It Wouldn’t Matter if Veris Gold Put the Entire Moon Into Production

The following is a press release from Veris Gold regarding the Starvation Canyon Update. Obviously, I am happy with the progress. The main highlights are that the company is already stockpiling ore from the new mine and is about to begin the construction of a vent raise and secondary escapeway, which should be complete mid-March. But, these are fundamentals and the market does not care about it at all. The stock price continues to get hammered every second, every minute, and every day. At this point, it wouldn’t matter if the company put the entire moon into gold production or whether God took over the management of this company. Investors want out and there is nothing that will stop them. As a result, there is no limit to how low the stock price can go.

Vancouver, BC — February 14, 2013 — Veris Gold Corp. (TSX: VG) (OTCQB: YNGFF) (Frankfurt Xetra Exchange: NG6A) is pleased to report on the progress of the development of its newest underground mine, Starvation Canyon located in the southern portion of the Jerritt Canyon property in Elko County, Nevada. Jerritt Canyon is a gold producing mine site operated by Veris Gold Corp. USA Inc., a wholly-owned subsidiary of Veris Gold Corp. (“Veris” or the “Company”).

Permitting activities with the State of Nevada were completed in 2011 allowing the Company to begin advancing Starvation Canyon to become a producing underground mine. Development continued throughout January 2013 and to date over 400 meters (1,300 feet) of drifting has been completed. Development of the stope accesses in the ore are in progress and gold grades from initial muck sampling are the same or exceed those as predicted from the block model. To date more than 1,500 tons of ore have been brought to the surface and stockpiled for additional sampling and analysis. The next stage in development, construction of a vent raise and a secondary escapeway, is scheduled to begin in the next ten days and should be completed by mid-March at which time production and ore haulage to the plant will be allowed to commence. The project remains on budget and on schedule and is expected to contribute over 33,000 ounces of gold to 2013 production from Jerritt Canyon operations. Starvation Canyon will be the first new mine in production at Jerritt Canyon since 2004.

The Starvation Canyon Measured and Indicated resources including reserves as of December 31, 2011 are 5.9 kt averaging 0.294 opt containing 1,700 ounces and 519.4kt averaging 0.25 opt containing 130,000 ounces, respectively. This information is referenced in the latest NI 43-101 which can be found here:

The Company’s 2013 exploration plans near Starvation Canyon are still being prioritized, but will likely include drilling at the West Starvation target located adjacent and on trend to the Starvation Canyon resource as highlighted in the Titan-24 direct current induced polarization magnetotelluric (DC-IP-MT) ground geophysical survey conducted in 2011.

The Company also wishes to comment on the share price decline over the past several months which has raised concerns amongst our investors. Volatile stock market conditions, particularly for junior mining producers, and continued concern for the global economy have no doubt contributed to the decline. There has also been a higher than normal volume of small block trading in the shares of the Company and we are actively investigating this specific issue to see if it is significant. However, Veris management is unaware of any specific reason, other than these continuing general market conditions and market trading influences unrelated to the Company’s current operations, for the recent decline in the share price as there have been no events or material changes in the affairs of the Company to support the decline.

Management believes that with the positive cash flows from operations, funds raised from the recent financing and the negotiations successfully completed on previously maturing forward gold loans (now maturing in June 2013 and January 2014), the Company has adequate capital to fund the development of Starvation Canyon and any remaining environmental capital or mill improvements required to continue optimizing existing operations.

In the next few days the Company, having successfully met the performance criteria required during the 18 month period following the closing of the Deutsche Bank Gold Forward Facility, will also be in receipt of $8 million of funds previously set aside under that agreement. The progress made on production from Starvation Canyon and the test work completed to date on potential toll milling opportunities will significantly improve the overall valuation of the Company and the free cash flow from the operations.

Mr. Randy Reichert, Co-Chief Executive Officer and Chief Operations Officer of Veris Gold Corp, commented, “The Company continues to take substantial steps in advancing the current business plan, adding further high grade ore to the roaster operations at Jerritt Canyon from Starvation Canyon and securing key toll milling contracts that will improve the free cash flow significantly. In the meantime, the Company is continuing the focus on reducing costs at Jerritt Canyon and optimizing the processing facility. We are proud of exceptional progress our teams have made to bring this mine into production.”

Mr. Shaun Heinrichs, Co-Chief Executive Officer and Chief Financial Officer of Veris Gold Corp, added, “We are pressing forward with opportunities to enhance shareholder value and remain focused on bringing new interest into the Company. Our strategy continues to involve pursuing a listing on the NYSE MKT which we believe will increase the shareholder base and improve the trading volume in the Company’s common shares, however, this plan is currently on hold due to the current share price falling below $2, a key quantitative criteria to list on the NYSE MKT. As soon as Veris’ share price improves, and such improvement is sustained for a period of time, Veris will proceed with its US listing on the NYSE MKT.”

