Starvation In The Yukon – Gold Mining In The North

Two weeks ago, I flew to the Yukon Territory for an investment tour hosted by the Yukon Mining Alliance.

Q2 hedge fund letters, conference, scoops etc

Stevebidmead / Pixabay

Mining companies, all at different stages, pooled together capital to fly out and pitch 25 analysts, fund managers, investment bankers, and letter writers.

Kudos to the tour organizers, who did an excellent job.

The trip was an awesome experience, not only because of the range of projects I was able to see, the new leaders I met, and the truly stunning beauty of the Yukon, but also because it was an opportunity to do a deep dive into the mining industry in one of the most prospective jurisdictions on the planet.

Attending the tour drove home two points for me:

  1. Resource Insider is truly offering both a unique and superior service to investors. The quality of deals and the value creation potential at this point in the market cycle are amazing; and
  2. Today, this market is a place where smart capital can take advantage of extremely cheap opportunities.

Dawson City

The Yukon territory is a mostly uninhabited place. To put that in perspective, the Yukon is three times the size of England, yet has only 40,000 residents. The largest city is Whitehorse, with 25,000 residents and the next biggest “city”, Dawson City (where I stayed), has roughly 1,500 residents.

Dawson city is the last of the northern frontier towns, holding true to its roots as a mining town and remaining virtually unchanged since the Klondike gold rush.

Streets are unpaved and the only show in town is the local saloon, Diamond Tooth Gertie’s, where entertainment consists of gambling and burlesque shows.

Now, this is not a modern-day burlesque show, but rather something more “vintage”. Local singers perform a duet while the “dancing girls” put on a show wearing more clothes than an 80-year-old at the beach.

Meanwhile, nearby, people are taking shots of Yukon Jack whiskey with a human toe in the glass.

To add to the bizarre scene, when you stumble out of the saloon at 2:00am… the sky is no darker than it is at dusk.

Into the Wild

Each day I’d wake up to explore a new property.

Hot breakfast at 7:00am, then off to the airstrip, where I’d hop into a 10-seater and fly to that day’s project. Once we landed on the property’s airstrip, which usually wasn’t much more than a strip of dirt, we’d jump in a helicopter or take the long truck ride to camp.

Many of the properties appear a bit zoo meets real-life-Jurassic-Park. Grizzly, caribou, moose, and wolf sightings are the norm. Camps have electric perimeter fencing to keep the animals out and crew safe at night.

Yukon Mining Companies Have Their Work Cut Out For Them

Most of the properties I visited were geologically enticing and told a good story – land packages were massive with highly prospective drill targets and some promising results. What I don’t like is the fact that most of the projects in the region are extremely remote, making development and exploration very time consuming and expensive. They also exist in one of the most hostile climates on the planet.

Think about this for a second, every single item is brought in by small plane and then, in many instances, a helicopter. Fuel costs alone double the $/m for drill programs (an exploration project’s primary value-add tool). On the other hand, companies with properties closer to ‘civilization’ are trading at a premium compared to peers, which isn’t overly appealing either, considering cheap opportunities currently available globally.

While on site we met with management teams, examined core samples, and discussed potential drill targets.

The real takeaways here were what is not said; management teams had their sales hats on and were aggressively seeking investment.

Many of the other guests were concerned about such things as:

  • What targets are the next drill program going after?
  • Do they have enough money to sustain a drilling program into the summer?

Questions like this tell me one thing: these investors are concerned about the short term. They are worried about short-term results and short-term capital. Don’t get me wrong, I LOVE fast money.

Hell, I used to day trade for a living.

But, that’s not the game we’re playing here at Resource Insider. We are in it for the long haul, finding real value and taking advantage of the next cycle. The advantage our team and our members have, unlike many institutions, is that we are not held accountable by benchmarks and redemptions; we manage our own capital and position accordingly.

General Takeaway

I believe this short-term view is the mindset of many investors in the resource space. Investors often crave quick wins – good drill results now to bump the stock an easy 20%, 30%, or 50% and then they’re out. This attitude incentives management teams to make short-term decisions and dilute shareholders.

Drilling is the key to exploration success, but it must be conducted strategically. Management teams need to lead deliberate programs designed to develop an asset, NOT give the share price a momentary blip.

But today experienced management teams in proven jurisdictions all over the world find themselves in the position of being unable to raise capital…. at any price.

Desperate times call for desperate measures, these are the symptoms of a sector starved for capital. One that, I believe, has finally found its bottom.

This all happens to be a very good for Resource Insider members. Some days it feels like the market is our sea and all we need to do is reach down and gather up a basket of pearls.

– Nick D’Onofrio

Analyst at Resource Insider

Article by Capitalist Exploits


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