Focused on Becoming a Mid-Tier Nickel Producer

VICTORY VIEWTSX: NI www.victorynickel.ca

ANNUAL REPORT EDITION, JUNE 2012, VOL.3 ISSUE.1 VICTORY NICKEL INC. FOCUSED ON BECOMING A MID-TIER NICKEL PRODUCER

Grand Rapids, Manitoba Victory Nickel’s Minago mine is unique in many ways - its large size; exploration upside; excellent access to power, road and rail; local communities; valuable co-product frac sand; and the ability to produce arguably the world’s highest grade nickel concentrate immediately come to mind. Adding to this repertoire is the fact that Minago has in-hand an Environment Act Licence (EAL), meaning the mine is permitted and ready for construction. The next major step is securing mine financing, a process that takes time, but during this period the project is not at a standstill. “SincereceivingtheEALourprimarytaskhasbeentosecureconstructionfinancingfortheMinagomine.Tothisend,recentmeetingswithoffshoregroupshavebeenveryencouraging,butthefocusonfinancingdoesn’tmeansiteworkisnotcontinuing,”saidRenéGalipeau,Vice-ChairmanandCEO.“Inadditiontothedrillprogram(see page 4),othersiteactivitiesareongoinginanticipationofthestartofthethefirstphaseofconstructiononceminefinancingissecured.” Theseactivitiesincludedrainageditchingandanoverburdencharacterizationprogram.

Drainage Ditching:TheCompanyhasconstructeda2.3kilometretestdrainageditchfromthecentreoftheproposedonekilometre-plusdiameterMinagoopenpit,extendedwithtwochevronstotheouteredgesofthatpit.Theintentistoinvestigatethepotentialforsitedrainageusingcost-effectivemeans.Thusfar,thesystemisperformingbetterthanexpected.Thenextstepistoinstalladditionaldrainageditchesorchevronstodraintheentirepitareainpreparationfortheoverburdenremoval. “Thispositiveresultshouldputtorestonce-and-for-allanyhistoricalperceptionofwaterissuesatMinagothatcouldimpedeconstructionandmining,”saidSteveHarapiak,PresidentandCOO.“Moreimportantly,thisfindingwillhaveapositiveimpactoncapitalandoperatingcostsanditestablishesthatyear-roundmineconstructionisfeasibleattheMinagosite.”

Overburden Characterization:Anoverburdencharacterizationprogramovertheproposedopenpitareahasproducedtworesultspredictedtohaveapositiveimpactoncostsandtimingofpre-strippingthenickeldeposit:

• First,theprogramincorporatingtestpittinganddrillinghasreducedtheexpectedvolumeofoverburdenby18.5%fromthefeasibilitystudyestimate,resultinginanestimatedcostsavingsof$5.6million.

• Second,therearenosoftclaysoverlyingthepitarea.This,combinedwiththeabilitytodrainsurfacewaterbyditching,willleadtofurthercostreductionfromreplacingtheexpensivedredgingprocessprojectedinthefeasibilitystudywithmorecost-effectivemechanicaloverburdenremoval.

continued on p.3

Please see Financing at Minago

from Site Preparation Work at Minago

Minago’s Future is Now Better-Than-Expected

Results Continue

F I N A N C I N G S TA G E

in estimated savingsfrom overburden reduction

ContentsMinago Site Preparation Results (Manitoba) 1CEO’s Letter to Shareholders 1Victory Nickel at a Glance 2Minago Drill Results (Manitoba) 4 In Conversation with…Ken Murdock 5Frac Sand (Manitoba) 5In Conversation with…Dr. David Mchaina 6Lac Rocher Project (Quebec) 6Mel Project (Manitoba) 7Lynn Lake Project (Manitoba) 7Corporate Information 8

$5.6M

“We truly believe that the time to develop Minago is now. If we started today, the mine would reach production in 2015…”

To our shareholders:Onceagain,itismypleasuretocommunicatewithyou.Iwasconsideringtellingyouwhatyoualreadyhaveheardmanytimesfromindividualsinthemedia,oryourfinancialadvisor,oryourneighbour,butIwilltrynottomentiontheglobaleconomicuncertainty,lackofinvestorinterestinjuniorminingstocksorGreece. IwillinsteadtrytodescribewhatishappeninginthenickelmarketandwhywecontinuetobelievethatVictoryNickelisontherighttrackwhenitexplainsthatnowisthetimetodeveloptheMinagoproject,asulphidenickelmine.Whydoweemphasize“sulphide”nickelmines?Oneofthereasonsisthatrecoveryofnickelfromsulphideoresisnotnewtechnology.Presently,nickelproductionfromsulphideorescontinuestorepresentthelargestcommercially-viablesourceofnickel. Wehaveheardmuchaboutthegrowthofproductionfromlateritedepositsoverthelastcoupleofdecades.Lateriteorerequiresnon-conventionaltreatment.Onesuchprocessisthehighpressureacidleachor“HPAL”asitiscommonlyreferred.Thisprocessisexpensiveasitrequireshighheatwhichmeanshighenergycosts.Inaddition,thehotacidresultsinexpensivewearandtearonequipment.SomelateritescanbetreatedbyheapleachingwhichischeaperthanHPAL,butorewithspecificcharacteristicsisrequired.

Anotherlateritethatwehaveheardmuchaboutlatelyisnickelpigironor“NPI,”alowgradeferronickelore.NPIcontains47-59%ironand0.8-1.5%nickel.TheChinesehavedevelopedaprocesswherebytheyblendtheferronickelorewithconventionalironoretoproducestainlesssteelfeedproducts.ThemajorityofthismaterialisminedinthePhilippinesandIndonesiaandconsumedinIndiaandChina.ThecosttoproducetheequivalentofonepoundofnickelfromNPIissaidtobeUS$8.00toUS$9.00perpound.However,theIndonesiangovernmenthasannouncedthatitwillcurtailtheexportoflateriticoreby2014andwillsoonbestartingtheprocessbyaddinga20%exporttax.

continued on p.8Please see Letter to Shareholders

Right TrackON THE

CEO René Galipeau at the Minago project

Ni CEOL E T T E R T O S H A R E H O L D E R S

Annual Report Edition June 2012 Victory Nickel Inc.2

VICTORY NICKEL ...at a GlanceFocused on Becoming a Mid-Tier Nickel Producer

Victory Nickel Inc. is a Canadian company with four sulphide nickel deposits containing significant NI 43-101-compliant nickel resources. Victory Nickel is focused on becoming a mid-tier nickel producer by developing its existing properties, Minago, Mel and Lynn Lake in Manitoba, and Lac Rocher in northwestern Québec, and by evaluating opportunities to expand its nickel asset base.

WHO WE ARE

91 9290898887868584 95 96949379 80787776757473

Producer plus MF Inventories, days’ consumption

72

L.M.E. Price

$25

$20

$15

$10

$5

$0

Prices in U.S. dollars per pound

400

300

200

100

0

L.M.E. Price

N.Y. Dealer Price

Inventories

838281 03 04020100999897 07 080605 12111009

Source: Salman Partners, April 2012

Nickel Price and Inventories

• MOVE forward with Minago financing.

• CONTINUE to optimize the Minago feasibility study.

• ADVANCE permitting efforts at Mel and Lac Rocher.

• CONTINUE to evaluate accretive transactions.

The Victory Nickel Difference• Minago feasibility economics continue to improve.

• OneofCanada’slargestundevelopedsulphidenickel inventories-andgrowing.

• FourprojectsinCanada’smostmining-friendlyjurisdictions.

• Minagopermittedforminedevelopment.

• Abilitytoproducetheworld’shighestgradenickelconcentrateatMinago.

•Excellentaccesstosuperiorinfrastructure.

• Focusedonbuildingamid-tierCanadiannickelcompany.

2012 OBJECTIVES

NI 43-101 Compliant Total Nickel Resources In Situ Tonnes Grade Nickel Deposit (Millions) (% Ni) (Millions lbs)

Measured & Indicated Resources

Minago* Measured 11.1 0.56 136 Indicated 43.1 0.51 484

Mel*** Indicated 0.43 0.88 83

Lac Rocher*** Measured 0.29 1.23 8 Indicated 0.51 1.05 12

Lynn Lake** Measured 1.0 0.95 20 Indicated 21.9 0.71 343

Total M&I 1,086

Inferred Resources

Minago* 14.6 0.53 170Mel*** 1.0 0.84 19Lac Rocher*** 0.44 0.65 6Lynn Lake** 8.1 0.65 116

Total Inferred 311

Minago North Limb ETMI1 (43-101 compliant)**** 21.0-34.0 0.49-0.59 225-440

*0.25% Ni cutoff / **0.40% Ni cutoff / ***0.50% Ni cutoff / ****0.30% Ni cutoff

Fraser Institute Policy Potential IndexAnnual Mining Survey 2012 - Top 25 Jurisdictions

New BrunswickFinlandAlberta

WyomingQuebec

SaskatchewanSwedenNevadaIrelandYukon

Northern TNorthern TerritoryNorthern TerritoryNorthern TWestern Australiaestern Australia

OntarioGreenland

Nova ScotiaNewfoundland and LabradorNewfoundland and Labrador

BotswanaChile

South AustraliSouth AustraliaManitobaManitoba

UtahMinnesotaMinnesotaMichiganMichigan

NorwayNorwayAlaskaAlaska

0 10 20 20 30 30 40 40 50 60 70 80 90 10 100

Source: www.fraserinstitute.org

1 The Exploration Target Mineralization Inventory (“ETMI”) was estimated by Michael Waldegger of AGP Mining Consultants Inc. of Barrie, Ontario. Victory Nickel’s Qualified Person under the NI 43-101 guidelines is Paul Jones, Vice-President, Exploration. The potential quantity and grade of the ETMI is conceptual in nature and there has been insufficient exploration to define a mineral resource. It is uncertain if further exploration will result in the target being delineated as a mineral resource, furthermore no metallurgical recoveries were considered in the estimate and the reported grades are based on total nickel. For additional information on the ETMI, please see the Victory Nickel press release dated August 16, 2011.

Minago

MelLynn Lake

Lac Rocher

www.victorynickel.cawww.victorynickel.ca

Focused on Becoming a Mid-Tier Nickel Producer June 2012 Annual Report Edition 3

...at a Glance

TSX:NI

Significant Events 2011-2012During and subsequent to the year ended December 31, 2011, the Company:

MINAGO

MINE DEVELOPMENT

• Received the EAL, the final major regulatory requirement for mine development, from the Manitoba government, making Minago one of a select few permitted sulphide nickel projects and enabling development to commence, subject to financing.

• Optimized the Base Case scenario feasibility study to further improve the economics at Minago, increasing the IRR to 22.9% from 17.7% and the net present value at an 8% discount rate to $513 million from $371 million.

• Received approval from the Board of Directors to proceed with financing and development of the Minago mine.

• Completed, in early 2012, 4,137m of condemnation and exploration drilling at Minago.

• Received a blanket one-year work permit which will eliminate delays in the receipt of individual permits.

• Initiated a new metallurgical study to improve concentrate grade and quality.

• Evaluated relocation of certain infrastructure components at the Minago site in an effort to enhance accessibility and reduce capital costs.

• Identified additional potential cost savings on overburden removal.

NOSE DEPOSIT

• Increased, by 24%, the measured and indicated NI-43-101 pit-constrained resource to 302.3 million pounds of nickel in sulphide form (“NiS”) which added approximately 1.5 years to the open pit mine life.

• Completed, during 2011, 11,000m of diamond drilling targeting the extension to depth of the Nose Deposit and the North Limb.

• Established additional potential to extend the open pit mine life in the Minago Nose Deposit by identifying a previously unknown western extension of nickel mineralization through diamond drilling.

NORTH LIMB

• Announced diamond drill results that continued to confirm the continuity of the North Limb nickel mineralized domain.

• Estimated a 21 million tonne to 34 million tonne NI-43-101-compliant Exploration Target Mineralization Inventory (“ETMI”) in the North Limb grading between 0.49% and 0.59% Ni, demonstrating the potential for a significant expansion of the nickel resource exploitable by open pit over and above current known resource in the Nose Deposit.

MEL• Completed 3,500m of diamond drilling at Mel to explore for extensions of the

known resource.

• Added to the potential for increased sulphide nickel resources at Mel by identifying a previously unknown extension of nickel mineralization, with drill intercepts up to 13.71m grading 0.96% Ni, including 2.64% Ni over 1.2m.

LAC ROCHER• Continued a comprehensive re-evaluation of the Lac Rocher project in light of

prevailing metal price levels.

• Continued efforts to obtain mining permits.

CORPORATE• Announced the resignation of T. Michael Young from the Board of Directors for

personal reasons.

• Welcomed two new directors: Peter R. Jones, former CEO of Hudbay Minerals Inc., and Michael Anderson, a former senior partner at a national law firm whose previous experience included General Counsel and Secretary with Denison Mines Limited.

Financing at Minagocontinued from p.1

“Thistooisgreatnews,”saidMr.Harapiak.“Minagocontinuestoprovidebetter-than-expectedresultsinanumberofareasandweanticipatemorewillcome.”

Single Blanket Work Permit:AnotherpositivedevelopmentistheissuancebytheManitobaGovernmentofasingleblanketWorkPermitcoveringallworkdoneontheprojectsiteforaperiodofoneyear.Thisdevelopmentwillexpeditesiteworkasiteliminatestheneedtoapplyforpermitstoundertakeindividualactivities. “ManagementisfocusedonfinancinganddevelopingMinagoasquicklyaspossibleandisexploringalloptionsinordertorealizethesubstantialvalueofthenickelandfracsandresourcesintheleastdilutivemannerpossible,”addedMr.Galipeau.“Wehavereceived,andcontinuetoreceive,seriousexpressionsofinterestfrompotentialpartnersandfinanciers.Whiletheuncertaintyinthefinancialandequitymarketsisdelayingdecisionsbytheseparties,wearecontinuingtoworkhardtomakeMinagoanevenmoreattractiveinvestment.”

MINAGO

97°54’W

55°48’N

6

6

280

391

60

Mel Property

Minago Property

Central

Southern

Northern

LakeWinnipeg

ThompsonBirchtreeThompson

Wabowden

Chur

chill

- Sup

erior

Boundary

Zone

PipeSoab North

Bowden Lake

Bucko Lake

Manibridge

William Lake

Thom

pson

Nick

el Belt

Soab South

Ponton

Snow Lake

Grand RapidsEasterville

N

km

0 50

Molson Lake

Gods Lake

PaleozoicCover

Flin Flon

Kisseynew Pikwitonei

F I N A N C I N G S TA G E

W

Minago

www.victorynickel.ca

Minago

Nickel mineralization Country

rock

Proposed open pit outline

Source: from Minago Site animation - www.victorynickel.ca

M I N A G O

Grand Rapids, Manitoba - In preparation for the completion of financing and the start of construction at Minago, the winter 2012 drill program incorporated “condemnation” drill holes to confirm there is no mineralization in areas scheduled for infrastructure development. In addition, the drilling tested a number of targets around the property that have been identified in previous work programs - given the widespread nature of nickel mineralization on the Minago property and the number of targets identified, the possibility of intersecting completely new nickel mineralization is considered good. NotonlydidthisdrillingcovertargetslocatedadjacenttotheMinagoopenpit,butalsoMiningLeaseML-003,situatedapproximatelyfivekilometrestothesouth(see map below right).Twoholestestedknownnickel-bearingserpentinitethatunderliesML-003.Thirteenhistoricholesweredrilledinthisareabetween1968and1971.Tenholesintersectedserpentinizedultramaficrock,whilesevenobtainedsignificantintersectionsofnickelmineralizedserpentinitefromwithinabodyinterpretedtobe>2kilometreslong.Themostextensiveintersection,inMXB-70-60,was605mgrading0.3%Nifrom154mdownhole.However,16.15mgrading0.71%Nistartingat163.68mwasobtainedfromMXB-70-34and30.48mgrading0.53%Nistartingat304.19mwasintersectedinMXB-70-37whilethehighestgradeintervalwas3.51mgrading1.1%NiinMX-70-34(see table below for other assays intervals - all intervals are core lengths).

“Withthisseason’sdrillingonML-003,nickel-bearingrockontheMinagopropertyhasbeendrill-testedovera10kilometrenorth-southintervalbetweenML-003inthesouthandthemostnortherninterceptstothenorthwestoftheNorthLimb,”saidPaulJones,Vice-President,Exploration.“ThewidespreadnatureofnickelmineralizationidentifiedbydrillingandotherexplorationatMinagoservestoprovidefurtherevidenceoftheexceptionalpotentialatMinagoforalongproductionlife.”

MINAGOLocation Manitoba, Canada

Ownership 100%

Commodity Nickel/Frac Sand

ProjectType Open Pit/Underground Potential

ProjectStatus Feasibility

Minago project - Land Package

Muskeg & Clay Overburden (11.2M Tonnes, -10m thick)Section 487240 (UTM) Looking East

Surface

Ordovician Red River Formation Dolomitic Limestone (111M Tonnes, -50m+ thick)Ordovician Winnipeg FormationQuartz Sandstone (15M Tonnes, -8.9m thick)

Waste Rock(158M Tonnes)

Open Pit

NICKEL MINERALIZATION(25M Tonnes within pit shell)

Ospawagan GroupThompson Formation

Marlstone and Marbles

Ospawagan GroupLower Pipe FormationMetasediments and IF

Stratigraphic Younging Direction

MINERALIZEDZONEGranite and

Granite Gneisses

200 metres

Clay weatheringat unconformity

800 m

700 m

600 m

500 m

400 m

300 m

Proposed Minago

Pit

Minago Overview• Permitted-Environment Act Licence in hand.• Large resource with significant exploration upside at depth

and to the north of the main deposit in the North Limb.

• Sulphide nickel: conventional processing, ~22% nickel in concentrate (up to 35% Ni).

• Base case indicates C1 cash cost of US$1.94/lb Ni, one of the lowest in the industry.

• Large “frac” sand resource - valuable co-product.• Positive feasibility study completed December 2009,

updated June 2010 and further optimized in 2011.• Projected average annual ore production: 3.6 million tonnes.• Projected average annual nickel production in concentrate:

11,000 tonnes.• Projected average annual frac sand sales of 1.1MT/year

for 10 years.

Annual Report Edition June 20124 Victory Nickel Inc.

M I N A G OWinter 2012 Drilling Readies for

Mine DevelopmentAlso Evaluates Potential to Extend Mine Life

Did you Know?

Did you KnowMinagoisonHighway6,225kmsouthofThompson?

Did you KnowIn1956,IncoLimitedannouncedthediscoveryofthemajorThompsonnickel-copperdepositandbuiltthefirstfullyintegratednickeloperationinManitobathatmined,concentrated,smeltedandrefinedinonecomplex?In2006,itwasboughtbyValeInco(nowVale).

HoleID From To Width From To Width Ni (ft) (ft) (ft) (m) (m) (m) (total) %

MXB-69-23 595 685 90 181.36 208.79 27.43 0.34

MXB-70-34 403 1003 600 122.83 305.71 182.88 0.31 Including 537 710 173 163.68 216.41 52.73 0.42 Including 537 590 53 163.68 179.83 16.15 0.71 Including 558.5 570 11.5 170.23 173.74 3.51 1.10

MXB-70-36 183 1067 884 55.78 325.22 269.44 0.30

MXB-70-37 343 395 52 104.55 120.4 15.85 0.30 435 585 150 132.59 178.31 45.72 0.33 735 1132 397 224.03 345.03 121 0.37 Including 998 1098 100 304.19 334.67 30.48 0.53 1128 1132 4 343.81 345.03 1.22 0.86

MXB-70-60 697 725 40 212.45 220.98 8.53 0.49 1188 1264 76 362.1 385.27 23.17 0.47 1626 1647 21 495.6 502.01 6.41 0.62 1757 1877 120 535.53 572.11 36.58 0.60 Including 1757 1807 50 535.53 550.77 15.24 0.76

MXB-71-70 1077 1157 80 328.27 352.65 24.38 0.30 1256.5 1477 220.5 382.98 450.19 67.21 0.30

MXB-71-80 247 257 10 75.29 78.33 3.04 0.43 777 877 100 236.83 267.31 30.48 0.31 Including 817 837 20 249.02 255.12 6.1 0.39 957 1047 90 291.69 319.13 27.44 0.32

Minago Mining Lease ML-003 Historic Drill Intersections

M I N A G OML-003

Nose Deposit

North Limb

M I N A G OM I N A G OFocused on Becoming a Mid-Tier Nickel Producer June 2012 Annual Report Edition 5

Unique and Valuable Co-Product Frac Sand is Vital to the Oil & Gas Industry

Grand Rapids, Manitoba- While nickel gets the most attention at Minago, one of the more unique features of this large and valuable project is not a metal at all, but rather a high-value co-product with the potential to generate substantial revenues - frac sand. Fracsandisusedintheoilandgasindustrytoincreaseflowtothewellhead.VastquantitiesareconsumedinhydraulicfracturingandmoreisneededallthetimeasshalegasplaysinCanadaandtheUSrisetoprominence.AtMinago,fracsandiscontainedinasandstonelayerapproximately10metresthickthatoverliesthenickeldeposit.Thislayermustberemovedaspartofpre-strippingtheopenpitand,accordingtoengineeringfirmWardrop,aTetraTechCompany,theproposedpitareacontainsamarketablefracsandresourceof11.2milliontonnes.Andthereispotentiallymoretocome. “It’simportanttorememberthatthesandstonelayerisnotconfinedtotheMinagopitarea,andthatthisresourceestimatedoesn’tconsiderthepotentiallysignificantadditionaltonnageoffracsandthatexistsoutsidetheopenpitlimitsandwhichcouldconceivablybeminedusingconventionalundergroundminingmethods,”saidSteveHarapiak,PresidentandCOO.“Thedemandforhigh-qualityfracsand,suchastheresourceatMinago,shouldcontinuetoexpandgiventhedevelopmentofunconventionaloilandgasresourceplays,includingtheManitobaportionoftheBakkenoilshaleplay-rightinourownbackyard.Giventhefactthatthesandmustbeminedandstoredonsurfacetoaccessthenickelmineralization,theamountavailableforsalewillbewhateverthemarketcanbear.Minago’sfracsandoperationcouldrepresentasignificantnewindustryfortheprovinceofManitoba.” FracsandisanimportantpartoftheoveralleconomicsatMinago,representingaveragenetrevenuesofapproximately$70millionperyear,accordingtothefeasibilitystudy,andaby-productvalueperpoundofnickelofUS$2.90.Allindicationsarethatfracsandpricingremainsrobust,andthatdemandwillcontinuetogrowfortheforeseeablefuture(see In Conversation with… Ken Murdock above).M I N A G OM I N A G OMinago Frac Sand Lab Analysis Compared with American Petroleum Institute Standards API Standard Minago (20/40 Sand)

Sphericity Greater than 0.6 0.72

Roundness Greater than 0.6 0.78

Acid Solubility Less than 2% 0.92%

Silt Test (Turbidity) Less than 250 ftu 24 ftu

Crush Resistance Maximum 14% fines 11.5%

Minago Frac Sand Exceeds API Specifications Across the Board

Why Frac SandsFrac sands are used as a proppant, or sized particles mixed with fracturing fluid to hold fractures open after a hydraulic fracturing treatment. This treatment, known as hydrofracking, is the forcing of a concoction of frac sands, viscous gel and other chemicals down a well to prop open fractures in the subsurface rocks thus create a passageway for fluid from the reservoir to the well.

The following are the API criteria for frac sands in relation to available minerals processing options:

1. GRAIN SIZE: API specifies that 90 wt% of the sand must fall within a specified size range for a particular product. The generally defined frac sand products are 12/20, 20/40. 40/70 and 70/140. (For example, to meet the requirements of a 20/40 product, 90wt% must be - 20 + 40 mesh.) This can be achieved through high efficiency screening.

2. SPHERICITY AND ROUNDNESS: Round or spherical quartz grains are a result of the deposition of the quartz deposit. Most deposits containing these preferred grains are geologically very old because, over time, the quartz grains have been rounded and non-quartz type minerals removed. From a practical standpoint, there is no processing route that can change the grain shape.

3. CRUSH RESISTANCE: The resistance to crushing is a key consideration as it relates to the amount of fines generated after a product is subjected to a particular pressure, as defined by API. “Good crush deposits” tend to be older geologically because aging allows for the creation of the more pure quartz that is void of other, softer minerals. There are some processing routes that can improve the crush results by removing the majority of the softer minerals.

4. ACID SOLUBILITY: For a product to have low acid solubility, it must be primarily quartz with little to no other minerals present. There are some processing routes that can improve the acid solubility.

5. TURBIDITY: The amount of silt and clay-sized particulate matter is also important. Some deposits are naturally low in fines, but when they are present, there are processing routes that can improve these criteria.

6. CLUSTERS OR AGGLOMERATES OR DEPOSITS with many agglomerated grains cannot be economically processed to meet the API specification, which is < 1% clusters.

??Currently,boththeUSandCanadianfracsandmarketsareunder-supplied.Evenwithnewproductcapacityexpectedin2012,marketprojectionsindicatedemandinexcessofsupply. Sandconsumptionindicatorsarepositive.MarketinformationresourcesshowthefracservicecompanyhorsepowerincreaseinNorthAmericatobegreaterthan39%bytheendof2012.Increasedhorsepowermeansmoresandconsumption. Rigservicecompanieshavepublisheda10%increaseinthenumberofrigsavailablebytheendof2012.Thatincreaseinrigcount,combinedwithanestimated33%increaseinthenumberofstagesperhorizontalwellsfraced,translatesintomorefracsandconsumption.

What is the state of the frac sand market? Is it continuing to grow at the rate it did throughout 2011?

What is the state of the frac sand market? What is the state of the frac sand market? Is it continuing to grow at the rate it did Is it continuing to grow at the rate it did throughout 2011?throughout 2011?

