edison investment research august 17 2011

8/4/2019 Edison Investment Research August 17 2011

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Yukon-Nevada Gold is a research client of Edison Investment Research Limited

17 August 2011

Yukon-Nevada Gold (YNG) currently produces gold at its Jerritt Canyon site inNevada in the US, which it has sought to re-establish as a leading mid-tier Nevadagold producer since recommencing production in 2009. Based on its four-year mineplan being extended to 2018 and its Yukon Territory project, Ketza River, coming online in 2013, we value the company at US$0.69/share.Re-modelling historic data already reaps rewardsEmploying the services of an experienced Nevada geologist has resulted in total

NI 43-101 compliant resources at Jerritt Canyon increasing to 3.43Moz (vs 2.48Moz

Au previously) and, more significantly, identified further open pit resources. This notonly demonstrates the value of YNGs 14,000 proprietary historic drill hole database,

but also how well endowed (though complex) the ore is, and shows the scope for

further significant mineable gold discoveries at Jerritt Canyon.

The roaster: One of only three permitted in NevadaMost significant to YNGs ability to ramp up production at Jerritt Canyon is its

outright ownership and operation of one of just three permitted roasters capable of

processing the prolific amounts of refractory sulphide gold ore available in Nevada.

YNGs roaster has a processing capacity of c 6,000tpd (or c 400koz Au per year at

Jerritt Canyons grade of c 7.0g/t Au and 90% recovery), and the company estimates

its replacement value is c US$1bn or US$1.08 per share.

Valuation: US$0.69 per shareWe have valued the Jerritt Canyon property on managements current four-year mine

plan (2011-14) extended to 2018 using Jerritts existing reserve base, with

production from the Smith and SSX mines. We assume Starvation Canyon is online

by H212. Ketza River is expected to enter production during H113. On the basis of

these assumptions and the current Jerritt Canyon mine plan, we value YNGs assets

at US$0.69 per share. While our forecasts are conservative compared with YNGs

own targets, we believe they are valid pending further clarification of costs and

production scheduling from both the underground and open pit operations.

OutlookPrice C$0.47Market Cap C$437mShare price graph

Share detailsCodes andlistings

TSX: YNGFrankfurt: NG6

Sector Mining

Shares in issue 929.3m

Price52 week High Low

C$0.95 C$0.38

Balance Sheet as at 31 December 2010Debt/Equity (%) 26.7

NAV per share (c) 11.6

Net debt ($m) 21.5

BusinessYukon-Nevada Gold operates its JerrittCanyon mine and processing plant innorth Nevada, US. It also explores forgold and base metals in the YukonTerritory at its Ketza River project.

Valuation2010 2011e 2012e

P/E relative N/A 43% 112%

P/CF N/A 4.8 5.5

EV/Sales 4.6 1.2 1.3

ROE N/A 34% 14%

Revenues by geographyUK Europe US Other

N/A N/A N/A 100%

AnalystsCharles Gibson +44 (0)20 3077 5724

Tom Hayes +44 (0)20 3077 [email protected]

Yukon-Nevada GoldYearEnd Revenue(US$m) PBT*(US$m) EPS*(c) DPS(c) P/E(x) Yield(%)12/09 9.9 (41.4) (12.2) 0.0 N/A N/A

12/10 71.4 (84.3) (12.8) 0.0 N/A N/A

12/11e 217.0 131.2 14.1 0.0 3.4 N/A

12/12e 199.9 55.7 6.0 0.0 8.0 N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation and exceptional items.C$0.98/US$.

Investment summary: The golden asset


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2 | Edison Investment Research | Outlook | Yukon-Nevada Gold | 17 August 2011

Investment summary: Jerritt Canyon 30 years on andstill potential for moreYukon-Nevada Gold operates its main asset, the Jerritt Canyon mine site in north Nevada, US,through its wholly-owned subsidiary Queenstake Resources. The site has been in operation since1981 and has produced over 7.7Moz gold from 13 open pits and seven underground operations.YNG bought the property in 2007 and operates two underground mines, Smith and SSX/Steer.Valuation: NPV10 US$0.69c per shareBased on the current mine plan at Jerritt Canyon and the assumptions made above, and applying

our long-term gold price of $1,350/oz, our dividend discount model yields a valuation for Yukon-

Nevadas assets of US$0.69 per share.

Jerritt Canyon undergoing extensive exploration in 2011The current ore reserve estimates for Jerritt Canyon indicate sufficient gold for a further four years

of mine production. However, little of the historic drilling penetrated to depth or was undertaken in

the south of the project area, and throughout 2011 YNG is undertaking an aggressive $10m,

c 10,000m drill campaign to delineate at least a further four years of reserves in 2011. Having

visited the site in 2010 and understanding the complexity of the ground, we believe Yukon-Nevada

should be able to extend the life of mine beyond its current four-year limit (based on current

reserves).

Sensitivities: Maintaining environmental compliancyThe Nevada Department of Environmental Protection issued the Consent Decree in October 2009,

after the successful completion of mercury emission testing of the Jerritt Canyon processing plant

stacks. The Calomel mercury scrubbing system installed now achieves mercury emissions 90%

below the maximum allowed threshold set by the state. These very low emission levels have been

maintained since the mill was re-started in October 2009. Further investment in the mill is taking

place to install instrumentation to monitor key operating parameters and automated emission

control and operating systems.

