Interview with Walter Coles, Executive Chairman of Skeena Resources Ltd.

Our previous interview: [ Ссылка ]

Also, see our Analyst Note from November 2022, where we assessed Skeena's chance of success. We liked it then, and we still like it now.

Recording date: 3rd July 2024

Skeena Resources (TSX:SKE) presents a compelling investment opportunity in the gold mining sector, with its flagship Eskay Creek project in British Columbia's Golden Triangle fully funded and progressing towards production. The company has recently secured a landmark C$1 billion financing package, positioning it strongly in a challenging market for mining companies.

Eskay Creek stands out for its combination of scale and grade, with projected production of nearly 500,000 gold equivalent ounces annually in its first 4-5 years. The November 2022 Feasibility Study outlines robust economics, including an after-tax NPV of C$3 billion at spot prices and an all-in sustaining cost (AISC) of US$687 per gold equivalent ounce. With an average grade of 3.6 g/t gold equivalent over the life of mine, Eskay Creek ranks among the highest-grade open-pit gold projects globally.

The financing package, comprising equity, a gold stream, senior secured debt, and a cost overrun facility, is notable not just for its size but also its structure. The equity was raised at a premium to market, while the gold stream is available before final permits – both unusual and favorable terms. The debt facility includes flexible terms allowing Skeena to pursue alternative funding if better options arise.

A key strength of Skeena's position is its strong relationship with the Tahltan First Nation, on whose traditional territory Eskay Creek is located. This partnership provides social license and mitigates potential operational risks. The Tahltan Nation benefits from tax sharing, an impact benefit agreement, and prioritization for competitive contracts.

Skeena sees significant growth potential beyond the current project economics. Potential avenues for increasing the project's value include mine life extension through satellite deposits like Snip, steepening of pit walls to access deeper ore, and inclusion of base metal credits in future economic studies. These factors could potentially drive the after-tax NPV from C$3 billion to closer to C$4 billion.

The company is keenly aware of execution risks and has implemented several mitigation strategies. These include over-capitalizing the project, building a six-month ore stockpile, focusing on internal team building, and taking time to refine engineering studies. The brownfield nature of Eskay Creek, with existing infrastructure, further reduces execution risk.

Currently trading at a significant discount to NAV, Skeena offers potential for substantial share price appreciation as it transitions from developer to producer. Management expects the company to trade closer to 1x NAV in about two and a half years, implying a potential four-fold increase in share price from current levels.

While risks remain, as with any mining project, Skeena's approach to risk mitigation, the quality of its asset, and its fully funded status make it an attractive option for investors seeking exposure to gold. As the company progresses through construction and towards first gold pour, it represents a unique opportunity to invest in a high-grade, large-scale gold project in a tier-one jurisdiction, with strong potential for value creation in the near to medium term.

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