The Yukon is poised for another year of record investment in the mining industry, work on huge infrastructure projects continues apace and 2010 consumer spending in the territory is expected to eclipse last year's tally, says the government's economic update.

Factor in federal transfer payments that flood our coffers each year, combined with the International Monetary Fund's (IMF's) prediction that Canada's Gross Domestic Product (GDP) will be among the highest of advanced nations, and Yukoners couldn't be faulted for exclaiming, "let the good times roll.”

Local economist Luigi Zanasi called the government's update and forecast for next year reasonable, but criticized it for understating the effect of federal spending in the territory.

"I like to say that the Yukon's largest export is Canadian sovereignty,” Zanasi told the Star last week. "Canadians are paying for this place and to keep us in the lifestyles with which we are accustomed. It doesn't cost much – it's what, 20 or 25 bucks per person – and they're happy to do it.”

The percentage of formula financing – the annual direct cash transfer from Ottawa to Yukon – has decreased to 61 per cent of the current 2010/2011 budget from 69 per cent of the Yukon government's 2001/2002 spending regime.

However, the overall federal money infusion today still makes up 81 per cent of the Yukon's total budget, down marginally from 83 per cent a decade ago.

In real dollars, to cover the Yukon's spending in 2001/2002, Ottawa kicked in $417.5 million, while this year, the federal government came through with $871 million towards the Yukon's $1.075 billion budget.

So the cost of keeping Yukoners "in the lifestyles (we're) accustomed”, in exchange for the sovereignty our presence here "export(s)”, has increased from $14.00 per Canadian taxpayer in 2001/2002, To the $25.00 Zanasi cites today.

Premier Dennis Fentie – also the Yukon's Finance minister – acknowledges the federal largesse, which he cages as fruits of the "fundamental principle of comparable services for comparable levels of taxation.

"The Yukon benefits from our relationship with Canada because we don't go to Ottawa for a handout, we go there with an offer,” Fentie said of renegotiating the Territorial Formula Financing with the federal government in the wake of cuts in the mid-'90s.

"We made the business case that what the federal Liberals did in 1995, reducing our base funding, was wrong and unfair to the territory.”

But in addition to bolstering Canadian sovereignty, the Yukon is back in the business of exporting mineral wealth and Fentie and his Yukon Party government is riding the biggest mining boom here since the 1970s, when now-defunct mines like Faro, Whitehorse Copper, United Keno and Clinton Creek churned out base and precious metals.

Today, the Minto and Bellekeno mines are online, and Yukon Zinc's Wolverine Mine is on the cusp of restarting its operations this spring, a year after a cave-in and resulting death brought work there to a virtual halt.

As well, the price of gold, which briefly surpassed $1,400 (US) per ounce on commodities markets twice this year (November and December), has fuelled interest and huge investment by Outside companies looking to find the next mother lode and cash in on what's being called "the second Gold Rush.”

"In the first 11 months of 2010, there has been a five-fold increase in the number of quartz claims staked, with 75,686 new quartz claims staked versus 14,094 in the same period of 2009,” the Yukon government's economic update pronounces. "In October 2010 alone, 15,532 claims were staked, more than the 15,041 claims staked in all of 2009.”

Last week, Victoria Gold Corp. filed an application with the Yukon Environmental and Socioeconomic Assessment Board to develop an open-pit heap leach mine outside of Mayo and other companies are considering the feasibility of hard rock mines in the "White Gold” region south of Dawson City.

In dollars and cents terms, mining activity in the Yukon for 2010 generated $140 million in exploration expenditures (in line with 2007's record year), project development generated another $150 million in spending and the value of mineral production will total $320 million.

Zanasi said that with the Chinese looking for a place to spend its surplus of U.S. cash, the Yukon will continue to be a very attractive option.

"The United States and China are starting to dance ... the Chinese own a large part of U.S. debt so they can't afford to let them crash,” said the economist. "On other hand, the Chinese are also looking for other places to put their money, so we're seeing part of that in the Yukon.”

And it's a point not lost on Fentie, whose government's efforts to boost Yukon's mining industry profile overseas, particularly in China, is starting to pay dividends.

"Hundreds of millions are being invested in the private sector and the Chinese alone are expected to spend $400 million,” said Fentie of what could be on the horizon in the coming year.

Earlier in 2010, China's Chihong Mining Ltd. pledged to spend more than $100 million to develop a zinc mine on the Yukon/N.W.T. border in a joint venture with Selwyn Resources.

But in spite of the new mining boom that has poured cash into the territory for mine development, private sector spending on construction other than mining is still largely

outstripped by government.

When that federal money, including more than $200 million in "economic stimulus” spending the Yukon benefited from since 2008, is exhausted, Zanasi said the territory had better be prepared.

"We've got to be careful what's going to happen, not so much next year, but the year after all this infrastructure spending declines, what's going to happen to the construction industry?” Zanasi said.

"Because a large part of the construction that's occurring in the territory is due to government, whether it's the housing or institutional construction.

"There's the continuation of the jail and a number of other projects that the (Yukon) housing corporation is doing. Other than that, I think (the update) is pretty fair.”

By year's end, the value of building construction for 2010 is expected to decline from $158.3 million (2009) to $130 million. However, combined 2010 and 2009 construction spending quadrupled the $71.5 million spent in 2008.

While spending on construction in the territory may be down slightly from last year, Yukon consumers appear flush with cash and are not afraid of spending it.

The government's economic update predicts 2010 retail sales in the territory to hit $560 million, up from $527 million in 2009. Yukon's GDP is also expected to grow upwards of 4 per cent next year, slightly ahead of Canada, which the IMF predicts will increase 3.2 per cent.