FinancialsOn 31 May 2011 Yukon-Nevada announced the closing of a private placement and warrant

exercise for total gross proceeds of US$59.3m. This comprised US$14.4m from issuing

33,488,372 units at a price of US$0.43 per unit to Deutsche Bank AG (London branch). The

remaining US$44.9m comprised 140,400,000 warrants held by Orifer (a shareholder) transferred to

Deutsche Bank and other institutional investors, who immediately exercised the warrants. On 3

August YNG also announced a forward gold purchase agreement with Deutsche Bank whereby

c 173koz Au will be delivered to by YNG to Deutsche over 48 months for the prepaid amount of

US$120m (see page 10). These funds allow the company to complete an extensive programme of

capital expenditure, which will include a planned one-month shutdown of the mill in September

2011. This will allow Yukon-Nevada to modernise and restore the mill, which is critical to the

company achieving its production targets.


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Company description: The golden assetsJerritt Canyon is a longstanding gold project that has experienced significant mining in the past,under the ownership of Anglo American, Freeport and Minorco. Yukon-Nevada intends to injectnew life into the project by fully using its mill and roaster. It also intends to redevelop its otherprospective project, Ketza River, in Canadas Yukon Territory. Due to the existing site infrastructureat both of its main projects, increasing gold production will require lower levels of initial capitalexpenditure.Reinvigorating a historic Nevada goldfieldWith all the permitting and environmental woes of the recent past now behind it, Yukon-Nevada

intends to turnaround a run of operating losses to an operating profit by 2011. The companys

strategy is fourfold, as shown in Exhibit 1.

Exhibit 1: Yukon-Nevadas four-stage business strategyNote: completed, underway/ongoing, to be completed.

StatusPhase 1 Obtain Consent Decree, achieving compliance with the NDEP Obtained Oct 2009

Re-start production using low-grade stockpiles and contract underground mining at Smith mine Recommenced Oct 2009

Phase 2 Re-capitalise (complete via exercise of warrants and forward gold purchase agreement with US$59.3m (warrants)

Deutsche Bank). & US$120m (Deutsche)

Refurbish and winterise production facilities (underway) Ongoing

Re-start underground mining at SSX and Steer projects Due Q311

Complete Consent Decree obligations Ongoing

Construct new tailings facility Due 2012

Phase 3 Re-start open pit mining (concentrating on re-modelled ore extensions of existing pits) Due mid-2012

Start new open pits ( following posit ive results of southern exploration targets ) Potent ia lly from 2013

Phase 4 Acquisition of properties able of producing refractory sulfide concentrates for shipment to Jerritt Potentially 2013-15

Re-open wet milling (oxide) process circuits Potentially 2013-15 Acquire oxide gold resources/properties to feed wet mill circuit Potentially 2013-15

Source: Edison Investment Research, Yukon-Nevada Gold

New management in placeTo achieve all of its milestones and become a mid-tier producer in two to three years,

Yukon-Nevada has sought to strengthen its management team. Since the appointment of Robert

Baldock as CEO and president in May 2009, a number of key milestones have been reached. Mr

Baldock has 30 years experience in restructuring and refurbishing distressed mine assets.

Supporting staff have a breadth of knowledge of dealing with processing plants, and include mine

engineers and geologists who understand the local geology and who have worked in the project

area before. Further YNG has hired Randy Reichert as new COO. Mr Reichert has 23 years

experience from his international work at various operating mines and process facilities. Most

recently Mr Reichert was president and COO for Colossus Minerals Inc, responsible for the

development of the Serra Pelada project in Brazil. Prior to this he was COO of Oriel Resources plc

and Orsu Metals Corp and has held numerous managerial positions at Russian gold mines.

Operations before 2003 an indication of future potentialTo appreciate the potential of a longstanding project, especially one that has suffered performance

issues, it is prudent to examine where the project has come from. Exhibit 2 shows the past eight

years production dropping from 2003 the year previous custodians Anglo American left Jerritt

Canyon and Queenstake Resources took over. The drop in production after 2003 reflects the lack


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of sustaining capital employed by Queenstake until 2007, when Yukon-Nevada took control. A

steady accumulation in creditors and payables to approximately $39m most likely contributed not

only to the suspension of underground mining in August 2008, but also to a stop work order by the

Nevada Division of Environmental Protection (NDEP) being imposed in May 2009, due to excessive

amounts of mercury being emitted from the mill. Further complications arose from the then mining

contractor incorrectly reporting the amount of stockpiled ore (a shortfall of c 90,000 tonnes) and

the amount of gold in the processing circuit at the time of the May 2009 shutdown.