The information contained in this news release has been reviewed and approved by the Company’s Vice President of Exploration, Todd Johnson, M.Sc. (Qualified Person per the requirements of NI 43-101).

Veris Gold Corp. is a growing mid-tier North American gold producer in the business of developing and operating gold mines in geo-politically stable jurisdictions. The Company’s primary asset is the permitted and operating Jerritt Canyon gold mine located 50 miles north of Elko, Nevada, USA. The Company also holds a diverse portfolio of precious metals properties in British Columbia and the Yukon Territory, Canada, including the former producing Ketza River mine. The Company’s focus has been on the re-development of the Jerritt Canyon mining and milling facility.

41 Comments to It Wouldn’t Matter if Veris Gold Put the Entire Moon Into Production

  1. GoldBug's Gravatar GoldBug
    February 14, 2013 at 3:38 pm | Permalink

    When I look at the most recent corporate presentation, the production costs by quarter make assumptions for toll milling credits. Does this represent the full extent of the benefit to the company of toll milling? In other words, if management executes according to their current plan should we expect these lower production costs, and if not, the higher production costs? Or are there (meaningful) revenue contributions in addition to the reduction in production cost from the toll milling credits?

    I ask because if it’s the former, the price of gold doesn’t need to drop too far in order for the price to begin to look justified, though “too far” is a subjective term. At $1,200/oz and $733 cash cost (the average for the year assuming management captures all toll milling credits), the pretax FCF number is in the $25M neighborhood (assuming $40M in maintenance capex & allowance) assuming 200k oz of production, which is higher than management’s current guidance.

    I recognize that $1,200/oz is ~25% below the current price, but I use it only to illustrate that the compression of multiples in the mining stocks could be a result of the market believing the price of gold is vulnerable and this is where the leverage is. I’d be interested in others’ opinions as to what price of gold one needs to believe to justify Veris’s current valuation.

    Thanks in advance.

  2. ABV's Gravatar ABV
    February 14, 2013 at 3:56 pm | Permalink

    The problem is no one believes this –
    Management believes that with the positive cash flows from operations, funds raised from the recent financing and the negotiations successfully completed on previously maturing forward gold loans (now maturing in June 2013 and January 2014), the Company has adequate capital to fund the development of Starvation Canyon and any remaining environmental capital or mill improvements required to continue optimizing existing operations.

    Management has said this at every turn. The lack of progress on tolling agreements and the decision to start other capex programs further leads the market to expect another dilution. Has management met its promise even once when it comes to non-dilution? Why can’t management just wait for 6 months and demonstrate its ability to be capex positive?

    I agree with your analysis that the company is extremely undervalued. Having said that the investment thesis currently is one based on asset value (roaster, reserves). In fact, one of the biggest risks is management continuing its ridiculous policy of diluting stock holders. Managements policy of over promising has led to management essentially having no credibility.

    What will get this stock moving is management demonstrating an ability to manage the company so that it is cash flow positive for a few quarters. not on a run-rate basis, not on an ex-this or that basis but on a true un-adjusted actual basis.

    • aagold's Gravatar aagold
      February 14, 2013 at 4:20 pm | Permalink

      I think it’s unfair to say “management continuing its ridiculous policy of diluting stock holders”. I think it’s clear that they really are trying very hard to avoid dilution, but the reality is their balance sheet is extremely weak and they’re always just on the verge of running out of money. I’ve seen many management teams that like to grow empires at the expense of the shareholders by issuing new shares for no good reason; I don’t see that behavior in this case at all. I think their interests are aligned with ours but it seems they just can’t get out from under all of these forward gold contracts and the capital required to develop the mines, refurbish the plant, and pay for the environmental liabilities.

  3. aagold's Gravatar aagold
    February 14, 2013 at 4:15 pm | Permalink


    1) My understanding is that the benefit of toll milling is fully captured by the credits that result in reduced cash cost. So no – there’s no additional revenue above and beyond the credits.

    2) I don’t follow your math. First of all, I think $40M of maintenance capex + “allowance” (for what?) is too high. But even if we use your numbers, 200 kOz*(1200 – 733) = $93.4M gross profit, which after your $40M of expenses becomes $53.4M per year of pretax FCF, excluding the forward gold contracts. How are you coming up with $25M?

    3) I think something more like $24M per year is more like it for annual maintenance capex plus G&A, which means pretax FCF (ex gold contracts) is more like $70M at $1,200 gold.

