Is Victoria Gold (VGCX) at the edge of a precipice staring into oblivion?? Since the unfortunate incident in late June when its heap leach pad broke, its stock has been steadily declining. As at the time of this writing, the company’s value is barely $42 million, suggesting fears of bankruptcy by the market.
The discount to book value of $677 million as at March 31, 2024 seems excessive. All the existing infrastructure, the equipment, and the million of ounces in the ground count for very little.
An accident happened. It touched off a panic, which hasn’t subsided yet and the stock remains in deeply oversold territory. In just over a month, investors have lost more than half a billion dollars. Is this value destruction warranted? Will VGCX survive? After all, there has been a steady drip of embarrassing revelations and other negative media stories eroding shareholders’ confidence.
Only time will tell. But it seems to me management’s inability to clear away the confusion and adequately communicate a recovery plan — and hope — to stakeholders, is also to blame.
As an example, consider the official and unofficial communication from the company. Shortly after the company’s last press release on July 30, Victoria’s CEO did a media interview with the CBC. The contrast between the two is huge.
Here are two things that immediately jumped at me from that interview:
1. SOME BREATHING ROOM IN THE NEXT FOUR TO SIX MONTHS
On the one hand, the company puts out a precautionary statement in its press release stating that there’s no guarantee that it has the financial resources to fix the damage or to restart the mine.
On the other hand, as I also learned from the CEO’s recent interview with the CBC that the company’s finances are fine. Yes, VGCX has enough money to last another four to six months and of course, a financing will be needed at some point down the road.
The second scenario definitely offers hope to laid-off employees, unpaid contractors, and shareholders who are unclear about the state of the company’s finances and how long it can last.
A lot of things can happen in four to six months. So why is this critical piece of information not publicly disclosed sooner?
2. AN OVERDUE APOLOGY
Victoria Gold’s CEO mentions he intends to apologize to the stakeholders — employees, contractors, First Nations, and Yukoners — in the future.
Certainly, an apology is overdue and it appears one is on the horizon. When the premier of Yukon denounced VGCX at Yukon First Nations’ general assembly as one of the “bad actors” operating in the territory, that suggests there’s a lot of anger, distrust, and ill-will in the government toward the company. This sentiment needs to be addressed or else the company may find that securing permission to operate again will be out of reach.
The big question is: What is the most effective way to get the message across?
I have observed companies taking out full-page ads in major newspapers to advocate for a position or to issue apologies for specific matters.
Imagine VGCX management doing that.
This ad would be a letter in which management sincerely acknowledges mistakes, takes responsibility for the accident, and pledges to:
- a) thoroughly investigate the accident and
- b) ensure such an incident never happens again.
Ideally, the letter should be signed by the company’s top executives, ranging from the mine manager to the CEO. Will they be brave enough to stick their necks out?
Legally speaking, is this a risky gambit? Will their lawyers veto this for fear of encouraging lawsuits? But a class-action lawsuit is coming anyway, regardless of what management does. The best thing to mollify fear and anger is to show sincere remorse for the accident that has upended lots of lives and left uncertainty across wide swaths of Yukon.
Do it right and VGCX may still have the social licence to operate. Botch the apology, and they may find that their path ahead will be filled with more obstacles.