Q

Q

Q

Q ?Q?Q

ThedemandforfracsandinCanadahassupportedthedevelopmentofadomesticsandmarket.Traditionally,allthefracsandconsumedinCanadawasimportedfromthemidwesternUSA,ColoradoorTexas.Assupplyfromtheimportsourcestightened,nontraditional,lesserquality,domesticsandwasintroducedfromgeologicallyyoungerdunesandformationsinAlbertaandlaterinSaskatchewan.TheavailabilityofhigherqualityWinnipegFormationsandfromnorthernSaskatchewan(suchasWinnBay’sHansonLakedeposit;WinnBaywasrecentlypurchasedbyPreferredSandsforinexcessof$200million),displacedsomeofthelowerqualitydunesandsatasignificantcostpremium.WinnipegFormationsandsareevenmarketedatacostpremiumoverhigherqualityMidwesternsands. VictoryNickel’ssilicasanddepositisintheWinnipegFormationandshouldenjoythehighpremiumthattheSaskatchewanWinnipegFormationsandhasandcoulddisplacesomeofthelowerqualitydunesandinthedomesticsandmarket.Furthermore,withthedevelopmentoftheManitobaportionoftheBakkenoilshaleplay,VictoryNickelispositionedtobetheclosestfracsandproducertothatoilfieldactivity.

What is Victory Nickel’s position within the rapidly developing frac sand market?

Forthecurrentmarket,ifVictoryNickelNickel’splantwasinproductiontoday,betweendisplacinglowerqualitydunesandandincreaseddemandinthecurrentmarket,allofVictoryNickel’sfracsandproductioncouldbesold.

Notonlyhavefracsandpricesincreasedduetoincreasedtransportcosts,supplyanddemandimbalancehasputupwardpressureonthepriceofsandFOBtheplantsite.Furthermore,thesupplyshortageofpremiumMidwesternsandorequivalentinsouthernfracmarketshasresultedinsandproductionfacilitiesimportingrawpremiumsandtoexistingplantssouthoftheUSmidwest,i.e.Texas.

Ken Murdock is President of I.M.& M. Consulting, a Calgary-based firm focused on frac sand and oilfield services. Mr. Murdock has more than 25 years’ experience in the frac sand and industrial minerals industries, and is a consultant to Victory Nickel on its frac sand initiatives.

ItisexpectedthatthenumberofwellsdrilledinCanadain2012willdropbyabout8%butthepercentageofthosewellshorizontallyfrackedandthenumberofstagesfrackedperhorizontalwellwillincrease.Thenetresultisanincreaseinthevolumeoffracsandconsumedinexcessof22%for2012.

Thedemandwilloutstripthesupplyfortheforeseeablefuture(2to3years);thedemandforpremiumproductsornearequivalentswillincreasethatduration.

What is your forecast for Victory Nickel’s frac sand business?

To your knowledge, are frac sand prices rising in general, either as a result of increased costs, tight supply or any other factors?

What sort of demand are you expecting as a result of increased frac sand movement?

Do you think demand will continue to outstrip supply for the foreseeable future?

In Conversation… with Ken Murdock

M I N A G OM I N A G OExample of a well being fracked

Victory Nickel Inc.6

Lac Rocher, Quebec- High grades, near-surface mineralization and an excellent Quebec location - the Lac Rocher project has a lot going for it, including good potential to generate rapid cash flow at the right nickel price. APreliminaryEconomicAssessment(“PEA”)envisionstheLacRocherdepositbeingcontractminedintwophasesusingmechanizedcut-and-fillminingoveraspanof24-26months.InPhaseOne,65,000tonneswouldbeextractedat1.75%nickel,0.57%copperand0.062%cobalt;inPhaseTwo,anadditional252,730tonneswouldbeextractedat1.52%nickel,0.59%copperand0.051%cobalt.Allextractedmaterialisassumedtobetransportedtoanoffsitemill. ThePEAindicatesbreak-evenatUS$9.64/lbnickelandUS$3.75/lbcopper.Toensureitisreadytotakeadvantageofthispotentialwhenpricesdictate,VictoryNickelhasbuiltanall-weatherroadtogiveyear-roundaccessfordrillingand,potentially,productionactivities.Theroadwasbuiltbygeneralcontractor,ManchetauConstruction,agroupofCreePartnersfromtheWaswanipiCreeFirstNation,whichbroughtalocalcommitmenttotheconstructionproject.VictoryNickelhasshownthatitispreparedtoemployandbuildrelationshipswithFirstNationsandlocalcommunitiesthatwillbringeconomicbenefitstotheregionsinwhichitoperates. Tofurtheradvancepreparationsforextractionofabulksample,theCompanywillcontinuetoreviewthePEAtoidentifycapitalandoperatingcostsavings,isevaluatingthepotentialtouseDMS(DenseMediaSeparation)technologyforonsiteupgradingofminedmaterialinordertolowertransportationcostsandisadvancingthepermittingoftheproject.

Lac Rocher

Top of Exploitation

Top of Phase-1

Bottom of Exploitation

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270.0 Top of Ramp

EMERGENCY EXIT & VENT RAISE

RAMP PORTAL

RAMP AT -15%

TOP OF RAISE

Lac Rocher Section View (from PEA)

Lac Rocher Camp LAC ROCHERLocation Quebec, Canada

Ownership 100%

Commodity Nickel

ProjectType Underground - Ramp Potential

ProjectStatus PEA

LAC ROCHER

P E A S TA G E

Lac Rocher

Lac Rocher Overview• High-grade discovery of a 3.2 metre massive

sulphide intersection returning a weighted average of 10.8% Ni as part of a 61.5m interval grading 1.69% Ni.

• Near-surface resource with year-round all-weather access road to the property.

• Nickel resource located between surface and 125 vertical metres.

• PEA indicates break-even at US$9.64/lb Ni and US$3.75/lb Cu.