Exhibit 2: Jerritt Canyon historic (light blue) and forecast production (dark blue)

0

100,000

200,000

300,000

400,000

1987

1989

1991

1993

1995

1997

1999

2001

2003

2006

2008

2010

2012

2014

2016

2018

Oz

Gold production Average gold production (1987-2003) Forecas t gold production (2011-2018)

Source: Infomine, Edison Investment Research

Lack of ore not a key factor in production declineThe operational issues faced by the company do not indicate that a lack of ore was the primary

reason for a steady decrease in production figures from 2004 onwards; instead, a lack of

investment in exploration activities between 2003 and 2007 only exacerbated the decline in

production by not replacing depleted ore reserves. This is of particular importance to Jerritt

Canyon, where the gold is hosted within relatively high grade but small, discrete pods, with their

location governed by the structural complexity of the ground.

Back in steady state productionWith a new CEO and an experienced technical management team, Jerritt Canyon re-entered

production following an agreement with the NDEP in October 2009 to lift the stop work order. The

mills refurbishment during its scheduled annual shutdown in May 2010 resulted in mercury and

sulphide dioxide emission figures 90% below the allowed threshold, a level the mill has maintained

since the May re-start. Ongoing re-investment is underway to install better monitoring equipmentfor key parameters in the processing circuit.

Jerritt CanyonThe following exhibits detail Yukon-Nevadas current resources and reserves at Jerritt Canyon.

Jerritt Canyon resourcesExhibit 3: Yukon-Nevadas Jerritt Canyon resources (as of 1 January 2011)

kt g/t koz kt g/t koz kt g/t koz kt koz

4,602 7.3 1,080 7,090 6.41 1,461 4,490 6.16 891 16,182 3,432

Meas ured Indica ted Inferred Tota l

Source: Yukon-Nevada Gold NI43-101 Technical Report


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Exhibit 4: Jerritt Canyon reserves (as of 1 January 2011)Depos it/Mine k t ( s hort) oz/s t koz k t (s hort) oz/s t koz k t (s hort) oz/s t kozSmith 713.1 0.18 3 130.6 918 .6 0.163 149.4 1631.7 0.172 279.9

SSX/Steer 548 .3 0.18 8 103.1 667.1 0.18 9 126.1 1215.4 0.18 9 229.2

Saval 19.7 0.229 4.5 149.3 0.207 31 169.0 0.21 35.4

Starvation 125 0.262 32.8 237.9 0.265 63 363.0 0.264 95.8

Wright Window 8 4.5 0.127 10.7 8 4.5 0.127 10.7

S ub tota l 1406 .1 0.19 3 271.0 2057.4 0.18 5 3 8 0.2 3 46 3 .6 0.18 8 6 51.0Stockpiles 902.2 0.073 65.9 902.2 0.073 65.9

Tota l 1406 .1 0.19 3 271.0 29 59 .6 0.151 446 .1 43 6 5.8 0.16 4 716 .9

Proven and probablerobableroven

Source: Yukon-Nevada Gold NI43-101 Technical Report

Jerritt Canyon reservesThe company has upgraded specific resources amenable to mining into reserves and applied a

revised gold price of US$1,100/oz to its resource estimation process. In doing so, the cut-off grade

has dropped, resulting in a greater proportion of the gold mineralisation being captured in the

economic model and therefore increasing ounces. It should be noted that, historically, the

conversion of resources to reserves is greater than 100% at Jerritt Canyon, demonstrating the

irregular shape and diffuse mineralisation of each ore body. Typical resources to reserve

conversions for other gold mines are in the region of 50-70%.

A four-year rolling reserveExploration at Jerritt Canyon will concentrate on delineating new gold resources and reserves to

replenish depleted stocks. Yukon-Nevada currently has a four-year life of mine plan at Jerritt

Canyon. While a greater reserve base is more favourable and will reassure the investor, such

complex and podiform gold deposits rarely allow for mine reserves to be delineated more than

three to four years ahead of actual mining, due to the irregular nature of ore distribution and the

amount of drilling required to produce NI 43-101 compliant resource estimates. To accommodate

this, Yukon-Nevada has employed a policy of continual production drilling to define further pods of

ore. This is accomplished using the companys underground reverse circulation drill rig, while

contracting external drilling companies to identify resources at surface.

2011 exploration programme to double mine lifeA $10m, 10,200m surface and underground drill programme is underway at the Jerritt Canyon site.

This is to test mineralised areas that are either open along strike or at depth, as indicated from

previous drilling, or prospective zones in proximity to previous mine workings. Such zones arerelated to intrusive dykes and fault intersections. With a very large historical drilling database at

hand, and few surface holes penetrating 100m below surface, the company is confident that the

2011 drill programme will delineate further resources, in addition to the revised estimates given in

Exhibit 4, equal to an additional four-year mine life.

Hard mining in NevadaMining through sedimentary horizons can be problematic due to their weak strength, which

increases the cost of mining as greater amounts of ground support are required. The mining

method used at the Smith mine, which will also be employed at SSX once commissioned, is that of

underhand drift and fill. The process requires that all stoped-out areas are backfilled with concrete

to maintain stability in the rock mass during mining.


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Tried and trusted processing facilityBecause mines along the Carlin Trend have become deeper, the ore has become more refractory.

So, when considering gold mining ventures in Nevada, the amount of available processing capacity

is key. Also, processing plants capable of treating refractory ores create harmful emissions thatmust be tightly controlled, so it can be very hard to get planning permission for these facilities in

Nevada. However, Yukon-Nevada Gold has a fully operational, environmentally-compliant mill that

can process both oxide and refractory ore types.

