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It was in 1896 when prospectors stumbled across large quantities of gold
in one of the tributaries of the Yukon?s Klondike River. Word of this
discovery spread like wildfire. And in no time at all prospectors from
far and wide set course to get a piece of the action. The aptly named
Klondike Gold Rush ended up being one of legend!
Provocatively this legend was not entirely one of smashing success and
untold riches though. Yes, there were some who cashed in, but it was
ultimately one of endless frustration and failure. Gold fever ended up
blinding folks to the reality of the Yukon?s harsh climate and challenging
geography. And most of those who journeyed there were ill-equipped to
deal with it.
Amazingly of the 100k+ prospectors who set course to score Klondike
gold, less than 40k even made it to the promised land. Navigating the
steep mountainous terrain and dealing with the intense cold and snow proved
just too much. Many died, and many turned back. And sadly most of
those who did make it struggled mightily to find gold in the Klondike?s
hard-to-dig permafrost.
It was no surprise then that there was a mass exodus when gold was
discovered in nearby Nome, Alaska in 1899 where the environment was much
milder and it was easier to extract. The Klondike Gold Rush had ended
nearly just as soon as it had begun. And by the turn of the century the
boom towns had gone bust.
This swift departure was followed by a century or so where the Yukon
experienced very little gold exploration and development relative to the rest
of Canada. And this is reflected by the fact that this territory only
produces about 2% of the country?s gold, less than 100k ounces per year.
The 21st-century gold bull market has however relit a fire under the
Yukon?s gold allure. Considering the amount of gold the prospectors of
yore were finding in streams and outcrops, clearly there?s vast potential to
discover the deeper source deposits. And since the modern mining companies
are obviously not as vulnerable to the Yukon?s logistical challenges, they?ve
gotten busy working this underexplored region targeting major
discoveries. And perhaps none is better than the one contained within
Kaminak Gold?s Coffee project.
Coffee is located about 130km south of historic mining town Dawson
City. And though access is limited to air and barge, a physiography
that includes gently rounded hills that are only partially covered in trees
makes Coffee?s terrain comparatively mild to the rest of the territory.
This area did see a small amount of placer activity around the time of the
Klondike Gold Rush, but it didn?t see its first meaningful hard-rock
exploration until about a century later.
Kaminak Gold got its hands on the project in 2009. And it set out to
follow up on some recent promising early-stage exploration work that showed
great gold potential. In its first pass Kaminak identified several
gold-in-soil anomalies. And its maiden drilling program the following
year resulted in some awesome high-grade discoveries.
The Supremo, Double Double, and Latte zones really stood out. And
further exploration showed them to be fantastic near-surface gold deposits
amenable to bulk-tonnage mining. Kaminak thus released the drilling
hounds in order to prove up and expand the resources. And each
subsequent drilling season has stoked more and more excitement for Coffee?s
future.
Interestingly drilling seasons in the Yukon run from early spring to late
autumn, which differs from most other Canadian gold districts. Out east
where it?s flatter winter can actually be a good time to drill, when the mud
and lakes are frozen over. But in the Yukon where the mountains are
steep, the snow is plentiful, and all-weather roads are few and far between,
winter is when surface operations are typically shut down.
By the end of the 2014 season Kaminak?s geological baristas had drilled
over 200k meters in 1000+ holes. And this has fed a series of resource
estimates, the latest showing Coffee to contain a whopping 4.2m ounces
of gold. And most exciting about this resource is that a core section
(2.6m ounces) is classified as oxide mineralization, which makes for much
cheaper mine development and extraction.
With Kaminak gaining more confidence in Coffee?s resources, it ran a preliminary
economic assessment to give it an idea of its economic potential. And
the results, which were announced in June 2014, were staggering.
Coffee was drawn up as a conventional open-pit heap-leach operation.
The ore, of which about three quarters would come from the flagship Supremo
deposit, would be thrice-crushed and processed at an onsite
Adsorption-Desorption-Recovery carbon plant at a rate of nearly 14k metric
tons per day. With the core resource grading an average of 1.2 g/t and
gold recovery averaging 88%, Coffee would produce 167k ounces per year over
an 11-year mine life.
The PEA estimated Coffee?s preproduction capex at only $305m. Not
only does this include onsite infrastructure such as the processing plant and
mining equipment, it includes support infrastructure like a 250km all-season
access road to the Klondike Highway.
