Good news for Yukon gold miners based on strong fundamentals

You may not be interested in the commodity markets but, to paraphrase Leon Trotsky, the commodity markets are interested in you.

You may not be interested in the commodity markets but, to paraphrase Leon Trotsky, the commodity markets are interested in you.

While Yukoners debate the future of the mining industry and how our four levels of government should deal with the sector, global markets for several important resources have aligned to put the Yukon back on corporate Powerpoint presentations in mining boardrooms around the world.

We have recently seen a number of big-money announcements. Goldcorp invested in Kaminak in 2016. Victoria Gold recently announced a major deal with international banks and other investors. Last month saw Barrick announcing a deal with ATAC Resources. Newmont and Agnico Eagle are other well known industry names with recent Yukon investments in the news.

Importantly, many of these deals involve blue chip international investors and mining companies. Junior mining companies are a key part of our exploration and mining eco-system, and have remained active in the Yukon in bad times as well as good. But it is also positive for the industry in the long run to have the big firms involved with their global engineering and production capabilities and the coffers needed for big investments.

The first commodity market to look at is gold itself, which has recently been trading a bit north of US$1,200 per ounce. This is down from its peak of over US$1,900 in 2011, but well above the US$300 levels where it languished in 2000.

According to the World Gold Council, gold demand slipped 18 per cent in the first quarter of this year from “last year’s exceptional high.” Jewellery demand weakened and retail investors bought less gold through recently popular exchange traded funds, although volumes held up better in Europe where investors were worried about Brexit and European political uncertainty. Meanwhile, demand was boosted by Chinese investors, who bought more bar and coin — more than 100 tonnes. Central banks also continued to buy the metal, although at a slower rate.

The BMO Capital Markets April gold forecast had the metal averaging in the US$1,220-1,250 range through 2018, a modest increase from their predictions in the previous month.

At first, having gold pull back from over US$1,900 to around US$1,200 does not seem like good news for Yukon miners. That’s where the second global market comes in: foreign currencies. The Canadian dollar has fallen from near parity with the U.S. dollar in 2011, to around 73 cents more recently.

This means that, to Canadian miners, the price of gold has gone from an average of around C$1,550 in 2011 to over C$1,650 in recent weeks. Essentially, a falling loonie has more than cushioned the decline in gold since 2011, much to the benefit of Canadian miners.

The next two commodity markets that have smiled on Yukon miners are the ones for oil and gas. The price of oil has collapsed by around half since 2014, meaning that running heavy diesel equipment at a Yukon mine or shipping supplies from Outside has become significantly cheaper.

Furthermore, natural gas prices in Alberta, as measured at the Empress hub, have gone from C$3.24 per million British thermal units in 2011 down to C$2.60 recently. This is in part because of the glut of Canadian natural gas, due to the rise of fracking volumes and limits on pipeline capacity to export it to Asia and the United States. Generating electricity at a Yukon mine with liquefied natural gas is cheaper as a result (unless the mine is able to tap into the Yukon grid for even cheaper power).

As a result, Yukon mining business cases benefit from a revenue line supported by a slumping Canadian dollar, and lower costs because of cheaper diesel and natural gas.

All of this creates some attractive opportunities for the Yukon, in particular for our publicly-owned electricity company to grow its revenue (for projects near the grid) and for First Nation development corporations to get involved as investors and business partners.

Don’t be surprised to read about more gold deals in the coming months.

Of course, if commodity markets go up they can also go down. No one really knows where gold, the loonie, oil or gas prices will be in two or three years.

A lot will depend on how quickly these projects can move through the Yukon regulatory process. We need to have rigorous environmental and socio-economic screening, but we also need to do it in a timely fashion that doesn’t take so long that final investment decisions end up happening so late that commodity markets have turned against us.

Time — and Yukon regulators — will tell whether all, some, or none of the hopeful projects above turn into mines that employ Yukoners, generate business on Main Street and pay royalties to our governments.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.

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