NICKEL FRAC SAND - Victory ? The rapid implementation of technology changed the North ... Frac sand

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  • TSX:Ni

    March 2015

    NICKEL

    World-Class, Shovel-Ready,

    Sulphide Nickel Project

    FRAC SAND

    Highest-Quality Frac Sand Product,

    Large Resource, Cash Flow

    TSX:Ni

    One Company, Two Compelling Investment Opportunities

  • TSX:Ni

    2

    Victory Nickel Company Profile

    Ni:TSX Share Capital Structure

    Shares Outstanding (10:1 consolidation 17/09/14) ~57.6 million

    Fully Diluted Shares* ~79.7 million

    Market Capitalization (04/02/15) $10.7 million

    Debt (incl. $4 M secured line of credit; $6 M unsecured convertible notes); $1 .5 M receivables line)

    $11.5 million

    Major Shareholders

    A&M International 9.5%

    Jien International 9.2%

    Sea Shell Limited 8.4%

    Nuinsco Resources Ltd. 5.8%

    Management & Directors 2.0%

    *~2.8 M options ($0.70 average exercise price); warrants ~11.3 M ($0.35 exercise price); ~2 M ($1.00

    exercise price); ~6.5 M from convertible note ($1.00 conversion price).

    Victory

    Silica Ltd. (100%)

    Victory

    Nickel Inc.

  • TSX:Ni

    Supplying Canada with Highest Quality Frac Sand

    Multi-Phased Business Plan

    Phase 1 complete Phase 2 approved by board Ownership of Wisconsin and significant

    Manitoba frac sand resources Permitting of Wisconsin property Phase 3 Winnipeg site selection progressing

    Extreme valuation discount

    Strong stock performance for US peers More advanced than Canadian peers

    3

    One Company Two Compelling Investment Opportunities

    Well Positioned for Resurgence in Nickel Market

    Four Nickel Projects in Canada:

    Over 1 billion lbs nickel in M&I resource

    Flagship Minago Project in Manitoba:

    Feasibility study complete, permitted for development

    Frac Sand Co-Product at Minago

    NICKEL FRAC

    SAND

  • TSX:Ni

    4 4

    Company History From Nickel to Frac Sand

    2007: Victory Nickel created

    2009: Feasibility study for Minago: significant frac sand by-product value identified (12.6 million tonne NI-43-101 frac sand resource)

    2011-12: Minago permitted for production, meaningful decline in nickel prices

    2012: Victory Silica created to help unlock value of frac sand at Minago

    2013: A multi-phased frac sand business created, independent of, yet complimentary to Minago

    Q1 2014: Proof of concept: first frac sand sales

    Q3 2014: Plant commissioning complete, sales on-going, operating cash flow

    Q4 2014: Optioned Wisconsin frac sand property

    Q1 2015: NI-43-101 indicated frac sand resource of 10.9 million tons in Wisconsin

    Frac Sand

    Nickel

  • TSX:Ni

    Company Profile Nickel Projects

    Four Advanced Sulphide Nickel Projects

    Approximately 1 billion pounds of nickel in Measured and Indicated resources and 300 million pounds of Inferred resources, NI 43-101

    Lynn Lake optioned to Corazon Mining

    5

  • TSX:Ni

    Minago Project The Property

    Well-located

    Sulphide nickel deposit

    Exceptional metallurgy

    Open pit and underground mining potential

    Bankable feasibility study on open pit only

    Exceptional exploration upside

    Minago PropertyMinago

    Property

    6

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    Minago Project Reserves and Production Upside

    Nose Deposit open pit: 8.6-year mine life

    Nose Deposit U/G (inferred resource)

    North Limb: Exploration target

    Mineralization open to west, north and at depth

    Combined resources projected mine life of

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    Minago Project Nickel Concentrate Assay

    8

    Assay Component Unit Value Ni % 22.3 Cu % 1.4 Co % 0.46 Pt g/t 2.47 Pd g/t 6.31 Au g/t 0.63 Ag g/t 4.3 Rh g/t 0.59 S % 24.4

    Fe % 17.0 MgO % 10.4 SiO2 % 12.7 Al % 0.11 As g/t 61.0 Ba g/t 61.0 Be g/t 0.10 Bi g/t

  • TSX:Ni

    Minago Project Feasibility Study Optimization

    9

    Minago Sulphide Nickel Project: Economic Summary Comparison

    Base Case Dec. 14, 20091

    ($million except % & yrs)

    Base Case July 19, 20111,2

    ($million except % & yrs)