Most attractive about this prospective mine though is its projected
operating costs. Over the life of the mine, all-in sustaining costs are
estimated at only $688/ounce. This is easily in the lower
quartile of industry average. And at $1250 gold it will allow for a
payback period of only two years along with an impressive after-tax internal
rate of return of 26%.
Even given the recent lower prices, it really was a no-brainer to move
forward with advancing Coffee towards development. And Kaminak is full
steam ahead as it performs comprehensive environmental baseline studies and
infill drilling. The environmental studies will feed the ever-critical
Environmental Impact Statement in advance of permitting. And the
drilling will feed a feasibility study that will prove up Coffee?s gold to
the reserve categories.
Despite the crummy market conditions, Kaminak Gold didn?t have any problem
raising capital to fund Coffee?s advancement. Within a month of
announcing the PEA results, it succeeded in raising C$25m via the sales of
shares. And interestingly a big chunk of this was strategic investments
from industry magnate Ross Beaty and a trust endowed by the Lundin family.
It?s always a good sign when the power players take notice!
Kaminak is expected to resume drilling and related field programs in
February. And in addition to infill drilling it will perform
condemnation, geotechnical, and hydrological drilling. KAM?s aggressive
2015 program is expected to provide all the data necessary to complete the
feasibility study. And it is targeting the end of 2015 or early 2016 to
announce the results.
If the results are in line with the PEA, this project ought to quickly
transition to the development stage. And assuming the successful
procurement of permitting and financing, the Yukon will soon have its newest
and largest gold mine. This transition will make for an exciting next
couple years. And investors can really get in for cheap given KAM?s
deeply discounted stock-price levels.
This chart shows the daily price action of gold and KAM since 2011.
And as you can see, it?s been quite a rough stretch since their respective Q3
2011 all-time highs. To its 2013 low KAM was off a staggering 90%
from its high. And sadly this brutal downside leverage to gold?s own
40% decline was pandemic of the entire sector.
There aren?t many positives to take out of a chart like this. But
one thing that is important to observe is how a stock responds to gold when
it shows signs of life. When gold moves higher, gold stocks ought to
leverage to the upside. And the junior elites should offer some of this
sector?s best positive leverage.
Over the course of gold?s cyclical bear market it?s been able to muster
five meaningful uplegs. And as would be expected, or else it wouldn?t
be worth owning, KAM positively leveraged each.
In the first two uplegs in 2012 KAM positively leveraged gold an average
of 3.1x, gaining an average of nearly 50% to gold?s 15%. This is
excellent leverage that will definitely keep investors coming back! But
the same can?t be said for upleg #3 in 2013. KAM still outperformed
gold, but only to the tune of 2.0x. This is unacceptable leverage for a
junior elite, the type of action that can send investors elsewhere.
Thankfully KAM more than made up for 2013?s anomaly with stellar
performance in the latest two uplegs rounding the corners of 2014 and
2015. In upleg #4 it soared an impressive 92% to gold?s 16% (5.7x
leverage). And in ongoing upleg #5 it?s so far rocketed an even more
impressive 111% to gold?s 14% (7.8x leverage).
So as you can see, KAM is a stock that investors will pile into when gold
runs higher. Its amazing project has incredible potential even in a
low-gold-price environment. And when the metal does finally run higher,
this project?s value will skyrocket. Kaminak Gold is a company that
both investors and major mining companies will keep a close eye on as it
advances through the feasibility stage.
Kaminak is not the only junior that will thrive upon gold?s recovery
though. While the pickings are slim following years of carnage, there?s
an elite group that are poised to lead the next generation of gold
exploration and development. And at Zeal we believe we?ve identified
those with the highest probability for success.
Our exhaustive research in the universe of junior golds trading in both
the US and Canada showed us that there are still small gold stocks alive and
kicking. We thus narrowed the field down to our favorite 24, Kaminak
Gold being among this exciting group. And each is fundamentally
profiled in our two latest research
reports. Buy yours
today!
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The bottom line is the Yukon is currently experiencing its second major
gold rush. But rather than pick-and-shovel death-defying treks that
characterized the first go around, the modern commercial-scale miners are
successfully discovering major source deposits. And none is better than
the Coffee project owned by Kaminak Gold.
Coffee is host to one of the finest undeveloped gold deposits not only in
the Yukon, but in all of North America. And according to the maiden
economic assessment, its core resource is amenable to a highly-profitable
mining operation. Kaminak is now aggressively pushing forward towards
development. And if there are no surprises along the way, its stock
ought to continue to positively leverage its underlying metal.
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