 Yukon
Gold and the Klondike Big Inch Land Co
Bob Moriarty
Archives
September 7, 2006
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.
YGC Resources
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.
click on images to
enlarge
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.
Written in East End, Grand Cayman on September 6, 2006.
YGC Resources
Ltd.
YGC-T $1.39 Canadian (September 6, 2006)
YGCFF-OTCBB
56.4 million shares outstanding
YGC Resources website
Bob Moriarty
President: 321gold
Archives
321gold Inc
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