    At Todays Metal Prices Feb. 26, 2015

    Undiscounted cash flow 917.7 1,418.4 634.6

    NPV @ 8% 293.8 513.0 118.7

    NPV @ 6% 402.6 669.3 205.1

    IRR 17.7% 22.4% 11.9%

    Pre-Production Capital 593.0 585.1 558.4

    1. Three-year trailing average US$ metal prices and exchange rate as of market close December 10, 2009: Ni: $11.19/lb; Cu: $2.91/lb; Pd: $322.4/oz; Pt: $1,353.98/oz; Au: $836.25/oz; Co: $27.73/lb; Ag: $14.25/oz; $Can/$US exchange rate: 1.097

    2. Updated resource

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    Minago Project Cost Summary

    10

    C1 Cash Cost Per lb Ni Feasibility Study After Optimization

    Net of Credits * US $1.94 (C$2.12) US $2.20 (C$2.41)

    Metal By-Product Credits

    US $0.72 (C$0.79) US $0.77 (C$0.85)

    Frac Sand By-Product Value

    US $3.68 (C$4.04) US $2.90 (C$3.18)

    Cash Cost per lb Nickel Before Credits

    US $6.34 (C$6.95) US $5.87 (C$6.44)

    *Net C1 costs increase when metal production increases without corresponding frac sand increase (same size pit)

  • NICKEL The Free

    Call Option

    Victory Nickel Inc.

  • TSX:Ni

    Large domestic resource at Minago

    Frac sand boom continuing

    Very strong market fundamentals for frac sand

    Experienced frac sand industry management

    Low cost of entry/early cash flow

    Strong peer group valuation

    First ever public information from recent IPOs

    New frac sand producer with extreme value

    12

    Why Victory Silica? Building a Business Independent of Minago

    On the way to becoming the largest supplier of the highest quality imported and domestic frac sand for delivery in Canada

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    Minago Project Frac Sand Potential

    Existing resource within current pit shell: 15 Mt Existing & proposed quarry leases: 75 Mt potential*

    Proposed quarry exploration permits: 475 Mt potential*

    Entire land package (mineral leases + mining claims): 2 Bt potential*

    13

    *Company estimates, non-NI 43-101

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    Minago Project Co-Product: Frac Sand

    Feasibility Study Highlights

    11.2 million tonnes marketable frac sand in pit footprint alone

    Mined over first three years

    Sales over 10 years

    Mine gate margin per tonne ~$63

    Annual net revenue ~$70 M

    Processing cost/tonne = $6.50

    Co-product value per pound of nickel = $4.04 (US$3.68); optimized: $3.18 (US$2.90)

    14

    Frac Sand

    Nickel

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    15 15

    Shale Gas / Tight Oil Revolution Frac Sand Boom

    Unconventional shale gas and tight oil previously uneconomic to recover at a large

    scale

    Efficiency gains in horizontal drilling and the introduction of fracking helped unlock vast natural gas and oil resources

    The rapid implementation of technology changed the North American energy

    landscape, with a sand boom being a resulting factor

    The Freedonia Group reports that frac sand consumption in North America increased by 323% between 2007 and 2012

    Impact of recent oil price decrease yet to be determined

    Frac sand is an effective way to participate in North Americas unconventional oil and gas production growth

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    What is Fracking? Frac Sand? Not all sand makes frac sand!

    16

    Hydraulic fracturing or fracking is a technique used in the development of

    oil & gas formations to increase flow and extend well life. Proppant (such as frac sand) holds or props the formation open, increases porosity, and increases oil/gas flow to the wellhead

    Frac sand must meet unique API specifications such as mineralogy, roundness and strength for use in the oil & gas industry as a proppant

    Victory Silicas

    Frac Sand

    30/50 20/40

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    17

    Proppant / Frac Sand Market Dynamic Demand

    Modified from Source: Raymond James North American Sand Rush August 19, 2014

    Increasing Frac Intensity

    North American

    Proppant

    Demand Model

    2017 Freedonia

    Report Estimate,

    August 2013

    Increasing Sand Intensity

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    18

    Proppant / Frac Sand Market Positive Demand Trends

    Drilling

    Rig Count

    %

    Horizontal

    Rigs

    Wells

    Per Rig

    Lateral

    Length

    Per Well

    Frac Stages

    Per Lateral

    Proppant

    Per Stage

    Not to scale, for illustrative purposes only

    Recent decline in

    overall drilling

    activity largely

    due to pull back in

    oil price

    North American oil

    and gas

    production

    increasingly from

    unconventional

    resource plays

    Pad drilling and

    fit-for-purpose rigs

    driving efficiency

    gains

    Longer wells

    typically equate to

    more proppant

    use

    Trend towards

    tighter spacing

    between fracks

    equates to more

    proppant use

    Trend towards

    more proppant

    per frack driven

    by increasing

    evidence of

    resulting

    increased flow

    rates and

    extended well

    lives

    Commodity Price

    Dependant

    Positive Structural Demand

    Trends for Proppant

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    19

    Frac sand prices have declined as knee jerk reaction with WTI oil price, though at a lesser rate and market fundamentals

    exist to help mitigate continued downward pressure

    Frac Sand Price Index Frac Sand Measured as a Component of PPI

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    Experienced Management Victory Silica Limited

    20

    Ren R. Galipeau /Chairman 35+ years mining experience with Hudson Bay, Breakwater Resources, Lac Minerals, Rio Algom. Current Vice-Chair & CEO of Victory Nickel.

    Ken Murdock /CEO & Director Engineer with over 25 years experience in the aggregate/construction & oilfield materials/frac sand industries. In addition to operating as an independent consultant in Canada and Wisconsin, frac sand industry experience includes Canfrac Sands (operations), United Industrial Services (design, permitting, construction, operation and marketing of a silica sand project in Peace River) and Lafarge Cement.

    David Frey /Vice-President, Logistics Extensive experience in the logistic industry in Alberta. Held numerous operations, sales and management roles with several companies including Narum Carriers, Tri-Line Carriers and Kleysen Transport.

    Troy Bergen /Plant Manager, Seven Persons Frac Sand Facility Operated the Seven Persons frac sand facility between 2008 and 2010 with previous owner 3R Sand Ltd. Prior to that, he was Operations Manager with Clean Earth Environmental Ltd.

    Jeff Bradley /Marketing & Logistics Representative 10 years of operational and sales experience in Albertas oil &gas sector, including Cathedral Energy Services, Aaron Drilling, Colter Production Services and Opsco Energy Industries.

    Alison Sutcliffe /Chief Financial Officer, Sean Stokes /Corporate Secretary (See Victory Nickel Appendix)

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    21

    Victory Silica Business Plan Phased Approach Clear Path for Growth

    Phase 1: Market Entry

    Cost of $6 million

    Seven Persons (dry) Plant: processing infrastructure in Alberta (500 ktpa)

    Ship contracted (wet) sand from Wisconsin

    Strategic storage capacity

    Phase 3: Growth

    Winnipeg (dry) plant: processing infrastructure in Manitoba (1,040 ktpa)

    Site selection with favourable logistics (CN, CP,BNSF)

    Initially supplied from Wisconsin

    Minago Sand

    Longer-term upside

    Currently looking at smaller pit configuration to target frac sand only

    Phase 2: Vertical Integration

    Wisconsin mine JV including wash plant ownership/frac sand property option

    Security of sand supply/quality control

    Margin enhancement

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    ($US) Emerge Energy

    Services (NYSE: EMES)

    Hi-Crush Partners

    (NYSE: HCLP)

    US Silica Holdings

    (NYSE: SLCA)

    Victory Silica (Forecast)

    Phase 1,2 Phase 3 Phase 1,2,3

    Cash Raised on IPO Capex Requirements

    $140 M $225 M $200 M $ 11 M

    $ 30 M

    $ 40 M

    2013 Frac Sand Tons Sold 2,651,000 1,849,075 2,960,800 500,000 1,040,000 1,540,000

    Adj. EBITDA Adj. EBITDA Frac Sand Only

    $85 M $69 M

    $69 M $69 M

    $161 M $116 M

    $14.5 M2,4

    $26 M

    $40.5 M2,4

    Forecast EBITDA / Ton Sold Actual EBITDA / Ton Sold

    $26.21

    $29.44

    $39.03

    $29.002

    $34.221 $25.00 $34.221

    $26.302

    $34.221

    Market Cap (Feb., 2015) Enterprise Value (EV)

    $1,280 M $1,500 M

    $1,350 M $1,600 M

    $1,650 M $1,790 M

    $8.1 M $19.3 M4

    - -

    - -

    2015E EBITDA $200 M3 $217 M3 $324 M3 $14.5 M2,4 - -

    EV/2015E EBITDA 7.5x 7.4x 5.5x 1.3x2,4

    Implied Enterprise Value at 6.8x1 EV/2015E EBITDA @ EBITDA/ton estimated by Victory Silica (Does not include Phase 3 or margin enhancement for illustration purposes only)

    $ 99 M

    1 - average of Emerge, Hi-Crush, and US Silica 2- includes Phase 2 margin improvement, assumes full sales capacity 3- consensus estimates, source: Cowen & Company January 11th 2015 4 - before Nuinsco debt repayment

