Yukon Gold and the Klondike Big Inch Land Co
I've been around the mining business for a long, long time. My speciality is placer gold, I began my mining career in 1951 or 1952, panning for gold at the Knott's Berry Farm in Buena Park, California. It's hard to remember the year with precision, I was but six. But well I remember the first flash of buttery gold flakes at the bottom of my pan.
Knott's Berry Farm was a real farm, out in the country. And for prospective miners, both boys and girls, they had a gold panning area where real professionals would show you the ropes as it were. As we get older, we forget how important the memories of childhood are, and how they form what we are. But I remember the first yellow flash of gold I would ever see. And anytime I get a chance to teach a child to pan, I take it. I suspect and hope they will remember it as well as I did.
I continued in my career in 1955 when I staked my first lode gold claim in the Yukon, I was 9 by then. Actually, I didn't stake the claim myself, I had someone else do it and they shipped the paperwork to me in a box of Quaker Oats cereal. I was then an official owner of one square inch of gold ground from the Klondike Big Inch Land Company.
The story actually started in 1947 with a radio show called "The Challenge of the Yukon" starring Sergeant Preston and his faithful companion, a Malamute named Yukon King. Malamutes scare hell out of Ted because they are so big and he is so small. But that's another story. In any case, by 1955 the radio show had dropped in popularity to the point it was dropped and Quaker Oats, the sponsor of the series paid to have the show brought over to the new medium of television.
I actually remember when there was no TV in the average household in the US. 1955 or so was about the time TV became common and affordable. Quaker Oats moved the series, now known as "Sergeant Preston of the Yukon" over to TV in 1955 where it would continue until 1958. But Quaker Oats needed some gimmick to get kids to watch the show and better yet to convince their parents to purchase car loads of overpriced cereal. It was a particular moment of time where some unknown and unheralded advertising wonk came up with the perfect pitch, one which turned into one of the most successful promotions of all time. It got me into the hard rock gold mining business in a small way.
Quaker Oats set up an Illinois corporation called the Klondike Big Inch Land Company. The company promptly bought a 19.11 acre parcel of moose pasture in the Yukon south of Dawson. After carefully measuring out the land in 1 square inch parcels, Quaker Oats began putting 21 million "Deeds" into carefully marked boxes of cereal. On each show, Sergeant Preston hawked the "Deeds" to all the little kiddies. In a few short weeks, the cereal boxes flew off the shelves and the promotion ended.
I was the proud owner of one of those "Deeds" to what just had to be a lode gold claim. I remember well dreaming of just how I would develop my mine. Alas, the Yukon Lands Branch wasn't so thrilled. The cost to actually issue a deed for each square inch would have been prohibitive so claim holders held "Title" to a square inch but it was a loose title. By 1965 Quaker Oats tired of being contacted on a regular basis by junior miners and let the land taxes in the amount of $37.20 lapse. The government of the Yukon was once again the owner. To this day Quaker Oats, the Yukon Lands Branch and the Yukon Department of Commerce still get phone calls from now older but no wiser land "Owners."
I was in the Yukon about 10 days ago staying in Dawson. I saw a couple of the deeds framed, front and back and read the story which has been well researched. I do remember well how rich I felt as a landowner of a gold property in the Yukon.
A few days later, I saw a real gold mine in the Yukon. It wasn't moose pasture and wasn't quoted in square inches. But they have boatloads of gold and are so far under the radar screen of most investors that I had to keep kicking myself in disbelief. I like buying and reporting on companies which have a 5 bagger potential but every once in awhile I come across a 10 bagger which has 20+ bagger potential and I'm going to tell you about one.
I'm going to start first by talking about the Ketza River Mine because it is the heart of the story. I call it a mine whereas YGC Resources calls it a project and kinda infers there are two different portions. All of their problem is communication and it was a mine so it is a mine.
Over the past 20 or so years, different companies have sunk over $50 million dollars into the Ketza River Mine located about 110 miles NE of Whitehorse. Between 1987 and 1990, Canamax produced over 100,000 ounces of gold averaging about 10 grams. Canamax put up a $25,000 bond and was given permission to mine an oxide layer of gold located between both an upper layer of sulfide ore and a lower layer of sulfide ore. I had never heard of oxide ore being found between layers of sulfide ores, normally an oxide ore is what was a sulfide ore body weathered down by water and air. But in this case, there was an underground river which ran through a sulfide body and turned it into an oxide. The good news is that oxide ore causes less problems with the environment and the bad news is that when you run out of oxide ore, the bond required to mine sulfide ore tends to be higher because of the increased costs of mining where acid may be an issue.
In this case, the Powers That Be demanded a $2 million dollar bond for Canamax to mine the gold sulfide ore. The company wasn't happy about having to put up that much money. The company shut down the mine and mill to show how much power they had (which is almost always a bad idea when dealing with any government agency.) Before they could win this test of wills, problems in other areas of the company caused financial issues and Canamax lost the property.
A fellow named Graham Dickson had built the 680 TPD plant. After the property bounced around the industry for a bit, he picked up a 100% interest in 1994. After sitting patiently for the price of gold to recover, Graham, now President and CEO of YGC, put the company into high gear in May of 2005. In all of the literature, the company refers to two properties, the Ketza River Mine or Ketza Manto Zone and the Shamrock Zone but to everyone other than a geologist, both properties will feed the Ketza River Mine. It's a mine, it is not a couple of exploration targets.
