trading parcel first when it comes near fair value.
Rest I'll be attempting to hold as long as the value is there.

Cheers