    22

    Victory Silica Relative and Implied Valuation

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    23

    Manitoba, Saskatchewan, Alberta, B.C., North Dakota

    North American Shale Basins Current Market Focus

    Formations Sold Into Alberta Bakken Cardium Deep Basin Duvernay Lower Shaunavon Montney Viking

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    24

    Processing purchased import wet sand (concentrate) from Wisconsin

    Seven Persons Plant

    Fully-functioning sand plant on 22.4 acres

    22,000 tons product storage capacity

    $6.0 M capex to take dry plant capacity to 500,000 tpa (complete)

    Commissioning complete

    Production increasing each quarter

    Reported Q3 EBITDA $597,000 from frac sand operations

    Full production expected during 2015

    Phase 1: Market Entry Seven Persons Plant Medicine Hat, Alberta

    Phase 1

    Annual Sales Capacity 500,000 tons

    Estimated Margin $25/ton

    Selected Victory Silica Customers

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    Phase 1: Milestones

    Wisconsin sand purchase agreement

    Sand washing agreement

    Wisconsin transload agreement

    Rail agreement, rail siding agreement

    Railcar leasing agreement

    Seven Persons trucking agreement

    Equipment leasing agreements

    Plant construction completed

    First sand deliveries from Wisconsin

    First frac sand product sale

    Plant commissioning completed

    Spot sales on-going

    Acquisition of frac sand resource in Wisconsin

    Secured second transload in Minnesota

  • TSX:Ni

    26

    Phase 1: Production Reconciliation

    22,519

    39,121

    47,515

    0

    20,000

    40,000

    60,000

    To June 30,2014

    Q3 2014 Q4 2014

    47,515

    23,368

    12,966

    9,677

    9,464 6,848

    4,546 114,384

    0

    20,000

    40,000

    60,000

    80,000

    100,000

    120,000

    140,000

    ACTUALPRODUCTION

    RAIL SERVICEFAILURE

    WEATHERRELATED

    DRYERAVAILABILITY

    PLANTAVAILABILITY

    TRAINING OTHER POTENTIALPRODUCTION

    TON

    S

    Q4 2014

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    Phase 2: Vertical Integration Wisconsin Property / Wash Plant

    27

    Secure sand supply, enhance margins

    Entered into option agreement to acquire Bear Coulee frac sand property in Wisconsin

    Recently announced NI 43-101 Indicated Resource of 10.9 million tons of Northern White sand on Bear Coulee property

    Construct a 1,000,000 tpy moveable frac sand wash plant in Wisconsin / Minnesota

    Phase 2

    Capex ~US$5.0 million

    Annual Sales Capacity 500,000 tons

    Estimated Margin $>25/ton

    Source: Wisconsin Geological and Natural History Survey

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    Phase 3: Growth Winnipeg Processing Site

    28

    Build processing facility in Winnipeg

    Identifying suitable site serviced by multiple railroads

    Construct new dry plant 18 mos. from start

    Supply from Wisconsin and area (Minago longer-term supply option)

    Target Western Canada (CN) and US Bakken (CP, BNSF) markets

    Phase 3

    Capex ~US$30 million

    Working Capital ~US$15 million

    Annual Sales Capacity 1,040,000 tons

    Estimated Margin $>25/ton

    Winnipeg

    Wisconsin

  • TSX:Ni

    Victory Silica Peer Group Performance

    29

    Preferred Sands/Winn Bay $200 M acquisition Jan. 2012 (private)

    US Silica Holdings IPO: Raised $200 M Feb. 2012 ($1.7 B market cap)

    Hi-Crush Partners IPO: Raised $225 M Aug. 2012 ($1.4 B market cap)

    Emerge Energy Services IPO: Raised $140 M May 2013 ($1.3 B market cap)

    FMSA Holdings (Fairmount Minerals) IPO: Raised $400 M Oct. 2014 ($1.0 B market cap)

  • TSX:Ni

    30

    Victory Silica Select Canadian Frac Sand Companies

    Modified from Source: Raymond James North American Sand Rush August 19, 2014

    Phase 1,2

    Phase 3 MB/WI 16/30 -100

    16/30 -100

  • TSX:Ni

    31

    Minago Project Investment Sumarry

    One of Canadas largest undeveloped sulphide nickel resources

    Positive feasibility study completed; permitted for production

    Frac sand a significant value driver: US$2.90/lb Ni in co-product value based on feasibility study

    Superb location: Manitoba; road, rail, power access

    11.2 million tonne frac sand resource, 2 billion tonne potential

    Potential for smaller, less capital intensive pit configuration to target frac sand only

