Virginia Mines (VGQ:TSX), a hybrid between an exploration company and a royalty company, has signed an agreement between three Quebec institutions to help finance $28 million worth of expedited exploration at the company’s Coulon massive-sulphide prospect in Quebec. The financing group included SODEMEX Developpement LP (a subsidiary of the Caisse de depot et placement du Quebec) and the Fonds de solidarite des travailleurs du Quebec, jointly with the Fonds regional Nord-du-Quebec and SIDEX LP. SODEMEX’s parent, Caisse de Depot has assets under management in excess of $170 billion. Virginia will remain on as the operator of the project.
The investment will be made in $7 million annual payments in the amount of $2 million from SODEMEX, $2 million from the Fonds, $1 million from SIDEX and Virginia will invest $2 million. Subsequent to these subscriptions, the partners’ respective interest will be as follows: Virginia 71.45%, SODEMEX 11.42%, the Fonds 11.42% and SIDEX 5.71%.
“The investment of SODEMEX Developpment attests to the great potential for additional discoveries at Coulon, has declared Carl Gilbert, Investment director of SODEMEX Developpment. With this investment that meets all our selection criteria, we support an experienced management team with an impressive track record”. Andre Gaumond, President of Virginia, states that he “is very pleased to be associated with these exceptional partners to fully evaluate the potential of this unique project in Quebec”.
The Coulon project hosts is a VMS-style deposit which hosts an Indicated resource of 3,675,000 tonnes at an average grade of 3.61% Zn, 1.27% Cu, 0.40% Pb, 37.2 g/t Ag and 0.25 g/t Au and Inferred resources of 10,058,000 tonnes at an average grade of 3.92% Zn, 1.33% Cu, 0.19% Pb, 34.5 g/t Ag and 0.18 g/t Au.
“The investment of SODEMEX Developpment attests to the great potential for additional discoveries at Coulon,” declared Carl Gilbert, Investment Director of SODEMEX Developpment. “With this investment that meets all our selection criteria, we support an experienced management team with an impressive track record”.
There are a number of triggering events which would lead to the investors being granted the right to exchange 75% of their investment in the Coulon project into Virginia Mines shares (at 5-day VWAP). These include, the sale of the Eleonore royalty, change of control of Virginia, failure of Virginia to fund their portion of the exploration or the sale of the Coulon project.
Virginia Mines holds a sliding royalty on Goldcorp’s Eleonore mine which is slated to produce over 600,000 ounces per year. Initial production is expected this year with 2014 production of approximately 40-60,000 ounces. Virginia receives 2.2% on the first 3 million ounces produced which then slides up to a maximum of 3.5%. At 600,000 ounces per year and $1,300 gold, that represents cash flow of $17.16 million and $27.3 million per year. They also have an additional portfolio of gold and base metals exploration projects as well as other royalties.
Virginia Mines investors have been immune to the downturn in the resource business over the last 5-years as shares have steadily increased over 250%. Last year, the shares were up 40% as Eleonore approached production start-up. Here’s the LT chart: