A challenging spring for Yukon mining

Heavy snowfall and a late spring aren’t making life easy for Yukon’s placer miners. And volatility in the commodity markets aren’t making it any easier for the rest of the mining industry, either.

Heavy snowfall and a late spring aren’t making life easy for Yukon’s placer miners. And volatility in the commodity markets aren’t making it any easier for the rest of the mining industry, either.

In mid-April, the price of gold tumbled to US$1,361.10 an ounce, a two-year low.

It was the biggest one-day drop in 30 years for the precious metal, which has seen year-over-year gains for the past decade.

The decline was sparked by speculation that the central bank in Cyprus was preparing to sell off some or all of its US$600 million in gold reserves, stoking fears that other European economies might do the same.

But the sell-off didn’t happen, and gold has since recovered much of its value. At market close on Tuesday, it was trading at US$1,450 an ounce.

While the price has recovered, many analysts don’t see it trending much higher.

Canadian mining giant Barrick Gold Corp. recently cut its price assumption for gold to US$1,450 an ounce, down from $1,700.

Barrick is also predicting a slight drop in the copper price, cutting its forecast 25 cents to US$3.25 an ounce.

“You can boil it down to just China right now,” said Cindy Burnett, the vice-president of investor relations for Capstone Mining. “That’s kind of all anybody’s focused on in terms of copper consumption.”

Capstone runs the Minto mine near Pelly Crossing, which produced 8.4 million pounds of copper concentrate in the first quarter of 2013.

While current forecasts are down a bit from the more recent highs, it is still a good price in historic terms, said Burnett. 

Fears over slow Chinese growth may be a bit overblown, she added.

“I think it ends up being a bit of a knee-jerk kind of over-reaction, because it’s still a lot of copper whether China grows at five per cent, seven per cent or 10 per cent – that’s still huge copper consumption.”

It’s a unique time for the mining industry, said Burnett.

“I think just about every major mining company has changed their CEO in the last year and shareholders are looking a little bit less at expansion, a little bit more at capital discipline and asking to have a little bit more money returned, so these large companies are looking across their assets and rationalizing.”

Capstone has been able to take advantage of some those trends.

Late last month it bought Pinto Valley Mine in Arizona from a subsidiary of Australian major BHP Billiton.

The precarious state of the world economy has led to a tightening of equity markets, with skittish investors looking for safer harbors from which to weather any potential financial storms.

That’s taken a toll on the territory’s exploration industry.

Exploration in the Yukon was down last year, with only $146 million in expenditures reported. That’s less than half of what it was in 2011, although it’s still fairly high compared to the five-year average.

With small exploration companies having a difficult time raising money through normal investment dealer channels, Capstone has been expanding its exploration portfolio as well, said Burnett.

But not every company has been able to take advantage of the situation.

Victoria Gold Corp. announced earlier this week that it is delaying construction on its Eagle Gold project, located 85 kilometres northeast of Mayo.

The company decided to delay construction on the Dublin Gulch property rather than dilute its share price further.

Shares of Victoria Gold are trading around 15 cents on Thursday, down from its peak of US$1.50 in 2010.

“We are disappointed equity markets are unsupportive to begin construction this season. However, Eagle is a rare shovel-ready project and the ore body does not go away,” said CEO John McConnell in a release.

Other companies, like Western Copper and Gold, which is looking to build a massive open-pit copper and gold mine about 300 kilometres northwest of Whitehorse, have given up on equity markets and found other ways to raise capital.

Late last year, the company sold some of the royalties for its Casino project.

Western Copper got US$32 million from a unnamed purchaser in exchange for a 2.75 per cent net smelter returns royalty on any future metal sales.

As part of the deal, the numbered company, controlled by a “well-known global royalty company,” agreed to cancel the five per cent net profit interest it already held in the project.

All the volatility in commodity and equity markets hasn’t had any effect on Western Copper’s plans, said Paul West-Sells, the company’s president and chief operating officer.

“We haven’t pulled back at all on that, if anything we’ve accelerated our plans for this year,” he said.

Western Copper plans to spend about $6 million this year to get the ball rolling for the environmental permitting process.

“Although that doesn’t have the excitement as an exploration program, it’s a significant investment and significant monies that are going into the Yukon,” said West-Sells.

The most recent feasibility study of the Casino project was done with prices for copper at US$3.00 a pound and gold at US$1,400 an ounce.

But even if gold falls to US$1,300 and copper slumps to US$2.75, “the project still looks very, very strong,” said West-Sells.

Regardless of what happens with the commodity markets, the Yukon’s placer miners will continue to work regardless, said Randy Clarkson, president of the Klondike Placer Miners’ Association.

“Placer miners are in it for the long haul, they have been forever, but it definitely effects their profitability,” he said.

Back in the late 90s, when the price of gold dipped below US$300 an ounce, the only gold mining being done was by placer miners, said Clarkson.

Placer operations might be relatively small in scale, but there are high capital costs. And unlike junior mining companies, which “don’t have their ass pocket involved,” placer miners can’t just pack it in when prices slump, he said.

“Once they’ve geared up for mining they really have to make the payments on that equipment and the bankers have obligations to meet, so whether they’re working or not is not an elective.”

Spring has been late, but most of the territory’s miners are optimistic about this season’s prospects, said Clarkson.

“The prices are going up, which is good, and it’s spring so nothing has had a chance to go wrong yet.”

Contact Josh Kerr at

joshk@yukon-news.com

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