Some thoughts on the bullish Eskay Creek PEA released last week by Skeena Resources (SKE, TSX-V).

Nov 17

Skeena’s Inferred category resource and PEA – “Inferred” resources are “too speculative” for a firm economic decision (accuracy can be off by plus or minus 30%), but if the numbers are close to being right they obviously look exceptionally good (especially given conservative base case assumptions of $1,325 Gold and $16 Silver).

Keep in mind, the PEA is derived from the company’s pit-constrained resource estimate (Feb. 282019) and does NOT include results from the recently initiated and continuing 2019 Phase I infill drilling program.  A technical report will be filed by Skeena before year-end.

Nearly 3 million ounces Gold and 70 million ounces Silver!

Using 0.7 g/t AuEq as a cut-off seems low relative to the grade they plan to be mining at.  I could see someone arguing they should’ve used 1.5+ g/t and I think that would lower the total resource estimate substantially (this isn’t an open-pit in Nevada, where a 0.3 g/t Au cut-off would probably be used).

A market’s perspective: With Skeena we might be looking at one of these “old mines” that people basically forgot about.  Since they haven’t been following Skeena’s progress they fail to appreciate the high-grade history of the Eskay Creek mine (average production grades of 45 g/t Au and 2,224 g/t Ag).

Skeena Surprised The Market!

Preliminary, no doubt, but at this stage the economics look awesome.  And the potential to produce 300,000+ ounces Gold equivalent annually must put Eskay Creek on the list of takeover targets for miners of all sizes.

Going forward, unless Skeena wants to put a lid on its stock price, it’s going to have to find a way to be an “exploration and development” company (emphasis placed on the exploration).  If they get singularly focused on things like feasibility studies and project financing, speculators will get bored of SKE. However, if they find a way to advance the open-pit and explore for Eskay Creek high-grade at depth, they ought to keep an element of enthusiasm in SKE.

The need for speed!

Eskay Creek represents a closed mine with existing permits for mine discharge and waste disposal.  So as it concerns environmental and permitting considerations, Eskay Creek has a huge head start.  The road into Eskay Creek and other critical infrastructure help to keep the CAPEX very reasonable and the rate of return very robust.

When evaluating acquisitions, the ability to move a project toward production faster should be a key consideration for board members of all junior and major mining companies.  Eskay Creek presents that opportunity.

Zijin Mining Group and Barrick as strategic investors starting 2017

$10 million payment to Barrick is still owed, along with a bond payment, as per option agreement terms.  Barrick also has a limited time to exercise its back-in right, but Skeena would come out of that with some financial benefits.

Skeena’s current market cap is at the lowest end compared to the projects listed (slide 15 of PP), yet the CAPEX and annual production rank very highly.

…this must be a function of “marketing” and “disbelief”??  The market doesn’t seem to fully trust their estimates at this point (given the low-low market cap).

Skeena Short-Term Chart

Note how Skeena broke out above a long-term down channel recently – very bullish.  Key resistance is in the mid-60’s with very strong support around the 50-cent level.

With RSI(14) above 70%, Skeena may need some time to push thru the 66-cent resistance but we’re confident it will.  We consider SKE to be a favorable buy from current levels (low 60’s) and on any weakness toward the “price floor” near 50 cents and the breakout area.