    • GoldBug's Gravatar GoldBug
      February 14, 2013 at 4:38 pm | Permalink

      Thanks aagold,

      I am using 200k oz less the 60k oz they need to deliver to DB this year. So 140k oz * (1200-733) = $65M gross profit.

      • aagold's Gravatar aagold
        February 14, 2013 at 4:57 pm | Permalink

        Ok, but I’d caution against treating the 60 koz liability for the next few years as if it were a perpetual liability, and that’s what you’re doing if you deduct it from FCF and apply an FCF multiple to arrive at a fair value for the equity. That’s really the wrong way to think about it, in my opinion.

        I think it makes a lot more sense to compute the value of the company’s *assets* first (e.g., using an FCF multiple that *excludes* the forward gold contracts), and then subtract the value of all liabilities – including the dollar value of the forward gold contracts – to calculate the fair value of the equity. I’m currently working on a detailed analysis that I’ll probably publish somewhere, and I’ve got to double check some numbers, but I think the forward gold contract liability is around $131M as of YE 2012.

        • Mariusz Skonieczny's Gravatar Mariusz Skonieczny
          February 14, 2013 at 5:47 pm | Permalink


          You are making a very good point of not treating the 60 koz liability as a perpetual liability. Look what I am seeing right now by the emails that I am getting is that people are trying to convince themselves that no matter where the price is it is justified. Also they are trying to explain fundamentally why the price is where it is. I don’t believe that the current sellers are thinking with their heads. They just want to sell at any price.

          People who are trying to convinces themselves that the stock is not cheap are saying things like, “Look the cash flow with Starvation will only this much.” In other words, this is what they are doing. They are saying there will never be a tolling agreement and that the 60 koz liability will be there forever. But this is equivalent to this. You have an apartment building 50 percent occupied and people are saying, “Look this property is only generating this much cash flow and if we put a multiple of X on it, we get this value.” No one in the right mind would be using cash flow generated from only 50 percent of apartments to value the property. What you would do is figure out how much it would cost to lease out the rest of the apartments and for how much. This is the same with Veris Gold. After Starvation will be producing, the mill will still only be at 50 percent capacity. Why wouldn’t they be able to lease out spare capacity. There is demand for it. If you only lease out 1,000 tpd day at $125 per ton, this is more than $40 million of additional revenues most of which flows straight to the bottom line. This $40 million income stream alone is worth more than the current market cap. If you lease out 2,500 tpd at $125 per ton, this is more than $100 million in additional cash flow. But no one cares. What about the fact that only 10 percent of Jerritt Canyon has been explored? No one cares. What about the fact that someone else can produce 500,000 ounces of gold from this facility only if they owned it (assuming 0.30 oz/ton grade). Again no one cares. They are just focused on these two forward gold loans that need to be paid back. With Starvation producing, they will be paid back. And if they need to be pushed back some more, then they will because they are with favorable parties. One of them is Monument. You think Monument will put Veris into bankruptcy over $5 million.

          Another way of justifying the current stock price is to play with the price of gold. I can make Veris Gold be worth anything I want. Just tell me what you want, I will tweak the numbers to make it happen. I can play with gold prices, cash costs, capex, etc. I hear a lot of people talking about the price of gold collapsing. People have been taking about the gold bubble since gold was at $250 per ounce. Most people still don’t understand why the price of gold is where it is right now. Yes, the price of gold can decline just like anything can decline. But I don’t see it going down in the long term. If you convince me that Obama is going to balance the budget and that Bernanke will stop printing money, then yes I will believe that gold will decline. I don’t care what these individuals say. Obama will never balance the budget and Bernanke or who ever replaces him will never stop printing. The probability of this happening is lower than me becoming the next president. And you know what the probability of me becoming the president is? 0 because I was not born in the US.

          • aagold's Gravatar aagold
            February 14, 2013 at 6:16 pm | Permalink

            Great post, Mariusz…

  4. GoldBug's Gravatar GoldBug
    February 14, 2013 at 6:03 pm | Permalink

    My exercise was not in determining the fair value of Veris (I already own a ton of it) but rather trying to get to a number that the market is using to value it. Yes, I think the market is looking at the short-term, and that includes the 60k oz they need to deliver this year. No, I don’t believe that’s the right way to value the company. If I did, I wouldn’t own as much of this stock as I do.

    And in playing with the gold price, I am merely trying to understand the leverage to cash flow that results from a change in gold price. Doing this kind of scenario analysis helps me understand the risks I’m taking with an investment.

