Mining stocks and the Yukon economy

What do riots in Athens have to do with the price of wooden stakes in the Yukon? Quite a bit, it turns out.

What do riots in Athens have to do with the price of wooden stakes in the Yukon?

Quite a bit, it turns out. In our globalized world capital markets are spooked by the latest ructions in the Eurozone, and that affects how much investors want to risk investing in junior mining companies. And the Eurozone crisis is not the only worry on money managers’ minds.

There’s also slowing growth in China, austerity drives around the world and Iranian threats to close the Strait of Hormuz to oil traffic if anyone attacks their nuclear facilities.

Exploration is a big part of the Yukon economy. Cristina Pekarik, a mining maven at the Department of Energy, Mines and Resources, estimates that total Yukon exploration spending was over $300 million in 2011. That is a lot of jobs.

Junior mining companies are at the forefront of exploration in the Yukon, accounting for about three quarters of total exploration. That money ultimately comes from investors. And a quick look at the stock markets shows that investors are much less keen on mining stocks than they were even as recently as 2011.

The S&P/TSX Capped Materials index, which is a broad basket of resource companies, rose to around 450 in the first quarter of 2011 only to fall to around 300 now. The Capped Diversified Metals and Minerals index, a more focused look at mining companies such as Capstone (which owns Minto in the Yukon), fell from around 1,500 to 850 over the same period.

Capstone itself traded around $4.50 early in 2011 but is now in the $2.25 zone. Victoria Gold was almost $1.50 in late 2010 but is now about 30 cents. ATAC, Kaminak and Northern Tiger had similar trajectories. Even Kinross, a bigger player with operations from the Yukon to Mauretania, fell from over $18 a year and a half ago to under $9 now.

None of these figures mean that these companies are in trouble. Their properties might end up being highly profitable mines. It’s just to say that mining companies in general are having a harder time raising money.

With everything else happening in the global economy, investors aren’t exactly tripping over each other to give new cash to junior mining companies to explore in the Yukon. Nor do current managers and shareholders want to dilute their holdings in solid properties by selling new shares at low prices.

This kind of up and down has always been part of the resource industry. And it frustrates managers and geologists. After all, the rocks haven’t moved.

If people thought there was gold down there in the first quarter of 2011, a bunch of riots in Greece, or air strikes in Iran don’t change that. You might have a very promising exploration program, only to discover that you can’t raise more money for another round of drilling.

This is where people usually start criticizing the stop/go nature of capitalism and the markets, and our obsession with quarterly results, which make it tough to plan a steady multi-year exploration program. In times of market mayhem, other models can have advantages.

Big mining conglomerates have operating mines with positive cash flow in other parts of the world and can invest in exploration. Big state-owned Chinese mining companies, with access to almost limitless cheap loans from the government, have the ability to plan in the very long term indeed.

If some juniors are frozen out of the capital markets for a long time, they may be forced into deals with majors or acquisitive Chinese players. We shall see.

The impact of lower exploration spending on a relatively small economy like the Yukon’s can be very large. Compared to last year’s figure of over $300 million, Mike Kokiw, executive director of the Chamber of Mines, recently told a local radio station that he estimated exploration spending was down “30 to 40 per cent” to around $200 million.

There are various scenarios out there. Some expect the figure to come in higher than $200 million, since the fundamental demand from China and India for commodities is still very solid. A federal government survey suggested that as recently as late 2011, exploration spending intentions were in the $285 million zone for 2012.

But others wonder if we might revert to a figure around $150 million, which is roughly the average over the last six years, according to Ms. Pekarik.

Since almost all the money invested in exploration comes from outside the Yukon, taking a hundred million – or more – out of an economy with a gross domestic product of around $1.5 billion can make a big difference. The impact will be spread widely, from helicopter pilots and geological consultants to hotels and restaurants.