    Valuable CALL OPTION on nickel

  • TSX:Ni

    32

    Cash flow and robust cash flow growth: Initial sales made March 2014, plant commissioning complete, clear path forward

    Meaningful discount to peer group: U.S. peers U.S. Silica, Hi-Crush, Emerge Energy Services, FMSA Holdings

    Large domestic frac sand resource: Minago a longer-term strategic asset; potential for smaller, less capital intensive pit configuration to target frac sand only

    Resource and large property position in Wisconsin: provides security of supply

    A sustained resurgence in nickel prices could have a meaningful

    impact on Victory Nickels valuation: currently investors have a free call option on Minagos advanced nickel sulphide project

    32

    Victory Silica Investment Summary

  • TSX:Ni

    33

    Ren R. Galipeau /CEO & Director Victory Nickel Inc. Accountant with 30+ years mining experience with Hudson Bay, Breakwater Resources, Lac Minerals, Rio Algom

    Steve Harapiak /President & COO Victory Nickel Inc. Engineer with 30+ years experience, including Hudson Bay, Noranda, Denison and CEO of Potash Corp. (Crown Corp.)

    Alison Sutcliffe /VP Finance & CFO Victory Nickel Inc. CA with 20+ years experience, most recently with Dundee Corp.

    Paul L. Jones /VP Exploration Victory Nickel Inc. Geologist and QP with 25+ years experience with more than 20 juniors

    Sean Stokes /VP Corporate Affairs & Corporate Secretary Victory Nickel Inc. MBA with 20+ years finance, business development, communications experience, incl. Tiberon Minerals, Liberty Minerals, Scandinavian Minerals, Nuinsco Resources

    David Mchaina /VP Environment & Sustainable Development Victory Nickel Inc. Ph.D. with 20+ years experience, including Boliden, Westmin, Goldcorp

    Victory Nickel Management Team

  • TSX:Ni

    Victory Nickel Qualified Independent Board

    Cynthia Thomas /Chair MBA, 20+ years international mining and project finance, former Director Mining Investment Banking ScotiaMcLeod

    Ren R. Galipeau /CEO & Director

    Peter R. Jones Engineer, former CEO of Hudbay Minerals, 40+ years mining experience with Hudbay, Cominco, Cape Breton Development, Granduc Operating Co. and Adanac Molybdenum

    Michael Anderson Lawyer, nine years as General Counsel and Secretary with Denison Mines, previously a partner with Gowling Lafleur Henderson LLP, in-house counsel with John Labatt, General Counsel for Swift Canadian

    Roland Horst 35 years mining experience as a CEO, banker, investment banker and geologist

    34

  • TSX:Ni Disclaimer

    Some of the statements contained in the following material may be "forward-looking statements." All statements, other than statements of historical fact, that address activities, events or developments that Victory Nickel believes, expects or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek," "anticipate," "believe," "plan," "estimate," "expect," and "intend" and statements that an event or result "may," "will," "can," "should," "could," or "might" occur or be achieved and other similar expressions. These forward-looking statements reflect the current expectations or beliefs of Victory Nickel based on information currently available to Victory Nickel. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of Victory Nickel to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on Victory Nickel. Factors that could cause actual results or events to differ materially from current expectations include, among other things, failure to successfully complete intended financings, capital and other costs varying significantly from estimates, production rates varying from estimates, changes in world copper and/or gold markets, changes in equity markets, uncertainties relating to the availability and costs of financing needed in the future, equipment failure, unexpected geological conditions, imprecision in resource estimates, success of future development initiatives, competition, operating performance of facilities, environmental and safety risks, delays in obtaining or failure to obtain necessary permits and approvals from government authorities, and other development and operating risks. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, Victory Nickel disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Although Victory Nickel believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.

    Victory Nickel resources are as follows: Minago: Measured: 11.1 million tonnes grading 0.56% Ni, Indicated: 43.1 million tonnes grading 0.51% Ni, Inferred: 14.6 million tonnes grading 0.53% Ni; Lynn Lake: Measured: 1.0 million tonnes grading 0.76% Ni, Indicated: 21.9 million tonnes grading 0.56% Ni, Inferred: 8.1 million tonnes grading 0.51% Ni; Mel: Indicated: 4.3 million tonnes grading 0.88% Ni, Inferred: 1.0 million tonnes grading 0.84% Ni; Lac Rocher: 0.29 million tonnes grading 1.23% Ni, Indicated: 0.51 million tonnes grading 1.05% Ni, inferred: 0.44 million tonnes grading 0.65% Ni.

    The mineral resources were estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council December 11, 2005.

    35