Ketza River and Yukon Territory projectsKetza River: Old mine infrastructure still serviceableThe Ketza River project enjoyed a brief period of mining between July 1988 and November 1990,

producing 100,030oz gold at an average head grade of 11.6g/t Au. It consists of a number of

prospective zones, including the Manto, Peel, Hoodoo and Shamrock Zones. Ketza River consists

of a mothballed milling facility with unused tailings dam capacity and is located 42km off the

Campbell highway in the south-east of the Yukon Territory. The site also includes a mine camp,

exploration camp, office buildings, workshop and water treatment works. We see the presence of

this serviceable infrastructure as a key reason to assume Yukon-Nevada will re-develop the Ketza

River mine site in the near term (see Valuation section on page 7).

Current drilling activities at Ketza RiverAt present, drilling is taking place across numerous manto (limestone replacement) and stock work

targets at the Ketza River project, which comprises 506 mining claims. Recent drilling reported gold

grades from 1.42g/t over 2.13m to 84.50g/t over 3.05m and 32.98g/t over 9.14m. Yukon-Nevada

is required, as a condition of its exploration permit, to spend $5m in 2011; this is being used to

delineate further resources at known deposits within the Ketza River project.

Ketza River resourcesExhibit 5: Ketza River NI43-101 compliant resourcesNote: Totals may not add up due to rounding.

Deposit/Mine

kt g/t koz kt g/t koz kt g/t koz kt koz

Pit resources (1 g/t cut off )Subtotal 691 6.4 142 3,021 4.56 443 762 2.65 65 4474 650

U/G resources (3 g/t cut off )Subtotal 21 6.4 4 349 5.09 57 313 4.74 48 68 4 109

Tota l a l l s ources 712 6 .40 147 3 3 70 4.6 1 500 1076 3 .3 113 5157 759

Total a l lcategories

Meas ured Indicated In ferred

Source: Edison Investment Research, Yukon-Nevada Gold, SRK Consulting 2008 NI43-101 Technical Report

Other exploration projects and joint venturesJV with Northwest Non-Ferrous International Investment CompanyYukon-Nevada has formed a joint venture with Northwest Non-Ferrous International Investment

Company Limited (NWI), a Chinese investment company, to carry out early-stage exploration for

molybdenum, titanium, rare earth metals, aluminium, lead, zinc, gold, silver, uranium, copper and


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vanadium. The JV has formed a new Canadian company, Yukon-Shaanxi Mining Company,

through which Yukon-Nevada aims to strengthen early-stage exploration capabilities in Canada.

The following exhibit lists Yukon-Nevadas other Yukon Territory exploration interests.

Exhibit 6: Yukon exploration projectsOwnership YNG % Partner Exploration focusSilver Valley Property 100 Ag, Pb, AuLocated 8km east of the Ketza River mine. Geochemical sampling in 1968 identified a number of soil anomalies, with follow-up workidentifying the Key 18B vein, which assayed 55oz per tonne Ag and 49% Pb over a width of 2.4m. Two exploratory mine adits weredriven in on the vein, 20m and 50m below surface. Underground sampling yielded further comparable results. A non-compliantinferred resource of 15kt at 17opt Ag and 12% Pb exists at the project. YNG has drilled further holes along one small portion of thestrike and has undertaken ground and airborne geophysical surveys to identify further extensions of the vein system.

Wolf Property 34.42 Atna Resources Zn, Pb, AgThe Wolf property consists of 36 mineral claims. Atna earned its interest by spending $1.5m between 1995-99. It is located in thePelly Mountains near the YTT boundary. A non-JORC resource of 4.1Mt grading 6.2% Zn, 1.8% Pb and 84g/t Ag has been outlinedon the Wolf Zone. Two additional satellite structures have been drilled and all deposits are open at depth and along strike.

Money Property 100 Cu, Ag, GoldThe project area covers 1,030 hectares and is located 5km east of the Wolverine deposit. The claims were drilled in 1996 with five

holes totalling 682m. Mineralisation consists of massive sulphides hosted within mafic volcanic rocks. The best drill intersection was1.0m grading 1.75% copper, 21g/t silver and 0.4g/t gold. The property is optioned by Yukon Zinc.


Assumptions, valuation and sensitivitiesOur valuation assumes the Smith mine continues to produce until 2012 and the SSX mine comes

into production in H211. However, it is reasonable to assume Yukon-Nevada will manage to

replenish depleted reserves within the vicinity of existing mine infrastructure. This is consistent not

only with Jerritt Canyons historic mining strategy (as used by Anglo American during its tenure),

but also with other gold mines at which it is not economic nor practically feasible to delineate

reserves beyond a three- to four-year mine plan due to the irregular nature of ore distribution.

