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Gold exploration in Canada's Yukon territory is just getting started...
JIM MUSTARD joined PI Financial in October 2009 and brings an extensive range of capital-market and industry experience. Immediately prior to joining PI, Jim was at Canada Zinc Metals Corporation for two years and prior to that was a vice president and senior mining analyst at Haywood Securities for 11 years.
The Gold Report: A feature titled "Gold Mania in the Yukon" was published recently in The New York Times Magazine. Is this a sign that the recent Yukon gold rush is over-hyped?
Jim Mustard: I don't believe that article was hyping the Yukon as it was really a human interest story about Shawn Ryan, who came to the Yukon as a mushroom picker. Mushroom pickers can make an awful lot of money over short periods of time and for most of the year they are idle.
He was bitten by the mining bug and ended up, through perseverance and being mentored, developing a particular skill in taking and interpreting early-stage soil geochemical data. The article talked about his life, his living conditions, his family and his success.
While his success and his very specific exploration ideas have spawned market interest in what is going on in the Yukon, the area is not over-hyped, in my opinion.
TGR: We've all heard about the Yukon being the first area play in Canada since the Lac de Gras diamond rush in the Northwest Territories during the early-to-mid '90s. You've been in this business longer than most people in your position. Do you believe the Yukon is a true area play?
Jim Mustard: The Yukon is, literally, a very large area play, but not necessarily focused on one type of commodity or geologic setting the way it was at Lac de Gras. During the Lac de Gras rush, we were all looking for kimberlites and only one commodity, or, if we went to Labrador, nickel was the primary focus within a somewhat narrowly-defined district.
In those cases, we were looking for a fairly specific type of geologic setting that hosted only one key commodity. In the Yukon, we have a vast array of geologic domains that are permissive for a range of deposit types and commodities: from large copper-gold porphyry systems to high-grade veins. There are also copper deposits that are very unique, such as the Minto deposits, which is not porphyry copper, but are more structurally controlled in south-central Yukon.
At the other end of the spectrum, we have a brand-new and exciting exploration model. Carlin-style gold replacement occurrences have been discovered that, until last year, were previously unrecognized in the Yukon.
Also present, and sometimes forgotten, are world-class SEDEX (Pb/Zn) deposits and high-grade meso-thermal silver-rich veins. The Yukon also hosts significant intrusion-related gold deposits in the Dublin Gulch-Mayo area (and perhaps in the Dawson range south of the White Gold area). Nickel and PGM deposits are present as well as a past-producing gold heap leach mine.
Yukon has the hallmarks of a very large area of interest that's woefully underexplored. The activity underway by a multitude of companies is sustainable for several years to come — likely much longer than Lac de Gras.
TGR: Before we started the interview, you mentioned that if you were still an analyst, you'd be all over the Yukon. Why would you be so excited?
Jim Mustard: We've had technical success with discovery. We've had corporate success in terms of one company being bought out by a major company at a very early stage. We've also had a tremendous number of companies and individuals moving into the territory, acquiring ground, doing basic prospecting.
These developments have led to rapid advancement. I believe there will be additional exploration success and additional M&A activity—this all equates to multiple opportunities, given that combined exploration budgets this year are likely to be close to $200M compared to an estimated $160M spent on exploration in 2010.
An analyst has an opportunity to follow and recommend companies based on strong technical data or the presence of "nearest neighbors" within one common jurisdiction with similar geological settings.
TGR: What are some investing strategies you could offer our readers?
Jim Mustard: One of the best strategies here is to look at a map. Out of some 100 companies operating in the area, find out which ones are at the mapping or prospecting or soil sampling stage and which ones are going to have a drill program this year.
That's one way to play the game. Invest in companies that will have a drill bit turning in the next several months because otherwise you might have to wait a full year before you see any progress given the seasonality in most of these areas.
You can also pick one or two companies that have a fairly large position in any one of the areas — companies that may be just starting out, but have successful neighbors. The market will generally add value because of the area play concept since there is still a fair amount of mystery about the geological setting — this is a key factor that will not last, but is likely to stay in place for at least two to three years.
The other way to choose a company is to review the technical data and talk to management. A lot of companies are taking more consistent soil samples at a deeper level and at a consistent horizon. Because this part of the Yukon was not glaciated, we can correlate soil results as being in place — directly over bedrock sources.
You don't have to be concerned about a dispersal train that would occur in a glaciated area. It's always a challenge to pick out one soil anomaly from another soil anomaly. A basket approach can help mitigate the risk.
TGR: As vice president of investment banking, are institutions coming to you saying that they want a stake in some of these plays in the Yukon?
Jim Mustard: Yes, there continues to be a very healthy appetite for financing Yukon exploration companies. They're in Canada, so there's a lot of geopolitical security. Land claims have largely been settled. The government is supportive of mining. The area has a high degree of visibility and has had a lot of success in the past with several operating mines. There is a real opportunity and a real comfort for institutions.
TGR: What about new companies? Are people getting some properties, sending them into a shell company or doing an RTO, and then coming to you and saying "We need some cash?"
Jim Mustard: The rate of company creation has been high over the last six months, as a lot of staking took place in the fall and winter. That has now translated to new companies. I think that will increase as we have additional discoveries, and as long as the capital market is there to finance these companies—new company creation will continue.
TGR: If there were a red flag anywhere in all of this, what would that be?
Jim Mustard: The capital markets and the ability to raise money is one. But that does not impact the fundamentals near term as most companies are financed for their 2011 programs. Perhaps something out of the blue could impact markets—an environmental concern, a permitting concern or maybe, in some cases, exploration resources get overwhelmed.
TGR: What does the geology look like in the Yukon?
Jim Mustard: We're still at an early stage and haven't identified all of the environments. Clearly there's a lot of exploration left to do over the next few decades. But the Yukon is part of a regional geologic setting where world-class discoveries have been made. Exploration has been cyclical and it will likely continue that way to a certain degree. Now it has a lot of money being thrown at it on a sustained basis.
That's really, I suppose, what separates where we are now from where we were in the past. In the White Gold area, we have what I would call intrusive-related or breccia-related gold targets. We also have evidence of large bulk tonnage copper systems nearby. Casino is a billion-plus ton deposit with copper and gold that has been through a number of phases of exploration. Its challenge has been the fact that it's a large bulk tonnage system and it needs good infrastructure.
Infrastructure is one thing that is not that well developed in the Yukon. That's why gold deposits have more attraction — because you can fly the gold bricks out — whereas copper concentrates require a bulk tonnage system.
There is a brand-new area being prospected for Nevada-style Carlin replacement gold deposits. A whole range of deposit types are clearly on the horizon for exploration and potential discovery.
The take away — our metallogenic (ore deposit formation) understanding of the Yukon is still very much in evolution.
TGR: Thank you so much for speaking with us.
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