A High-Grade Deposit… Whose Time Will ComeWithintheprovinceofManitobaour

stakeholdersaretheCommunitiesofInterest(“COI”)impactedbytheMinagoproject(fourFirstNationsandoneMétisgroup),andofcoursethegovernmentofManitobaandgovernmentofCanada. Asinanyprocessinvolvingavarietyofinterests,itisimportantforexploration/minedevelopmentcompaniestoengagealloftheinterestedpartiesearlyinordertofosteraconstructiveworkingrelationshipandtothoroughlyunderstandtheissuesandconcernsofeachparty.ThefactthatVictoryNickelhasbroughtthisrolein-houseisindicativeoftheCompany’scommitmenttoenvironmentalstewardshipandcommunityrelationsand,assuch,theseissuesarefactored-intocorporatedecisionmakingfromtheoutset. Withregardtoenvironmentalstewardship,havingadedicatedin-housechampionaccountablefortheoveralloversight,strategicdevelopmentandmanagementoftheCompany’senvironmentalprogramsandactivitiesenablestheCompanytocloselymonitorandcontinuouslyimproveitsenvironmentalmanagementprograms,employbestpracticesthroughoutthemininglifecyclefromexploration,throughdevelopment,miningandmineclosureandpost-closure. Asmentionedearlier,buildingeffectiveallianceswiththeCOItakesalotoftime,effortandunderstanding.Bybeinghands-oninthelocalareaandgettinginputfromtheCOIondecisionsthatmayaffectthem,theCompanycanmoreeffectivelyunderstandtherealitiesofthesituationanddeterminehowbesttodealwithissuesthatareimportanttotheCOI. Thusfar,involvementoftheCOIhasbeencomprehensive,andtheCompanyhasbuiltstrongrelationshipsbyarrangingnumerouscommunitymeetings,involvingtri-partitemeetingsincludinggovernmentandtheCOIandbyinvolvingtheCOIintheEnvironmentalImpactAssessmentprocessandtheEnvironmentActLicenceprocess.AsVictoryNickelmovesforwardthroughdevelopmentandintooperations,thefocuswillbeonworkingtogetherwiththeCOItocreateemployment-butmorethanjustjobs-sustainablebusinessesthatcanthriveandbettertheCOInowandinsubsequentgenerationsasweareconfidentthatMinagowillbeinoperationformuchlongerthanthecurrentlyprojectednine-yearminelife. Overall,thespiritofinclusivenessandprocessofcommunicatingandliaisingwithallstakeholderswillcontinue.

IhavebeeninvolvedinpermittingprojectsinBritishColumbia,Quebec,Ontario,Yukon,Chile,SaudiArabia,Spain,SwedenandAfrica.EveryjurisdictionisdifferentintermsofEnvironmentalImpactAssessmentprocessrequirements,butgenerallyspeaking,thetechnicalandscientificrequirementsaresimilar.Andtherearealwayschallenges. ItisimportanttonotethattheMinagoprojectwasthefirstmajorgreenfieldminingprojecttobepermittedinManitobainover20years.ThecurrentoperatingminesinManitobadidnotgothroughthesamescrutinyastheywerenotgreenfields.Thismadeitalearningprocessforallthestakeholders,includingthegovernment.However,thegovernmentactedingoodfaiththroughoutthepermittingprocessandtherewasaclearpushonthepartofgovernmenttomakeitwork. Permittingisajointeffortandforusitinvolvedelectedgovernmentofficials,governmentagencies,theCOI,COIleadership,consultants,landusers(withintheprojectsetting,downstreamandupstream)andCOIBandmembers.Overall,itwas,andwillcontinuetobe,anintegratedmultidisciplinaryandcollaborativeeffortandaprocessthatwillbenefittheprovinceofManitobaanditscommunitiesandserveasamodelforotherminingcompaniesgoingforward.

Similartobuildingahouse,numerouspermitsarerequiredtobuildamine-boreholepermitsfordrilling,aminedewateringpermit,asewagemanagementpermit,justtonameafew.Theseandotherconstructionpermitsallneedtobeappliedforinduecourse,howevertheEAListhemostimportantbecauseitallowsVictoryNickeltodevelopandoperatetheproject. ItwasrecentlyannouncedthatVictoryNickelhasbeengrantedasingleblanketworkpermitwhichmeanswedonotneedtoapplyforindividualworkpermitsforactivitiesundertakenwithintheprojectareaasdefinedintheEALandEnvironmentalImpactStatement.Thiswillspeedupdevelopmentactivities.Theblanketpermitisvalidforoneyearandwillbeautomaticallyrenewedforthedurationoftheminelife.Howerver,itisimportanttomentionthatwithorwithouttheblanketpermit,VictoryNickelisrequiredundertheEALconditionstomeetenvironmentalprotectionobligations.

In Conversation… with Dr. David MchainaVice-President, Environment and Sustainable Development

For a company of Victory Nickel’s size, having someone dedicated to Environmental Stewardship and Aboriginal Relations is quite unique. What benefits does this bring to Victory Nickel?

Manitoba is often referred to as a “Mining Province.” How has your experience with the Manitoba government compared with that in other provinces/countries where you have worked previously?

Victory Nickel was issued an Environment Act License (EAL) for Minago last year. Does this mean no other permits are needed to build the Minago mine?

Q

Q

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Did you Know?

Did you KnowLacRocherqualifiesforPlanNord?Launchedinthespringof2011,PlanNordistheQuebecgovernment’splanfordevelopmentofterritorynorthofthe49thparallelinvolving$80-billioninpublicandprivateinvestmentoverthenext25years.

Did you KnowNickelsteelisusedforburglar-proofvaultsandarmourplate?

Did you KnowTakingtheentireEarthintoconsideration(includingthemantleandcorealongwiththecrust),nickelisthefifthmostcommonelement?Onlyiron,oxygen,siliconandmagnesiumaremoreabundant.

Annual Report Edition June 2012

June 2012 Annual Report Edition 7

Mel

Previously One of North America’s Largest Producers is now in the Capable

Hands of Prophecy Platinum

Lynn Lake, Manitoba- Victory Nickel’s Lynn Lake Project (located in the historic mining town of Lynn Lake in northern Manitoba, about 320km by road northwest of the Thompson mining camp) is under option to Prophecy Platinum Corp. (TSX-V: NKL). LedbyVancouverentrepreneurJohnLee,Prophecyisanaggressivejuniorintentonbuildingvalue.SinceoptioningLynnLake,Prophecyhasbeenactive,bothatLynnLakeandcorporately-addingtoitsassetbase.TheLynnLakeminewasoperatedbySherritt-Gordonfrom1953to1976.Duringits23yearsofoperationthemineproducedover20milliontonnesofNi-Cuoreatagradeof1.02%Niand0.54%Cu,makingitthethirdlargestnickelproducerinNorthAmerica. LynnLakecontainsMeasuredandIndicatedmineralresourcesof22.9milliontonnesof0.57%nickeland0.30%copperand8.1milliontonnesofInferredresourcesat0.51%nickeland0.28%copper(updatedWardropTechnicalReportMay2010).Approximately50%ofthehostrockremainsunexploredanddiscoveriesweremadeintheDiscoandTangoZoneswhichhavenotyetbeenNI43-101assessed.