    I believe markets can be irrational. However, more often than not, they are rational. I agree with Mariusz, in that I think right now the market is being irrational. I’m just less willing to completely accept that premise; that’s a sentiment that I will always push back against. There’s no harm in trying to poke holes in an investment thesis, IMHO.

    Thanks all for your thoughts.

    • Dave's Gravatar Dave
      February 15, 2013 at 10:27 am | Permalink

      Check out the January 30 report from Casimir Capital. They do a sensitivity analysis on the stock depending on the gold price, and also the toll milling rate. They think Veris is worth $3 even if the gold price were to drop to $1000. Think about it. The gold price collapses 40% and (in theory at least), this stock is still worth more than double its current level.

      Check out what they have to say about the leverage in the toll milling rate too: “For instance, increasing the assumed rate to $135/ton (vs $135/ton as currently modeled) would increase our corporate NAV estimate to $4.03/ share (vs $3.80/share)”.

      Of course these guys could be wrong. We could all get wiped out by an asteroid tomorrow too. But I agree with Mariusz here. This has little to do with fundamentals and everything to do with irrational panic.

  5. Jr86's Gravatar Jr86
    February 14, 2013 at 10:18 pm | Permalink

    Well the tolling is far from complete, and the economics of tolling are highly related to the gold price. Nobody is going to pay 125 per ton in a 1200 gold price environment.

    Does anyone have reason to believe the toll milling economics will end up in the 125 per ton range aside from management? Any precedent transactions?

    So if management can get 125 per ton, aren’t they better off selling their mines and filling the whole thing with third party ore? Shifts all of the risks and expenses of digging up dirt onto counter parties at roughly the same economics…

  6. Roger's Gravatar Roger
    February 15, 2013 at 12:47 am | Permalink

    The stock of Veris closed at a market cap of less than $140 million. The lower the market cap gets, the more certainty there is that it can support the operations, and that it can skyrocket if (should I say “when”?) Veris is able to put Starvation Canyon in production and complete the tolling agreements (in other words, the lower the price, the lower the risk of more value going out of the window-because so much of it is already gone!). I myself have been way beyond the point where I could see any value in selling at these prices. You know that the selling is based on panic and not fundamentals when as the price comes down, there appears to be more and more people trying to justify why Veris is still risky. In the stock market at large, with the market at its highest level in the last decade, more and more people are trying to convince themselves that stocks are still cheap. In both cases, that’s why most investors are unsuccessful. Just think about one thing regarding the tolling agreements: to Veris the variable cost of the tolling agreements is tiny. Veris could tomorrow call Newmont and sign a deal for 100% of the extra capacity at a price that will give them millions of extra dollars. They are not because they don’t have to, as there is plenty of demand for that excess capacity at higher prices. Once you understand that, you will see how ridiculous those fears have become, and that the fear is strictly coming from the decreasing stock price, not because of operational problems or decreasing price of gold. As an anecdote, I hold way too much of my portfolio in Veris, and I would love to be able to lighten up; however, on Thursday I went back in and bought some more shares. The price will continue to drop until the stock becomes so cheap that it will attract more and more people like me who will see what an incredible bargain the risk/rewards have become of owning more of the stock. In the meantime, I do not try to minimize the amount of pain my fellow investors are feeling. To best way to protect your investment is to understand that pain is coming from an emotional place, and you don’t want to stay in that place while making investment decisions. When the pain becomes too great and if you do still believe in the wildly doable goals of putting Starvation Canyon in production and signing tolling agreements, imagine you sleep and wake up a couple of years from now: Starvation Canyon is in production, Tolling agreements have been going on for the past couple of years, the company has finished repaying the gold forward contract, the US debt is between $18 and $20 trillion. What do you think the price of VG is then? How devastating would it be to give up that price for the measly $.14 to $.15 (pre-reverse-split) you could get for it now?

  7. JR86's Gravatar JR86
    February 15, 2013 at 11:00 am | Permalink

    That’s completely wrong. Are pipelines at the mercy of their customers because they have no product to sell? What about toll roads?

    The Newmont agreement was an ore purchase agreement, not a toll milling agreement. In an ore purchase agreement, VG paid NEM for their ore. In a toll milling agreement, NEM would pay VG for their capacity. Those are extremely different.

  8. JR86's Gravatar JR86
    February 15, 2013 at 11:26 am | Permalink

    Whether you believe me to be wrong or not, the math is the math. At 1600 gold, Smith, SSX, and Starvation contribute 105, 135, and 220 in pre-processing margin to the milling operation. In other words, if you charged smith mine 125 per ton to process, it would be losing money. If you charged ssx that price, it would make a measily 10 per ton. Starvation would work, but there’s just not a lot of ore there.

