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Kaminak Gold was one of the companies that set off a new gold rush in the Yukon back in 2010. The Yukon went from less than $7 million in mineral exploration in 2002 to more than $300 million in 2011. The 2010/11 season saw over 120 junior mining companies come up to the Yukon and stake over 200,000 claims, a true staking rush that Canada hasn’t seen since the discovery of diamonds in the NWT 20 years earlier.
Investment conferences were packed with experts talking about the high grades reported by Kaminak, Atac Resource and others. Shawn Ryan rose to near celebrity status amongst gold investors for his expertise in the area and a series of successful exploration programs. The History Channel even created a show all about mining gold in the Yukon.
Speculators were excited at the prospect that the source of all of the placer gold in the area would soon be discovered. Placer (pronounced – plas-er, not pley-ser) is a Spanish derived word which refers to an alluvial or eluvial deposit of gravel containing particles of valuable minerals such as gold, silver or platinum. As such, placer gold is gold that has weathered from the host rock where it was formed and been “placed” either on hillside (eluvial placer), stream bed or alluvial fan by the action of water, glaciers or other geological forces. The source of all of the easily accessible placer gold would be a ‘treasure’ that would contain huge amounts of high-grade gold and make the founder filthy rich.
Kaminak Gold was one of the early companies to report huge discoveries in the region at their Coffee Project. The maidan resource delivered in December of 2012 reported 3.2 million ounces of gold at 1.6 grams/tonne. They spent 2013 drilling and increasing their resource significantly.
While much of the excitement around the Yukon has fizzled due to the correction in gold prices, Kaminak Gold released important news this week. On June 10, they finally reported their first economic analysis on the project and it came in very strong.
Kaminak reported that the PEA at US $1250/oz gold on Coffee Gold Project has a pre-tax NPV@5% of $522 million and IRR of 32.8%! The NPV is $330 million and the IRR drops to 26.2% after taxes and mining duties, but these are still very robust economics, particularly given the low gold price.
Average annual gold production is forecast at 167,000 ounces, with roughly 450,000 ounces produced in the first two years. The all-in sustaining costs are just US$688/oz, one of the lowest in the entire industry. The initial capital costs are $305 million (including a 15% contingency) and the payback period is just 2 years. The project compares very favorably to others in the area.
Eira Thomas, CEO commented:
“The recently completed Coffee PEA has delivered a high value, high margin, low risk gold project in one of the World’s safest, pro-mining jurisdictions, Yukon Canada, and marks a significant milestone for our Company. At a US $1250 gold-price, Coffee will generate more than $2 billion in gross revenue, deliver total life of mine, pre-tax, free cash of $800 million and payback capital in under 2 years. Further upside to this evaluation is anticipated through optimization studies and continued exploration. All of the deposits in the current resource remain open along strike and to depth.”
Kaminak now plans to complete a full feasibility study within the next 18 months. Click here for their latest corporate presentation.
The stock has been very volatile over the past year, dropping from $1.00 to just $0.45 in the back half of 2013. The share price climbed back to $1.00 in February of this year, only to fall back towards $0.60 in June. After the announcement of the PEA on Wednesday, the share price advanced nearly 30% to close at a high of $0.93 on 10 times normal volume. It then gave back 9% of those gains on Thursday and closed at $0.86.
The chart shows the recent bounce above both moving averages to resistance at $0.92. The RSI had become overbought and the pullback is healthy for long-term investors. A move above $0.92 would be very bullish and I would ideally like to see support at the moving averages hold up on any decline.
I believe they are currently fairly valued with a market cap of around $80 million. The after-tax NPV on the Coffee Gold project is more than 4X this market cap, which is a little better than industry average. However, the PEA is a preliminary study, they will likely look for ways to reduce the CAPEX and they are still 4 or 5 years away from production.
I like Kaminak Gold and believe they have a bright future, but I am not a buyer at this point. To find out which stocks we hold in the Gold Stock Bull Portfolio and which companies we believe will outperform during the next move higher in precious metals, click here to become a Premium Member.