A sad day for mining

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What to expect (June 26)

• 🚫 A second heap leach pad failure in 2024 has investors questioning the safety.

• ✅ Sponsored Monster Pick - Copper is still hot, get it while you can.

On June 25 (yesterday) Victoria Gold Corp.’s (TSX.V: VGCX) stock price dropped from $7.35 to below $1.30 - an 82% loss.

The company suffered a catastrophic failure of it’s heap leach pad at it’s Eagle property in Yukon.

This comes 5 months after a similar heap leach pad failure at SSR mining’s Çöpler Mine in Erzincan Province, eastern Turkey.

While the extent of the failure in Yukon is still unknown, it begs the question to investors: is this type of mineral extraction too risky?

What is a heap leach pad and why do they fail?

A heap leach pad is a method used to extract precious metals by stacking ore and applying a leaching solution (often cyanide) to dissolve and collect the desired metals.

It’s a pretty common way of mineral extraction.

Failures can occur due to structural instability, inadequate design, or excessive height.

The Çöpler mine's heap leach pad was over 250 meters tall, significantly higher than the typical 150 meters, leading to its failure.

Details on the failure at the Eagle project are unknown at this time, but further investigation will lead to cause.

Immediate Impact on production and financials

Victoria Gold had set ambitious production targets for 2024, estimating between 165,000 and 185,000 ounces of gold.

But the company immediately suspended operations following the failure, obviously.

They reported producing 29,580 ounces of gold in the first quarter of 2024, an encouraging start that is now overshadowed by this tragic event.

What is the real cost?

Heap leach pad failures have massive costs for the company, both direct and indirect.

Direct costs include immediate remediation efforts, repair of damaged infrastructure, and potential fines or increased regulatory scrutiny.

For Victoria Gold, this means diverting resources towards stabilizing and rebuilding the heap leach pad, as well as addressing any environmental impacts.

The First Nation group Nacho Nyak Dun, whose traditional territory includes the mine site, said they are worried about “potentially significant and far-reaching environmental impacts, particularly to surrounding waters, fish and wildlife.”

“Our first priority is to minimize the impacts on our lands, waters and wildlife, as well as on (the First Nation) and any other affected First Nations. We will then seek to understand how and why this occurred.”

It also begs the question, will mining in Yukon run into permitting issues moving forward?

It’s happened before.

The Aberfan disaster in Wales (1966), where a coal mine spoil tip collapsed and killed 144 people, led to stricter government regulations and safety measures for mining operations which significantly impacted mining practices in the UK.

The indirect costs of an event like this are more nuanced but can be equally as damaging.

The suspension of operations leads to lost production and sales.

They may also face higher insurance premiums and increased borrowing costs due to the perceived higher risk of operations.

Investors are also more likely to stay clear, which impacts the ability to raise capital.

What does this mean for investors?

A quick survey of investors of VGCX highlights a few common concerns.

The drop in stock price and the inevitable loss of production are the primary areas of concern, but was there a failure by management to identify this risk and stop it before it happened? Potentially.

When something like this happens, a deep investigation will be done to accurately understand how and why it occurred, and if it could have been prevented.

The environmental blowback from this is also causing concern.

We don’t know the extent of the damage to wildlife and waterways - but the Nacho Nyak Dun will be monitoring it closely.

With the stock down more than 80%, some investors are using it as a buying opportunity, hoping that the company can get back to regular production in a timely manner.

But that is yet to be determined and any investment now would be extremely risky.

In the coming months we’ll learn more about the details of this tragic event, but in the meantime, investors should be using this a a reminder that mining is not always sunshine and rainbows.

There is a real risk to the environment and communities associated with this industry and it’s extremely important to be aware of those risks when making investments.

The full extent of the damage won’t be clear for a few weeks but this is a very sad day for mining.

👋 Colton, Stock Monster.

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This newsletter is for informational purposes only and should not be considered financial advice. Always conduct your own research before making any investment decisions. All content is based on public knowledge. We have been compensated by World Copper for this weeks pick, therefore we are biased. Assume that contributors to articles own or have interest in stocks they talk about, therefore may be biased.