Skeena Resources Working Towards Re-opening Legendary Eskay Creek; Believes Stock Is Undervalued
Eskay Creek, formerly the world’s highest-grade gold mine, may be headed for a re-start due to very promising exploration work completed by Skeena Resources (TSX.V: SKE). Jonathan Roth sits down with Skeena’s CEO Walter Coles, Jr. and Skeena’s VP of Communications Kelly Earle to discuss the company’s discoveries, what the next steps are, and why investors should be paying attention.
• Eskay Creek was operated by Barrick Gold until shutting down in 2008 due to a combination of high operating costs and a low gold price.
• Skeena picked up the option to explore the closed mine and has been working diligently on the project the last 2 years.
• Skeena has proved up a 4-million ounce gold equivalent resource at 4.5 grams/ton (indicated and inferred) open pit. The open pit aspect makes this a tantalizing prospect for investors.
• Skeena sees a pathway to making the ultimate total resource larger and bringing the grade closer to 6 grams/ton.
• Work over the next year will determine the viability of re-opening the mine.
• Skeena believes Eskay Creek is the best open pit deposit of any junior miner in the world, and the stock price is yet to reflect this.
Kelly Earle: This is an amazing deposit that we are part of. This is going to be one of the highest-grade open pit mines in North America, if not the world, when it goes back into production.
Jonathan Roth (narration): Making money in treacherous junior markets is challenging. You have to coordinate finding the right company with the right resource, along with timing the market. But when everything comes together and you nail it, the returns can be extraordinary.
Gold has been in a seven year downturn, but lately has been showing signs of life. The best way to take advantage of a potential move higher is investing in the highest quality junior gold companies.
This is the Eskay Creek property, located in the storied Golden Triangle area of British Columbia, Canada. For decades, this was the world's highest-grade gold mine before Barrick Gold shut it down in 2008 due to what was, at the time, low gold prices.
In December 2017, the team at Skeena Resources secured an option to acquire the entire property from Barrick and they've been working on it ever since. The results have been staggering. In layman's term, what Skeena has discovered so far makes Eskay Creek one of the largest early-stage potential open pit gold discoveries in the world today.
After a rough last few years, the market may finally be waking up to what Skeena believes they have. But it's the long-term potential that's so significant. Today, Skeena has a market cap of around $40 million. By comparison, Pretium Resources owns the nearby Brucejack gold mine and has a $2 billion market cap. The work planned here over the next year will likely indicate if Skeena has a real shot of joining Pretium in the big leagues.
Kelly Earle is a geologist and vice president at Skeena. She's already had a taste of what it's like being on the ground for an enormous gold find. She was in Turkey for the Hod Maden discovery.
Kelly Earle: I was on the ground back in 2014, right before the first drill hole went into the ground on Hod Maden. That was a pretty amazing experience to see it grow, and the size and the grade of the discovery, and the technical team there is spectacular. You don't realize it when you're in it at the time that you're part of one of the highest grade discoveries of say a generation, but it was exciting to be part of it at the time.
Jonathan Roth: What attracted you to Skeena? Because obviously you had a lot of options. Why would you come to Skeena?
Kelly Earle: So, I was initially drawn to the Golden Triangle, the assets they were bringing into the fold, the possibility of acquiring two past producing mines as legendary as Snip and Eskay Creek. So that's really what drew me in. But then what kept me here was really the team, a really young, keen team that I think is really the future of junior mining in Vancouver.
Jonathan Roth: Well, this young team has definitely been making some good discoveries so far.
Kelly Earle: Yes.
Jonathan Roth: Why don't you unpack what you've discovered up at Eskay Creek?
Kelly Earle: So, at Eskay Creek, excitingly, we just announced a 4 million-ounce resource combined between indicated and inferred at 4.5 grams/ton open pit. To put that in context, most open pit mines operating today are around the one to two gram/ton mark. And ours is at 4.5 grams/ton and we see a pathway to bring it closer to six grams/ton. So, it's a world class deposit from a once-legendary mine. Eskay Creek was the highest-grade gold producer in the world when it was in production. It's very exciting to think that we've really just have found what's left, what the remnants are. But even the remnants are extremely high grade by today's standards.
Jonathan Roth: Barrick owned Eskay Creek and then they stopped mining at around 2007, 2008, somewhere around there?
Kelly Earle: Yes, 2008.
Jonathan Roth: So why did they stop, given the fact of what you folks have discovered?