Therefore we have assumed that additional mineable reserves are delineated to maintain gold

production of 150koz per year at Jerritt Canyon between 2015 (the end of the current official mine

plan) and 2018. To further support this assumption, Yukon-Nevada employed an experienced

Nevadan geologist to re-model certain mineral domains. As a result, further open-pit resources

have been identified adjacent to the old pits, where previously they were thought to be nearly

exhausted of ore. We see this as further proof that the geological complexity at Jerritt Canyon can

(and has already) result in further ore resources being identified. Furthermore, a 150koz annual

production rate should be seen as conservative in light of historic annual gold production figures

(see Exhibit 2) of around 300koz gold.

Current Jerritt Canyon mine planThe Smith mine will produce on average c 69koz per year from 2011 to 2013. As SSX comes on

line in 2011, it will contribute on average c 82koz per year between 2011 and 2014. Assuming

Starvation Canyon is permitted and fast-tracked through the initial waste development phase, we

assume a start up to this Jerritt Canyon project in H212, producing an average of c 29koz gold per

year for four years. We also forecast that c 584koz (or c 46% of YNGs current measured

resources) are converted to reserves and mined such that production ramps up to 250koz Au per

annum from 2014 to 2018. This represents our assumption that YNG brings online its open-

pittable resources as part of Phase 3 of its business strategy (Exhibit 1). The gold recovery factor

used for all production figures is 89%. There was no production in 2008, with underground mining


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recommencing at Smith in February 2009. A stockpile of 900,000 tonnes at a grade of 2.1g/t Au

for around 62koz was accrued during this period. We forecast that this stockpile will be depleted

by end 2012.

Ketza River production forecast and assumptionsDue to the existing site infrastructure, production history and recent positive drilling results

demonstrating additional resource potential, we consider it appropriate to value the Ketza River

project. We have used cost and production forecast data given in the January 2008 SRK

Consulting NI 43-101 Ketza River Project Technical Report updated for recent company

announcements. We assume a total of 552koz is recovered over eight years at an average rate of

production of 69koz per year. The main assumptions per project are shown in Exhibit 7.

Exhibit 7: Key production and capital expenditure assumptions per projectUnit Value S tarvat ion Canyon Unit Value

Total ore tonnes mined Mt 1.05 Total ore tonnes mined Mt 0.57Average gold grade g/t 6.84 Gold grade g/t 8.40

Total ounces produced koz 205 Total ounces produced koz 137

Existing mine life yr 2011-2013 Estimated mine life yr H212-2016

Total ore tonnes mined Mt 1.68 Total stockpiled ore tonnes Mt 0.90

Gold grade g/t 6.97 Gold grade g/t 2.41

Total ounces produced koz 328 Total contained gold ounces koz 62

Current mine life yr 2011-2014 Production from stockpiles ending yr 2012

Jerritt Canyon gold recovery factor % 89.0 Ketza River gold recovery factor % 77.0

Mining cost US$/t 37.5 Total ore tonnes Mt 3.7

Cost of backfilling US$/t 7.2 Gold grade g/t 6.0

Processing cost US$/t 27.6 Total ounces produced koz 552

Tailings dam capex US$m 32.0 Mining cost US$/t 2.8

SSX Initial capex US$m 4.2 Processing cost US$/t 12.0

Assumed Starvation Canyon initial capex US$m 12.0 Surface facilities US$/t 5.0

Estimated average unit cost US$/oz 817 Site administration US$/t 3.0

Smith and Starvation sustaining capital US$m 4.8 Assumed initial capex US$m 25.0

SSX/Steer/Saval sustaining capital US$m 1.8 Assumed s us taining capex per an US $m 5.0

Estimated mine life yr 2013-2020

Ketza River assumptions

SSX/S teer/Saval Exis t ing s tockpiles

Jerritt Canyon mining, processing and capex data

Smith


ValuationAssuming Yukon-Nevada pays out all its spare cash in the form of dividends, we estimate the

dividend stream to investors from 2011 to 2020 will be worth US$0.69 per share in current money

terms (at a discount rate of 10% to reflect general equity risk). Of note is that dividends are

depressed between 2011 and 2016 due to impact of the forward gold purchase agreement

currently under negotiation with Deutsche Bank (see financials section on page 10 for further

details); and also 2019 and 2020 as a result of our forecast for production at Jerritt Canyon

finishing in 2018 and only Ketza River producing gold from then on, as shown in Exhibit 8.

However, our valuation is unlikely to reflect the situation at Jerritt Canyon post 2018 and we await

further information from the company to establish our production forecasts beyond this date.


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Exhibit 8: Edison estimate of base case EPS, fully diluted EPS and theoretical DPS, FY11-FY20Note: DDF = Discounted dividend flow.

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

0.00

0.20

0.40

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

US$

EPS Dil EPS DPS DDF (RHS)

Source: Edison Investment Research

SensitivitiesGeological risk and rewardAs with all mining ventures, the greatest unknown is hidden below the surface of the earth.

Accurately drilling an ore body and reporting probable or proven reserves minimises the risk in

mining and producing gold. The risk concerning the nature of the deposit geometry at Jerritt

Canyon, which is sporadic and irregular in size and shape, is also the opportunity. With over 20

years of solid production history, many of which were never proceeded by more than three years of

reserves, there is an indication that the licence area is a well developed gold system.