Thompson, Manitoba- Minago is Victory Nickel’s primary focus due to its size and development-stage status, but the Company also has a second project situated on the Thompson Nickel Belt - Mel. Located just north of Thompson, Manitoba, Mel is a large property, approximately 25km east-west by about 6km north-south, and remains underexplored. VictoryNickelowns100%oftheMelproperty;formerjointventurepartnerValeCanadaLimited(Vale)retainsa10%netprofitsroyaltytobecalculatedinaccordancewiththeoriginalpropertyagreement.TheMelpropertyconsistsofoneminerallease(theMelLease)coveringapproximately750haand37unpatentedmineralclaims(theMelClaims),encompassingapproximately8,770ha.Whileonlyasmallpartofthetotalprojectarea,theMelLeasecontainstheentireNI-43-101resource(0.50%nickelcut-offgrade,seenewsreleasedatedFebruary26,2007):4.3milliontonnesofIndicatedresourcesgrading0.88%nickel,andanadditionalInferredresourceof1.0milliontonnesgrading0.84%nickellocatedbetween46metresand183metresfromsurface. Thisnear-surfaceresource,alongwithastipulationintheoptionagreementthatValeshallmilloreminedfromtheMeldepositatcostplus5%(providedthattheproductmeetsVale’sspecificationsandthatValehassufficientmillcapacity),makesnickelproductionwithalowcapitalrequirementaninterestingpossibility. Nodrillinghasbeendonethusfarin2012,howevertendrillholes,totalling3,459m,comprisedthe2011winterworkprogram.Twodrillholes,totalling739m,werecollaredtotestaUTEMgeophysicalanomalyapproximately700mnorthoftheMeldepositassociatedwithearlierprospectivenickelresults;nosulphidemineralizationwasencounteredinthesetwoholes. Ongoingactivitiesincludebaselineenvironmentalstudies(fisheries,wildlife,sediments),hyrologeologicalworkandgeochemicalcharacterizationofwasteandmineralizedmaterial.

AccordingtoProphecyPlatinum,nextstepsareto:•Commissionanenvironmentalbaselinestudyandthe

preparationofanEnvironmentActLicenseproposaltoinitiatetheprojectlicensingprocess.

•Conductcomprehensivebench-scalebio-leachtestingforactualproductionscenarios.

•PerformdownholeIPsurveysandexpanddrillingintherecentDiscoZoneandTangoZonediscoveries.

•AggressivelyseekmajorpartnersindevelopingtheLynnLakeNickelprojectutilizingBioleachtechnology.

Eightdrillholes,totalling2,720m,werecollaredtotestthedown-dipextensionoftheMelresource;allholesintersectednickelmineralizationofgradeandwidthcomparabletothatobtainedinholesthatcomprisetheexistingresource. TheMeldataset,muchofwhichwasrecentlyobtainedfromVale,iscurrentlybeingvettedandupdated-thisworkwillapplytoboththedrillingdataontheMelLeaseaswellastheconsiderabledrilling(>150drillholes)conductedontheMelClaims.Followingcompletionofthiswork,additionalmodellingoftheresourceiscontemplated.

LYNN LAKELocation Lynn Lake, Manitoba, Canada

Ownership 100%

Commodity Nickel

ProjectType Underground

ProjectStatus Prefeasibility

MELLocation Thompson, Manitoba, Canada

Ownership 100%

Commodity Nickel

ProjectType Underground - Ramp Potential

ProjectStatus Exploration/Development

Lynn Lake

Mel ProjectMel, Victory Nickel’s Second Project

on the Thompson Nickel Belt, has Big Potential

BIGPROPER

TY

P R E - F E A S I B I L I T Y S TA G E

E X P L O R AT I O N / D E V E L O P M E N T

Lynn Lake

Lynn Lake Overview• Acquired from Independent Nickel along

with Minago royalty.• Prefeasibility NPV: $131 million @ 8%

discount rate (net of CAPEX) (C$10.35/lb Ni, C$2.45/lb Cu).

• Numerous additional exploration targets: new zone identified grading 1.5% Ni over 18 metres.

• Optioned to Prophecy Platinum Corp. in October 2009.

• Final option payment due March 2013.

Mel Overview• 100% owned, subject to a Vale 10% net profits royalty.• 25km north of Thompson, Manitoba.• Near-surface resource.• Milling agreement with Vale at cash cost + 5%, provided Vale has sufficient mill capacity and product meets specifications.• 2012 focus: Complete environmental studies to prepare for permitting.

Did you Know?

Did you KnowThatManitobahasbeenintheminingbusinessforhundreds,ifnotthousandsofyears?AboriginalpeoplewhosettledinManitobausedtoquarryredochre/hematitefromtheRedCliffareaonwhatisnowcalledBlackIsland.

Did you KnowThatitwasnotuntilthe1750sthatnickelwasdiscoveredtobeanelement?

Did you KnowThatnickelisferromagneticandisafairconductorofheatandelectricity?

Did you Know?

Did you KnowThatthetownofLynnLakewasfoundedin1950andislocatedjustover1,000kmnorthwestofWinnipeg?

Did you KnowThattheLynnLakeBeltisthethirdlargestnickelproducingregioninCanadaandthatelevendiscreteorebodieswerebroughtintoproductionatLynnLakebetween1953to1976?

Did you KnowThatnickeliscorrosionresistant-itisoneoftheelementsusedinstainlesssteel?Thepresenceofnickelinmeteoritemetalmeansitwouldhavestayedbrightandshinyinthehandsofancientpeopleformuchlongerthanifnickelhadbeenabsent.

Focused on Becoming a Mid-Tier Nickel Producer

Annual Report Edition June 2012 Victory Nickel Inc.8

Independent DirectorsCynthia Thomas, MBA, Chair

Michael Anderson, BA, LL.B

Ethel Dorothy Blondin-Andrew, P.C., B.Ed., LL.D

Roland Horst, MBA, M.Sc, B.Sc.

Peter R. Jones, P. Eng.

Howard Stockford, P. Eng.

Officers and ManagementRené R. Galipeau, CGA,Vice-Chair, Chief Executive Officer and Director

Steve Harapiak, P.Eng., President and Chief Operating Officer

Paul L. Jones, B.Sc., P. Geo., Vice-President, Exploration

Alison Sutcliffe, CA, Vice-President, Finance and Chief Financial Officer

Sean Stokes, BA, Corporate Secretary and Vice-President, Public Affairs

David Mchaina, Ph.D., P.Eng., Vice-President of Environment & Sustainable Development

Margaret Lai, CA, Controller

AuditorsBDO Canada LLP, Chartered Accountants, Licensed Public AccountantsToronto, Ontario

Legal CounselNorton Rose Canada LLPToronto, Ontario

Transfer Agent & RegistrarComputershare Trust Company of Canada100 University Ave.,9th Floor, North TowerToronto, Ontario M5J 2Y1 CanadaTel: 1.800.564.6253

Corporate OfficeVictory Nickel Inc.80 Richmond St. West, 18th FloorToronto, Ontario M5H 2A4Tel: 416.363.8527Fax: 416.626.0890E-mail: admin@victorynickel.cawww.victorynickel.ca

Investor RelationsCHF Investor RelationsTel: 416.868.1079 Fax: 416.868.6198E-mail: juliet@chfir.com

Annual MeetingThe annual meeting of shareholders will be held at The Toronto Board of Trade, 1 First Canadian Place, Toronto, Ontario, Tuesday, June 26, 2012 at 4:00 p.m. (local time).