Kelly Earle: We get this question a lot. It's hard for people to understand: if it's so great, if there's 4 million ounces left there, why on earth did Barrick walk away? And it's really just a function of the price of gold and how remote the mine was at the time.
So, when the mine was in operation, it was all diesel powered. So absolutely everything ran on diesel, which for the most part was flown in and flown out. There was road access, but it was still diesel powered. Secondly, the price of gold was significantly lower than it is today. So, the decision to shut the mine down was made in 2005. Price of gold was around $450, $500 an ounce. That meant the cutoff grade - to hit a 20 gram per ton head grade at the mill - they needed a 15 gram per ton cut-off grade, which is crazy by today's standards.
So, anything below 15 grams per ton was just considered waste. So, if you look at it in the context of the time frame, it made sense that the mine shut down. Also, Barrick was just bringing Placer Dome on board, this was a big several hundred thousand ounce a year producer. The grades were dropping off at Eskay, the production annually was dropping off. It didn't make sense to keep it open anymore because of how remote it was and the cost of producing it. So, in many ways we're lucky because we're left with the remnants that are now extremely high grade by today's standards and the infrastructure has also improved dramatically since the mine was in production.
Jonathan Roth: The infrastructure obviously must be already there, and my understanding is that things are even easier to get in and out of there than they were say even a decade ago?
Kelly Earle: Within the last year, Highway 37 and the Northwest Transmission Line have been put in, which goes all the way up to Imperial Metals Red Chris Mine. Then within the last 10 years, there have been three hydroelectric facilities built between Snip and Eskay Creek. So, areas that were once all diesel operated for mines, we now have 4 cents a kilowatt hour power - so dramatically changes the opex.
We've talked to some engineers who said historically 50% of opex would have been diesel. Now with hydroelectric power, that would be more like 10 to 15%. So, it dramatically changes the cost to put it back into production. And at Eskay, the hydroelectric facility's only seven kilometers away, down a paved road.
Jonathan Roth (narration): This is Skeena's CEO, Walter Coles Junior. The son of a very senior former US diplomat working in states that comprised the former Soviet Union, Coles is well versed in navigating the halls of power. Skeena's projects are located in British Columbia, and Coles has made it a priority to maintain an excellent relationship with BC's left leaning provincial government and local First Nations groups.
Walter Coles: For us, our experience with the NDP government has been phenomenal. From John Horgan as a premier to Michele Mungall, the mines minister; to her staff, Dave Nikolejsin, who's a deputy mines minister. I'll even shout out Peter Robb, who's the assistant deputy mines minister. When we've had problems with delays in permitting, we go to Victoria and things are fixed right away.
Jonathan Roth: There's been a general perception that the NDP government and British Columbia is not favorable to resource development projects. Obviously, you've seen the flip opposite of that?
Walter Coles: I think the facts can speak for themselves. BC has permitted more mines in Canada than any other province in the last three years. That speaks for itself. KSM last year got all their permits. The Red Mountain, IDM's Red Mountain Mine got all of their permits. Pretium was permitted, I believe, in less than two years. I'm talking about the Brucejack Mine. Red Chris got all of, that's Imperial Metals, was able to permit the Red Chris Mine. This is all on the Golden Triangle and all within the last three and a half years. There's political ... In my view, there's strong political support for mining in this province.
Jonathan Roth: So, what's the game plan then moving forward?
Walter Coles: Our game plan is to aggressively advance Eskay Creek. The idea is we get the PEA done early in Q3 and we'll immediately start, I hope, we'll start pushing towards a feasibility study and we'll probably start to permit Eskay Creek as well, to be able to put this mine back into production in the next couple years.
Jonathan Roth: So, you know obviously the resource market has been really tough for investors. It's about as tough as it gets.
Walter Coles: Understatement.
Jonathan Roth: Right. So why, given the general market that's out there, why should investors give you maybe a second or third look?
Walter Coles: It's easy. In my mind, it comes down to Eskay and Snip. Snip is our other project, again, a past producing mine. There just aren't deposits like this around the world. They're very, very rare and our market cap right now today is about 40 million, 42 million Canadian. And we have 4 million ounces of very high grade, very attractive resource. It's a combination of gold and silver, but I call it 4.5 million ounces of gold equivalent.
