Canada's Yukon Draws Big Gold Miners

As winter draws in across Canada's northern Yukon territory, big mining companies are prospecting for bargains among the army of junior explorers staking claims in what's shaping up as the region's second big gold rush.

With other gold-producing parts of the world exhausting their reserves, the Yukon may have the potential to richly reward both prospectors and investors as fears of a lasting global financial crisis drive bullion prices higher and higher.

Sub-Arctic Yukon, which neighbors the northern U.S. state of Alaska and is almost the size of Spain, sits on some of the biggest gold-bearing zones in the world.

That has attracted exploration companies in a frenzy reminiscent of the Klondike Gold Rush of the 1890s, when thousands of prospectors flocked to the territory. Some experts reckon that recent discoveries have so far barely scratched the surface of the region's potential.

Bigger, cash-rich mining companies in turn are scouting for opportunities, particularly among smaller operators with exploration permits.

There's a lot of interest up in the Yukon and a lot of money is being spent there, said Chuck Jeannes, chief executive of Goldcorp Inc , Canada's second-biggest gold miner by market value.

There are interesting early-stage discoveries being made. Certainly, it's something we keep our eyes on.

The trigger that has rekindled wide interest in the Yukon is the White Gold project, acquired last year by Kinross Gold for $139 million. The former owner, Underworld Resources, had reported gold grades higher than anything found in the region in the past decade.

After years of absence, major mining companies are again looking at the Yukon ... where exploration success can lead to mining success, said Patrick Sack, an economic geologist at the Yukon Geological Survey.

The opportunity here is second to none, said William Sheriff, CEO of Yukon-focused explorer Golden Predator Corp , which expects its flagship Brewery Creek project to begin producing in 2013.

As the prospectors and miners pour in, so does the money.

Some C$260 million ($255 million) is expected to be spent on exploration alone this year, with two-thirds of that directed to gold projects, according to Sack. That's up from C$160 million last year.

CLAIMS SOAR

In the first nine months of this year, the Yukon Mining Recorder's Office registered 103,755 claims in the territory, up from 83,261 in the whole of last year, and about 10 times the normal level seen in recent years.

In July, Golden Predator raised its 2011 exploration budget for a second time this year after drilling results showed another major discovery at Brewery Creek.

The big players in the industry are beginning to see the Yukon and Alaska are not just area plays, but big district opportunities, said Ivan Lo, president of Equedia Weekly, a Canadian investment newsletter.

The White Gold property, which lies about 100 km (60 miles) south of the earlier Klondike discovery, is believed to be the hard rock source for the Klondike's placer gold - ore dislodged from a source and found in alluvial deposits in streams and riverbeds.

White Gold has some 1.5 million ounces of gold, or about 5 percent of Yukon's known hardrock gold, and is home to about 15 exploration companies, about a fifth of those operating in the Yukon. The Gold Rush at the end of the 19th century produced an estimated 15 million ounces.

Another hot Yukon property is the Eagle Gold deposit, where Victoria Gold estimates probable reserves of 1.8 million ounces. Kaminak Gold Corp's Coffee project could become a low-cost, multimillion-ounce deposit in an emerging new gold camp, said Rob Chang, an analyst at Versant Partners.

Other companies active in the territory include Atac Resources , Yukon-Nevada Gold Corp , Capstone Mining and Ryan Gold Corp .

OUT OF SYNC?

Valuations on gold-mining companies have not risen in sync with the surge in bullion prices, currently around $1,730 an ounce.

The resource-heavy TSX Venture Exchange for emerging companies sank to nearly a two-year low in October and is down 36 percent since rising to a 32-month peak in March.

It's safer for investors to invest strictly in the physical commodity itself, and avoid the production risks and the whole bunch of risks associated at the company level, said Versant's Chang.

After a while, you start realizing these companies are ridiculously undervalued and making tons of money off the current gold price, and they should be worth more. We just need the market to realize that.

Once the drilling updates are known, some predict a fresh round of industry consolidation, with Kaminak and Atac seen as possible targets, and Newmont Mining Corp and Barrick Gold Corp as scouting for buys.

In October, New Gold said it was buying Silver Quest for C$131 million - a 22 percent premium - to ramp up exploration in the Yukon.

You will see a number of mergers next winter after everyone has seen what the (summer drilling) results are, said Golden Predator's Sheriff.

You'll see several majors, perhaps, making acquisitions and some of the smaller companies banding together.