Maintaining environmental compliancyThe Consent Decree issued by the Nevada Department of Environmental Protection in October

2009 followed the successful completion of mercury emission testing of the Jerritt Canyon

processing plant stacks. The installed Calomel mercury scrubbing system now achieves mercury

emissions 90% below the maximum allowed threshold set by the state. These very low emission

levels have been maintained since the mill was re-started in October.

Jerritt Canyon production targetsYukon-Nevada has announced that it plans to achieve upwards of 350koz annual gold production

at Jerritt Canyon based on the current mill and roaster permits, with additional capacity available to

produce upwards of 400koz per year pending regulatory approval and securing sufficient ore

feeds. The company will now have to follow-through on its plans to identify further gold resources

and reserves by undertaking extensive exploration and resource definition drilling at Jerritt Canyon.

The main sensitivities to Yukon-Nevadas valuation are presented in Exhibits 9, 10 and 11.

Exhibit 9: Sensitivity to gold priceGold US$/oz 1,000 1,200 1,350 1,500 1,700 1,900NPV (US$) 0.32 0.53 0.69 0.86 1.09 1.32 Source: Edison Investment Research


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Exhibit 10: Sensitivity to discount rateDiscount rate 5 7.5 10 20 30 40NPV (US$) 0.89 0.78 0.69 0.46 0.33 0.26 Source: Edison Investment Research

Exhibit 11: Sensitivity to percentage change in unit costs (Jerritt Canyon and Ketza River)Percentage change (10) (5) 0 5 10 15NPV (US$) 0.78 0.74 0.69 0.65 0.61 0.56 Source: Edison Investment Research

FinancialsOn 31 May 2011 Yukon-Nevada announced the closing of a private placement and warrant

exercise for total gross proceeds of US$59.3m. This comprised US$14.4m from issuing

33,488,372 units at a price of US$0.43 per unit to Deutsche Bank AG (London branch). Each unit

comprises one 24-month term warrant exercisable at US$0.55 per share. Further, 140,400,000

warrants held by Orifer (a shareholder) were transferred to Deutsche Bank and other institutional

investors, who immediately exercised the warrants for proceeds of US$25.6m and US$19.33m

respectively. These funds allow the company to complete an extensive programme of capital

expenditure, which will include a planned one-month shutdown of the mill in September 2011. This

will allow Yukon-Nevada to modernise and restore the mill, which has had no significant

expenditures made on it since it was first commissioned in 1981, and is critical to the company

achieving its stated production rates.

Forward gold purchase agreement with Deutsche BankOn 3 August 2011 Yukon-Nevada announced it has entered into advanced negotiations with

Deutsche Bank over the delivery of 173,380ozs of gold over a 48 month term, in return for an

upfront pre-payment of US$120m (equivalent to YNG selling each ounce for US$690.13).

Deutsche will receive in return scheduled monthly deliveries of gold at a base rate of US$850/oz for

gross proceeds of US$147.37m or an equivalent 5.79% interest over the initial US$120m payment

(exclusive of costs). Subsequent to the receipt of the US$120m, the remainder of the purchase

price of the gold will be paid to YNGs wholly owned subsidiary, Queenstake Resources, upon

completion of the monthly gold deliveries to Deutsche Bank and will be equal to the amount that

the gold price exceeds US$850/oz and up to a maximum price of US$1,700/oz. For the purposes

of our valuation we have used the current average LME gold price for 2011 (to 8 August) of

US$1,475/oz to model the current financial year, and US$1,350/oz thereafter.


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Exhibit 12: FinancialsU S $ '0 0 0 s 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 e 2 0 1 2 e

Year end 31 December IF R S IF R S IF R S IF R S IF R SP R O F I T & L O S SR e v e n u e 4 8 ,9 8 1 9 ,9 1 3 7 1 ,3 7 0 2 1 7 ,0 3 4 1 9 9 ,8 8 5Cost of Sales (58 ,742) (26,049) (8 3,378 ) (65,949) (108 ,511)

Gross Profit (9,761) (16,136) (12,008 ) 151,08 5 91,374

E B IT D A ( 2 9 ,0 8 3 ) ( 3 2 ,7 1 2 ) ( 1 8 ,4 1 3 ) 1 4 4 ,2 6 2 7 1 ,9 0 1O p e ra t i n g P ro f i t ( be f o re a m o rt . a n d e xc e p t . ) ( 3 8 ,3 6 2 ) ( 3 8 ,9 8 3 ) ( 2 3 ,8 41 ) 1 3 6 ,7 5 4 6 1 ,2 9 3Intangible Amortisation 0 0 0 0 0

Exceptionals (76,363) (653) (1,625) 0 0

Other (1,056) (78 8 ) (4,112) (4,112) (4,112)

O p e ra t i n g P ro f i t ( 1 1 5 ,7 8 1 ) ( 4 0 ,4 2 4 ) ( 2 9 ,5 7 8 ) 1 3 2 ,6 4 2 5 7 ,1 8 1Net Interest 3,968 (255) 134 (5,573) (5,573)