If you look at the valuations of other very well run companies, let's say a Barkerville or let's say an Osisko or let's say an Ascot, as comparables to Skeena, all of those market caps are north of $175 million, and frankly we have more resource than any of those companies. And ours is open pit. The rest of them gotta go underground. So ours is easier mining. I would say adjusted for open pit versus underground, better grade, and we have more. And our market cap is like 15 to 20 percent of what these other companies are valued at. So, we are extremely undervalued right now. So if you're an investor and you want to have exposure to precious metals, to gold, this is a way you can have leverage and the quality of the assets that we have right now, in my mind, would mean that your risk of losing money is probably a lot less than your risk of making a lot of money. That's the kind of asymmetric investment opportunities all of us look for.
Jonathan Roth: So, you just mentioned a word there. You said undervalued. Why do you think Skeena's been so undervalued for so long?
Walter Coles: Yeah, well, I would argue that our success at raising capital from some of the mining focused institutions, like mutual funds and hedge funds around the world, has come back to haunt us because there's been a trend in the world of pulling capital out of actively managed investment funds and putting that capital into passively managed funds, like ETFs, index funds. So a lot of the mutual funds that we raise money from have faced redemptions over the last 18 months, and even though they told us they liked our project, their investors were pulling money out of their funds, so they were forced sellers of Skeena over the last year and a half. Unfortunately, in my mind, it's like the worst in the 10 years that I've been involved with the sector, it's the worst I've ever seen it. The consequence was we had forced sellers and there's no bid, no buyers. So that's taken Skeena down to the level it's been in for the last six months. But I think we're through all of that. I think those forced sellers are out and so I think the stock is now at an inflection point where there's no more sellers. Now the question is: is there any stock available?
Jonathan Roth (narration): The next six months to a year are incredibly important for Skeena. The viability of Eskay Creek is what Skeena needs to prove within this short time frame.
Jonathan Roth: What do you have going on now and what do you see happening over the next say six months to a year in terms of your work there?
Kelly Earle: So, we just put out the resource at Eskay that I mentioned, the 4 million ounces, and we're working hard on metallurgy, because that is a question that we get a lot. Historically, there are a lot of deleterious elements, mercury, arsenic, that were associated. It's a VMS deposit, volcanogenic massive sulfide deposit. You get extremely high grade, but then you also get some mercury and arsenic, so we're working on the metallurgy now. We are very confident that it will be clean ore. We're mining in mostly a different ore type than what was mined historically, but we need the metallurgy out and that report to show the market that it is going to be mineable. So that's a key milestone that's coming up for us within the next month.
Then after that, we're going to be pushing forward on a preliminary economic assessment. So, we're pretty excited about that. We run the numbers internally and they're looking good. We've hired an engineering firm and we've brought an engineer on board to represent Skeena. So, we're growing and we're pushing towards that PEA and then while that's all going on, we will be drilling.
I think people should give Skeena a look because of the amazing quality of Eskay Creek. I mentioned before about when I was part of Hod Maden I didn't realize it at the time. I think Walter and I and the rest of our team are beginning to realize: this is an amazing deposit that we're a part of. This is going to be one of the highest-grade open pit mines in North America, if not the world, when it goes back to production. It's pretty rare that you sit on a brownfield site in a stable jurisdiction, with first nations and government support, 4 million ounces, 4.5 grams open pit. That's a once-in-a-lifetime project to be a part of and I wholeheartedly believe that Eskay Creek will be back into production.
Walter Coles: We have something very special and it's hard to find assets like this one. The Eskay Creek deposit is the best open pit deposit that any junior company in the entire world holds right now.
Cautionary note regarding forward-looking statements
Certain statements made, and information contained herein may constitute “forward looking information” and “forward looking statements” within the meaning of applicable Canadian and United States securities legislation. These statements and information are based on facts currently available to the Company and there is no assurance that actual results will meet management’s expectations. Forward-looking statements and information may be identified by such terms as “anticipates”, “believes”, “targets”, “estimates”, “plans”, “expects”, “may”, “will”, “could” or “would”. Forward-looking statements and information contained herein are based on certain factors and assumptions regarding, among other things, the estimation of mineral resources and reserves, the realization of resource and reserve estimates, metal prices, taxation, the estimation, timing and amount of future exploration and development, capital and operating costs, the availability of financing, the receipt of regulatory approvals, environmental risks, title disputes and other matters. While the Company considers its assumptions to be reasonable as of the date hereof, forward-looking statements and information are not guarantees of future performance and readers should not place undue importance on such statements as actual events and results may differ materially from those described herein. The Company does not undertake to update any forward-looking statements or information except as may be required by applicable securities laws.
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