Because of 43-101, management can't say they are going back into production, only that they are going to make a production decision by March 31, of 2007. But the mine has already produced 100,000 ounces of gold from 10 gpt ore in the past, they have a 43-101 resource of over 1.8 million ounces in all categories. A new 43-101 resource is due out this month and it obviously will be higher. Over on Stockhouse, someone who at least sounds like he knows what he is talking about has looked at all the drill core results and has estimated the new resource will be in the 3.2 million ounce range. With those kind of numbers, you can guarantee the big boys will be soon sniffing around.
If I had upwards of two million ounces of gold and a mill and the gold was either near or at the surface and it ran 5-10 gpt, it wouldn't take me until next March to make a decision. It wouldn't take me past the time it takes you to read this sentence to make a production decision and regardless of what management puts in writing, I can assure you they are planning production.
I met Graham in Whitehorse in late August. Together with a major German shareholder, Werner Ulman, we flew out to the Ketza River Mine on a stunning Yukon autumn day. As we approached the property, I could see iron stained gossans off in the distance. That's a very good sign of a giant system.
Since gossans are such a good indication of iron rich systems, any interested reader should go to this link to read up on how valuable the information can be from a gossan. I wasn't aware of it before reading that piece but the largest open pit mine in North America, Bingham Canyon, was discovered because of the iron staining from a gossan. Since gold and silver are often associated with iron, a gossan is a good sign.
When I visit a property, I want to get some feel for the size potential. Many times, in fact, most times, that just isn't possible because the mineralization may only outcrop at surface. But we were seeing gossans a long ways away from the Ketza River Mine itself. This is one giant deposit and they aren't going to run out of gold any time soon. They pretty much could do drilling just based on visual indications.
A popular business model in mining is to maximize the mine. That is, produce all you can, as fast as you can and leave. I don't find that model as attractive as that of rationalizing a mine and creating a cash cow which will produce minerals at a profit for a long long time. Think of the gold and silver mines in Mexico and South America which have produced wealth for many generations. Many of the old family fortunes in the US and Canada came from generational mines.
Graham Dickson thinks long term. He is a production guy so he doesn't even think of a project without planning on how he can go into production. With the Ketza Mine, he can create the perfect size operation, to get a reasonable cost of operation but not put the mine out of production in five years by overproducing. I think that model makes heap of sense and those are the kinds of operations I want to see. Once your plant and equipment is paid for, your costs really drop down. I am baffled as to why mining companies don't work harder to make mines profitable. Isn't that the whole point?
Here are some of the goals and time lines.
New 43-101 based on the over $7 million drilling over the last year by September of 2006.
PRE-feasibility completed by December 31, 2006.
Production decision by March 31, 2007.
Mine and Mill in operation by late 2008.
Begin acquisition of another late stage property by 2007.
And that's a big factor in why I like the company so much. Sure, with 1.8 million ounces today, the company could reasonably have a value up to $180 million based on any comparison with their peers. More gold will mean higher valuation. The majors and mid-tier company are going to get real interested at anything north of 3 million ounces. The biggest danger I see is someone coming in with a low-ball offer before management can get their story understood by ordinary investors. (Think NovaGold and Barrick)
But Graham Dickson has designed and put around 20 mills into production. His team is a production team and that is the expertise in the shortest supply in the industry. There are a zillion guys around who can claim to be smart enough to drill holes in the ground. But there are damned few people who have the experience of actually putting mines into production and most exploration companies won't touch production with a ten foot pole.
YGC is well financed with about $12.5 million in the kitty expected by December of 2006 based on the current burn rate. The exercise of another 14 million warrants and options would bring in another $12.9 million dollars. I don't see any reason they can't be totally self financing from here without any more shares being issued. A minor debt financing would cover any projected shortfall.
I'd guess they are looking at maybe 150,000 ounce per year production of gold with a credit of 150,000 ounces of silver as well. Costs will be below $200 an ounce even though they have to truck in diesel fuel for their power generation. The rest of the Yukon has a power surplus for now and there is a good chance the Yukon government will bring in electricity which will make a major impact on lowering production costs.
I like YGC better than any company I've seen since I first wrote up NovaGold five years ago. Their communication is terrible, going through the website is like wading through a shoulder high swamp. But that's why the stock is so cheap. They at least understand they need a total rework of their website and that they need to improve communication. But if their website told the real story, the stock wouldn't be $1.39.
Management is as solid as a rock across the board from geology to mining to gluing mills together. The board is a real board, not a bunch of drinking buddies claiming titles. Management and insiders control about 24% of the stock and the rest is in strong hands.
When I finally understood the story, I bought a fair number of shares. I have an interest in seeing the price go higher and any reader should understand I am biased. This stock is about as close to a buy and forget as any stock I've seen since I first told anyone to buy NovaGold. The biggest danger isn't the stock price going down, it's getting bought out way too cheap. This is a production company with production management and a real mine. They will be leaders, not followers and in the worst case situation, if someone buys them way too cheap, stick to management, I can assure you they are going to turn around and do the same thing again.
YGC is an advertiser
and we do own shares.