Other finanical items (1,090) (2,125) (60,58 4) 0 0

Exceptionals (4,532) 0 (4,612) 0 0

P ro f i t B e f o re T a x ( n o rm ) ( 3 5 ,4 8 4 ) ( 4 1 ,3 6 3 ) ( 8 4 ,2 9 1 ) 1 3 1 ,1 8 1 5 5 ,7 2 0P ro f i t B e f o re T a x ( F R S 3 ) ( 1 1 7 ,4 3 5 ) ( 4 2 ,8 0 4 ) ( 9 4 ,6 4 0 ) 1 2 7 ,0 6 9 5 1 ,6 0 8 Tax 12,075 144 1,545 0 0

P ro f i t A f te r T a x ( n o rm ) ( 2 3 ,4 0 9 ) ( 4 1 ,2 1 9 ) ( 8 2 ,7 4 6 ) 1 3 1 ,1 8 1 5 5 ,7 2 0P ro f i t A f te r T a x ( F R S 3 ) ( 1 0 5 ,3 6 0 ) ( 4 2 ,6 6 0 ) ( 9 3 ,0 9 5 ) 1 2 7 ,0 6 9 5 1 ,6 0 8 Average Number of Shares Outstanding (m) 18 5.1 339.0 646.7 929.3 929.3

EPS - normalised (c) (12.6) (12.2) (12.8 ) 14.1 6.0

EPS - normalised and fully diluted (c) (12.6) (12.2) (8 .6) 10.6 4.5

EPS - (IFRS) (c) (56.9) (12.6) (14.4) 13.7 5.6

Dividend per share (c) 0.0 0.0 0.0 0.0 0.0

Gross Margin (%) N/A (162.8 ) (16.8 ) 69.6 45.7

EBITDA Margin (%) (59.4) (330.0) (25.8 ) 66.5 36.0

Operating Margin (before GW and except.) (%) (78 .3) (393.3) (33.4) 63.0 30.7

B A L A N C E S H E E TF ixe d A s s e ts 1 7 0 ,6 0 4 1 7 9 ,8 8 2 1 8 9 ,6 2 7 2 3 2 ,5 0 7 2 6 8 ,3 9 9Intangible Assets 0 0 0 0 0

Tangible Assets 93,8 50 8 9,270 8 8 ,625 112,317 148 ,209

Mineral Properties 47,347 60,526 67,926 8 2,726 8 2,726

Restricted funds/other 29,407 30,08 6 33,076 37,464 37,464

C u rre n t A s s e ts 2 9 ,0 3 2 1 5 ,5 5 9 2 8 ,1 8 5 2 4 5 ,4 9 3 2 3 7 ,6 2 1Stocks 24,019 9,930 21,28 0 18 ,08 6 16,657

Debtors 2,171 4,549 4,505 17,8 38 16,429

Cash 1,106 18 5 2,400 209,568 204,535

Other 1,736 8 95 0 0 0

C u rre n t L i a b i l i t i e s ( 3 6 ,8 5 6 ) ( 4 4 ,4 0 2 ) ( 5 7 ,8 7 5 ) ( 1 0 ,9 2 8 ) ( 3 8 ,9 2 1 )Creditors (36,8 56) (44,402) (48 ,949) (8 ,371) (36,364)

Short term borrowings 0 0 (8 ,926) (2,557) (2,557)Other (8 ,257) (4,8 38 ) 0 (2,950) (27,446)

L o n g T e rm L ia b i l i t i e s ( 4 1 ,1 3 2 ) ( 5 1 ,3 2 9 ) ( 7 0 ,5 7 5 ) ( 8 2 ,2 0 3 ) ( 7 8 ,4 5 1 )Long term borrowings 0 0 (15,030) (14,767) (8 ,136)

Derivatives 0 0 0 (9,012) (9,012)

Other long term liabilities (41,132) (51,329) (55,545) (58 ,424) (61,303)

N e t A s s e ts 1 2 1 ,6 4 8 9 9 ,7 1 0 8 9 ,3 6 2 3 8 4 ,8 6 9 3 8 8 ,6 4 8C A S H F L O WO p e ra t i n g C a s h F lo w ( 2 2 ,3 8 0 ) ( 1 9 ,1 3 4 ) ( 2 0 ,7 4 1 ) 9 3 ,4 7 3 8 1 ,1 1 7Net Interest 3,968 (255) 134 (5,573) (5,573)

Tax 0 0 0 0 0

Capex (47,331) (6,434) (16,292) (50,38 8 ) (46,500)

Acquisitions/disposals 4,48 0 112 340 0 0

Financing 22,415 24,8 35 17,005 179,238 0

Forward gold purchase repayment (2,950) (27,446)

Dividends 0 0 0 0 0

Equity portion of debt/derivatives/other (1,150) (45) (2,58 8 ) 0 0

Net Cash Flow (39,998 ) (921) (22,142) 213,8 00 1,599

O p e n in g n e t de b t /( c a s h ) ( 4 1 ,1 0 4 ) ( 1 ,1 0 6 ) ( 1 8 5 ) 2 1 ,5 5 6 ( 1 9 2 ,2 4 4 )HP finance leases initiated 0 0 0 0 0

Other 0 0 401 0 0

C lo s in g n e t de b t /( c a s h ) ( 1 ,1 0 6 ) ( 1 8 5 ) 2 1 ,5 5 6 ( 1 9 2 ,2 4 4 ) ( 1 9 3 ,8 4 3 ) Source: Edison Investment Research, Yukon-Nevada Gold