You’ve already missed your chance to make a fortune shorting Yukon mining stocks over the last year and a half. But you might have a second chance, since who knows what the impact a smaller exploration sector will have on the Yukon economy and, you never know, Whitehorse house prices.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Willow Brewster, a paramedic helping in the COVID-19 drive-thru testing centre, holds a swab used for the COVID-19 test moments before conducting a test with it on Nov. 24. (Crystal Schick/Yukon News)
An inside look at the COVID-19 drive-thru testing centre

As the active COVID-19 case count grew last week, so too did… Continue reading

Conservation officers search for a black bear in the Riverdale area in Whitehorse on Sept. 17. The Department of Environment intends to purchase 20 semi-automatic AR-10 rifles, despite the inclusion of the weapons in a recently released ban introduced by the federal government, for peace officers, such as conservation officers. (Crystal Schick/Yukon News file)
Environment Minister defends purchase of AR-10 rifles for conservation officers

The federal list of banned firearms includes an exception for peace officers

Yukonomist Keith Halliday
Yukonomist: The K-shaped economic recovery and what Yukoners can do about it

It looks like COVID-19 will play the role of Grinch this holiday… Continue reading

Jodie Gibson has been named the 2020 Prospector of the Year by the Yukon Prospectors Association. (Submitted)
Jodie Gibson named 2020 Prospector of the Year

Annual award handed out by the Yukon Prospector’s Association

A number 55 is lit in honour of Travis Adams, who died earlier this year, at the Winter Wonderland Walk at Meadow Lakes Golf Club in Whitehorse on Nov. 24. (Crystal Schick/Yukon News)
A new take on holiday traditions

Winter Wonderland Walk, virtual Stories with Santa all part of 2020 festive events in Whitehorse

Black Press Media and BraveFace have come together to support children facing life-threatening conditions. Net proceeds from these washable, reusable, three-layer masks go to Make-A-Wish Foundation BC & Yukon.
Put on a BraveFace: Help make children’s wishes come true

Black Press Media, BraveFace host mask fundraiser for Make-A-Wish Foundation

Colin McDowell, the director of land management for the Yukon government, pulls lottery tickets at random during a Whistle Bend property lottery in Whitehorse on Sept. 9, 2019. A large amount of lots are becoming available via lottery in Whistle Bend as the neighbourhood enters phase five of development. (Crystal Schick/Yukon News file)
Lottery for more than 250 new Whistle Bend lots planned for January 2021

Eight commercial lots are being tendered in additional to residential plots

The Government of Yukon Main Administration Building in Whitehorse on Aug. 21. The Canada Border Services Agency announced Nov. 26 that they have laid charges against six people, including one Government of Yukon employee, connected to immigration fraud that involved forged Yukon government documents. (Crystal Schick/Yukon News file)
Charges laid in immigration fraud scheme, warrant out for former Yukon government employee

Permanent residency applications were submitted with fake Yukon government documents

Whitehorse City Hall. (Joel Krahn/Yukon News file)
City hall, briefly

A look at decisions made by Whitehorse city council this week

Karen Wenkebach has been appointed as a judge for the Yukon Supreme Court. (Yukon News file)
New justice appointed

Karen Wenckebach has been appointed as a judge for the Supreme Court… Continue reading

Catherine Constable, the city’s manager of legislative services, speaks at a council and senior management (CASM) meeting about CASM policy in Whitehorse on June 13, 2019. Constable highlighted research showing many municipalities require a lengthy notice period before a delegate can be added to the agenda of a council meeting. Under the current Whitehorse procedures bylaw, residents wanting to register as delegates are asked to do so by 11 a.m. on the Friday ahead of the council meeting. (Crystal Schick/Yukon News file)
Changes continue to be contemplated for procedures bylaw

Registration deadline may be altered for delegates

Cody Pederson of the CA Storm walks around LJ’s Sabres player Clay Plume during the ‘A’ division final of the 2019 Yukon Native Hockey Tournament. The 2021 Yukon Native Hockey Tournament, scheduled for March 25 to 28 in Whitehorse next year, was officially cancelled on Nov. 24 in a press release from organizers. (John Hopkins-Hill/Yukon News file)
2021 Yukon Native Hockey Tournament cancelled

The 2021 Yukon Native Hockey Tournament, scheduled for March 25 to 28… Continue reading

Lev Dolgachov/123rf
The Yukon’s Information and Privacy Commissioner stressed the need to safeguard personal information while shopping this holiday season in a press release on Nov. 24.
Information and Privacy Commissioner issues reminder about shopping

The Yukon’s Information and Privacy Commissioner Diane McLeod-McKay stressed the need to… Continue reading

Most Read