    The point that I’m trying to make is that IF the market for processing is about 125 per ton, then the MARKET VALUE of VG’s processing capacity is worth MORE than the MARKET VALUE of VG’s mining operations, with the exception of starvation canyon. In that case, to maximize value, you divest the mines and sell your capacity to the highest bidder.

    I never said they can’t get 100-150. I simply asked if there was evidence that 125 per ton was doable.

  9. bob's Gravatar bob
    February 15, 2013 at 11:52 am | Permalink

    wow. shocking on the price action. are your fund investors sticking with you through this mariusz?

  10. aagold's Gravatar aagold
    February 15, 2013 at 2:55 pm | Permalink


    I like your honesty. Not many people are willing to admit when things aren’t going so great… they like to talk about the good times but not the bad.

    – aagold

    • Mariusz Skonieczny's Gravatar Mariusz Skonieczny
      February 15, 2013 at 6:28 pm | Permalink


      The one thing that you will always get from me is honestly. Integrity is the most important thing that a person can have. I don’t hide and pretend. And those who know me personally know that I simply don’t give a shit about what other people think about me or how I sound. I say it how it is and not how I would like it to be.

  11. bob's Gravatar bob
    February 15, 2013 at 10:44 pm | Permalink

    yeah, even in base metals, stocks jacknifing down unless cash-flow and even then no upticks. not sure why everything seems so irrational.

    keep your chin up. i think the guy from meson capital went up 700% and then down big and then returns appear to be coming back.

  12. David Landy's Gravatar David Landy
    February 16, 2013 at 6:41 pm | Permalink

    “Injun will chase a thing till he thinks he’s chased it enough. Then he quits. Same way when he runs. Seems like he never learns there’s such a thing as a critter that’ll just keep comin’ on. So we’ll find ‘em in the end, I promise you. We’ll find ‘em. Just as sure as the turnin’ of the earth. ” – Ethan (John Wayne) in The Searchers (1956)

  13. Roger's Gravatar Roger
    February 17, 2013 at 5:24 pm | Permalink

    I have never, ever owned stocks with as good a potential as your miners, Mariusz. I have never owned stocks so hated. It’s a shock that I’m talking about the same stocks. If any of these stocks were making the same money, or were about to make the same money, but were in any other industry, they would have fetched ten times their current PE at the very least. While I hate what the market is doing, my brain keeps pushing me to keep on buying. I just have to keep my feelings in check.

  14. Floris's Gravatar Floris
    February 21, 2013 at 1:31 pm | Permalink

    Well, this is becoming interesting. Monument had quite a positive press release saying dilution would only be a third of the original amount, obviously increasing the value of the current shares. The nomination of a potential Goldmet director should also be seen as a positive, as it should help drive shareholder value. This currently doesn’t matter as people are selling indiscriminately. I have also purchased some more shares of VG today given the continued weakening of the shares. Valuation has ceased to matter to the sellers.

  15. MJ's Gravatar MJ
    February 21, 2013 at 4:16 pm | Permalink

    GGA has really sold off the last couple days, 10% each day. Just general selling or did I miss any news?

  16. David Landy's Gravatar David Landy
    February 21, 2013 at 6:00 pm | Permalink

    These private placements have a pretty nice silver lining. As we heard from Fleckenstein yesterday they tend to do PP’s as a means to ensure the company’s solvency. A deep-pocketed financier that can step up like that can only be a good thing.

  17. David Landy's Gravatar David Landy
    February 21, 2013 at 6:33 pm | Permalink

    Has anybody done any research on the relationship between Treasury interest rates and the performance of the junior gold mining sector?

  18. David Landy's Gravatar David Landy
    February 21, 2013 at 6:56 pm | Permalink

    Because I’d like to know whether even if interest rates go up, does the performance of the miners correlate, historically.

  19. February 24, 2013 at 8:01 am | Permalink

    Just a question: When you say some of these mining companies are trading at “1 times earnings or 2 times earnings, do you mean ACTUAL reported cash earnings? Or normalized perpetual earnings? Or estimated–on the come–earnings. We value investors like a bird in the bush not speculating that the birds will be there.

    By the way, when you have the greatest value investor of all time, Weiss Asset Management investing in THM and RIC, you should take notice. I guess (but haven’t combed the numbers) that these are cash rich miners with a free call option on gold.

    Good luck

    • Mariusz Skonieczny's Gravatar Mariusz Skonieczny
      February 24, 2013 at 9:25 am | Permalink


      Monument Mining (MMY) trades for P/E of about 1.4 on actual earnings. Actually, if they continue to grow like they are, the P/E should drop below 1.

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