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Growth Profitability Balance sheet strength Sensitivities evaluation

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2 00 8 2 00 9 2 01 0 2 01 1e 2 01 2e

EPSnorma

lised(c)

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

2 00 8 2 00 9 2 01 0 2 01 1e 2 0 12 e

ROCE

-200

-150

-100

-50

0

50

100

150

200

2 00 8 2 00 9 2 01 0 2 01 1e 2 01 2e

Interestc

over

Litigation/regulatory

Pensions

Currency Stock overhang

Interest rates

Oil/commodity prices

Growth metrics % Profitability metrics % Balance sheet metrics Company detailsEPS CAGR 08-12e N/A ROCE 11e 90.1 Gearing 11e N/A Address:

EPS CAGR 10-12e N/A Avg ROCE 08-12e 4.8 Interest cover 11e 24.5 900-688 West Hastings StVancouver, BC V6B 1P1CanadaEBITDA CAGR 08-12e N/A ROE 11e 34.1 CA/CL 11e 22.5

EBITDA CAGR 10-12e N/A Gross margin 11e 69.6 Stock turn 11e 30.4 Phone +1 604 688 9427Sales CAGR 08-12e 42.1 Operating margin 11e 63.0 Debtor days 11e 30.0 Fax +1 604 688 9426

Sales CAGR 10-12e 67.4 Gr mgn / Op mgn 11e 1.1 Creditor days 11e 9.1 www.yukon-nevadagold.com

Principal shareholders % Management teamOrifer S.A. 20.17 CEO: Robert BaldockSprott Asset Management LP 14.47 Robert Baldock is an experienced mining executive and a

qualified and experienced accountant with over 30 years ofhands-on management of public and private corporationsacross a wide range of industries, focusing on mining.

Deutsche Bank 12.20

Marland (Francois) 9.41

A. R. Schmeidler & Co., Inc. 0.67

Dickson (Graham C) 0.27 Chairman: John GreensladePerennial Partners, L.L.C. 0.25 John Greenslade has been involved in the funding of

numerous mining projects in Canada, the United States,

Mexico and Peru, at all stages of exploration, development,construction and production. This has been in variouscapacities, including legal counsel, senior management, andas director of a TSE-listed company from October 1995 toJuly 1999 and as president and CEO of Baja Mining Corp.

Forthcoming announcements/catalysts Date *Conference call 17 August 2011

April 2012 Full year results

COO: Randy ReichertMr Reichert has 23 years experience from his internationalwork at various operating mines and process facilities. Mostrecently Mr Reichert was president and COO for ColossusMinerals Inc responsible for the development of the SerraPelada project in Brazil. Prior to this he was COO of OrielResources plc and Orsu Metals Corp. Mr Reichert spentover five years in Russia with Bema Gold, and subsequentlyKinross Gold Corporation.

Note: * = estimated

Companies named in this reportNewmont Mining, Resolute Mining, Harmony Australia, Newcrest Mining, Rapallo Pty

Edison Investment ResearchLincoln House, 296-302 High Holborn, London, WC1V 7JH tel: +44 (0)20 3077 5700 fax: +44 (0)20 3077 5750 www.edisoninvestmentresearch.co.ukRegistered in England, number 4794244. Edison Investment Research is authorised and regulated by the Financial Services Authority.

EDISON INVESTMENT RESEARCH LIMITEDEdison Investment Research is a leading international investment research company. It has won industry recognition, with awards both in the UK and internationally. The team ofmore than 75 includes over 40 analysts supported by a department of supervisory analysts, editors and assistants. Edison writes on more than 350 companies across every sectorand works directly with corporates, fund managers, investment banks, brokers and other advisers. Edisons research is read by institutional investors, alternative funds and wealthmanagers in more than 100 countries. Edison, founded in 2003, has offices in London and Sydney and is authorised and regulated by the Financial Services Authority(www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584).

DISCLAIMERCopyright 2011 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Yukon-Nevada Gold and prepared and issued by Edison InvestmentResearch Limited for publication in the United Kingdom. All information used in the publication of this report has been compiled from publicl y available sources that are believed to bereliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of EdisonInvestment Research Limited at the time of publ ication. The research in this document is intended for professional advisers in the United Kingdom for use in their roles as advisers. Itis not intended for retail investors. This is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. This document is provided for information purposesonly and should not be construed as an offer or solicitation for investment. A marketing communication under FSA Rules, this document has not been prepared in accordance withthe legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investmentresearch. Edison Investment Research Limited has a restrictive policy relating to personal dealing. Edison Investment Research Limited is authorised and regulated by the FinancialServices Authority for the conduct of investment business. The company does not hold any positions in the securities mentioned in this report. However, its directors, officers,employees and contractors may have a position in any or related securities mentioned in this report. Edison Investment Research Limited or its affiliates may perform services or

solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and suddenswings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is notnecessarily a guide to future performance. This communication is intended for professional clients as defined in the FSAs Conduct of Business rules (COBs 3.5).

edison investment research august 17 2011

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