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The Yukon Metals and Mining Boom: Today’s Hottest Investment Play

Commodities / Metals & Mining Nov 17, 2010 - 03:14 PM GMT

By: Casey_Research

Commodities

Best Financial Markets Analysis ArticleAndrey Dashkov, Editor, Casey’s International Speculator writes: Building on the spectacular early takeover of Underworld Resources by gold major Kinross this June, recent discoveries in the Yukon Territory have made this large region of frozen tundra the hottest area play in the junior resource sector today.


Economy

The Yukon is Canada's smallest sub-economy, with a GDP of only C$1.4 billion. It may be small, but mining is a traditional and essential part of the Yukon economy, and it's also its fastest-growing segment: from 2003 to 2008, the mining industry expanded at a 10.5% average annual rate, far exceeding the 3.1% growth of all industries.

A lot of this growth came in 2008 (latest available data), after the successful launch of Capstone Mining's Minto copper mine, and new discoveries in the area started attracting a lot of investment money to this underexplored but highly prospective region. Mining grew by a whopping 56.3% in that year.

Chart 1 - Real GDP Growth by Industry, 2003-2008

Minerals

The Yukon is well endowed with a number of mineral resources, including lead, zinc, silver, gold, tungsten, and copper. As of 2009, it had 84 mineral deposits with established reserves and resources, and 2,700 known mineral occurrences.

Much of this natural wealth, however, is spread across areas with little exploration history. Aware of mining's economic importance, the Yukon government is offering various financial incentives to continue drawing investment capital and exploration effort to the region. These incentives, combined with a stable business climate, were quite successful in making the Yukon one of the world's best places to explore.

A survey of metal mining and exploration companies operating around the world, conducted annually by the Fraser Institute, places the Yukon 4th among 51 jurisdictions on its Policy Potential Index (PPI). We have used this mining survey extensively when reviewing other jurisdictions. The chart below shows how the Yukon compares to the rest of Canada:

Chart 2 - World's Top Mining Jurisdictions

We wouldn't have ranked Newfoundland and Labrador above Ontario, but nevertheless, this ranking paints a very positive picture: mining companies can take advantage of the territory's rich mineral potential with relatively little risk. Some 70 mining companies, as of June 2010, already are.

Since 2005, exploration activities in the Yukon were on a steady uptrend, following the lead of such major mining jurisdictions as Ontario and Quebec, as shown in the next chart. (Exploration seems to be dropping back in BC, but that's a tale for another day.)

Chart 3 - Exploration and Deposit Appraisal Expenditures

But can we really say that another exploration boom is underway in the Yukon? Yes. Historical data shows that the amount of exploration there has been extremely high in recent years, dwarfing even the pre-Bre-X boom of the mid-1990s, as you can see in the next chart.

Chart 4 - Real GDP Growth by Industry, 2003-2008

Exploration expenditures, the key to unlocking the Yukon's hidden treasures, slowed to C$90 million in 2009 from C$110 million in 2008 following that year's infamous market collapse, but 2010 looks to be a turnaround year. Exploration spending is forecast to match the 2007 record of C$140 million.

There are many players in this field, with ATAC Resources (V.ATC) and Kaminak Resources (V.KAM) being among the most notable. The stock charts of both of these companies went nearly vertical last summer. It's interesting to note that most of current gold production in the Yukon comes from placer mining. In 2009, the ten operating Yukon placer mines produced 54,478 ounces of gold, up 3.4% from 52,709 ounces in 2008. The value of this production was US$42.4 million. The next largest source is Minto, which produced 29,000 ounces of gold in 2009.

So what?

Yukon is not just a "good" or "favorable" jurisdiction - it is one of the world's best. It has a very stable political climate, with a demonstrably pro-mining government. Other variables, like good roads and energy infrastructure, add to its positive attributes. And the place has a lot of room for exploration. The prospects are wide open.

The big question is: who will have the next big gold discovery? There are many candidates, including two companies in our Casey’s International Speculator portfolio that are poised to gain big. Discover the editors’ secret of separating the wheat from the chaff, in our FREE report “The 8 Ps of Resource Stock Evaluation.” Click here to read it now.

© 2010 Copyright Casey Research - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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