Forward-Looking Information: This document contains forward-looking information. All statements, other than statements of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future constitute forward-looking information. This forward-looking information reflects the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking information is subject to a number of risks and uncertainties that may cause the actual results of the Company to differ materially from those discussed in the forward-looking information, 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 the Company. Factors that could cause actual results or events to differ materially from current expectations include, among other things: uncertainty of estimates of capital and operating costs, production estimates and estimated economic return; the possibility that actual circumstances will differ from estimates and assumptions; uncertainties relating to the availability and costs of financing needed in the future; failure to establish estimated mineral resources; fluctuations in commodity prices and currency exchange rates; inflation; recoveries being less than those indicated by the testwork carried out to date (there can be no assurance that recoveries in small scale laboratory tests will be duplicated in large tests under on-site conditions or during production); changes in equity markets; operating performance of facilities; environmental and safety risks; delays in obtaining or failure to obtain necessary permits and approvals from government authorities; unavailability of plant, equipment or labour; inability to retain key management and personnel; changes to regulations or policies affecting the Company’s activities; the uncertainties involved in interpreting geological data; and the other risks disclosed under the heading “Risk Factors” and elsewhere in the Company’s annual information form dated March 30, 2012 filed on SEDAR at www.sedar.com. Forward-looking information speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking information, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking information are reasonable, forward-looking information is not a guarantee of future performance and accordingly undue reliance should not be put on such information due to the inherent uncertainty therein. Paul Jones, Vice-President, Exploration for Victory Nickel, acts as QP under National Instrument 43-101.

Corporate Information

www.victorynickel.ca

Letter to Shareholders

Time to Develop continued from p.1

ThistaxissaidtoaddUS$0.50toUS$0.70tothecostofproducingapoundofnickelandisafirststeptowardatotalbanonexports.Thetaxisexpectedtoincreaseto50%intheverynearfuture. MostofthegrowthinnickelinrecentyearshasbeentakenupbyNPI.AccordingtoAustralia’sBureauofResourcesandEnergy,totalworldproductionofnickelin2011was1,942,000tonsandisexpectedtogrowto1,984,000tonsin2012.Chineseportsarereportedtohave2.9milliontonsoflateriteoresstoredasproducersincreaseexportsinadvanceofthetax.Thisinventoryalonerepresentsalmostalloftheincreaseinnickelproductionforecastfor2012.Sowhere’sthefutureforlaterites?Onlytimewilltell. Betteryet,where’sthefutureforsulphidedeposits.VictoryNickelhasfoursulphidenickeldeposits.ThemostadvancedoneisMinago,itslargestproject.Mostoftherecentdevelopmentofnewnickelprojectshasfocusedonlaterites.Sulphideconcentrateproducersfocusedonthereopeningofpastproducers.Theseprojectsaretypicallyhighcost,andthisisthereasontheywereshutdowninthefirstplace.Itwouldbefairtospeculatethatwehaverunoutofpastproducerstoreopen.Worseyet,thereareveryfewnewsulphidenickelprojectsonthehorizon.Newsulphidenickelprojectsareunabletoreplacedepletingmineproduction.Smeltersrequirenickelconcentratesproducedfromsulphidedeposits. Forecastsindicatethatthegapbetweensmeltercapacityandconcentrateproductionwillreachalarmingnumbersoverthenextseveralyears.By2014smelterscouldbeshortbyanestimated50,000tonnesofnickelinconcentrate.Thisdeficitisforecasttogrowto300,000tonnesby2020. Minagoisprobablythemostadvancedundevelopedsulphidenickeldepositintheworld.Ithasnotonlypassedthefeasibilitystage,whichwasatwo-and-a-halfyearexercise,butitisalsopermitted.WereceivedtheEnvironmentalActLicenceinAugust2011. Manycompaniesarealreadycuttingbackandconcernedthatthepriceofnickelwillnotsupporttheirmines.TheMinagofeasibilitystudybasecaseshowsthatC1cashcostswillbeoneofthelowestintheworldatlessthanUS$2.00perpound.C1cashcostsarecashcostsofproductionlessthevalueofby-products.Minagoisfortunatetohaveby-productvaluesintherangeofUS$3.70perpoundofnickel.FracsandaloneaccountsforUS$2.90perpoundofnickel.Perhapsweshouldrefertoitasco-product;aco-productthatunfortunatelyisnotaquotedcommodity.Assuchpricingisnotreadilyavailable.Thefracsandmarketisaclosedmarket,butverylucrative,asaremostindustrialminerals.Asaresult,itistakinglongerthanexpectedtogetthefracsandportionoftheprojectappreciated. WetrulybelievethatthetimetodevelopMinagoisnow.Ifwestartedtoday,theminewouldreachproductionin2015,approximatelyatthetimethatthemarketisprojectedtoimprovewithapendingshortageofnickelasoldminesreachtheendoftheirproductivelifeandnewminesarestilltryingtogetpermitted. Thelackofinvestmentinthepreviouserahasleftagapandproductioncan’tkeepuptodemandgrowth.Itappearsthattoomuchreliancewasplacedonthepotentialofthelargelateritedepositswhichhavethusfarproventhatthereisalottobesaidforconventionalminingandprocessing. Beforeending,IwouldliketosaythatwerecognizethatVictoryNickelcannotfundthedevelopmentoftheMinagominewithoutsupportfromamajor,financially-strongpartner.Wehavehadmanydiscussionsandwebelievethatsuchapartnerwillbefound.WewillnotdealMinagoorVictoryNickelatanycostsotheprocessmaytakeabitlonger.IknowIsaidIwasn’tgoingtomentionit,butthisisafunctionofthechoppyglobaleconomyandsoftequitymarkets.Minagoisagreatasset;itispermittedandreadytogoandcouldhavethelowestcashcostsofproductionofanyprimarynickelproducerintheworld.Wewillkeepyouinformedasfinancingeffortsprogress.

René R. Galipeau Vice-ChairmanandChiefExecutiveOfficer

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