As reported, Skeena Resources Ltd (SKE.V) announced an up-sized, non-brokered C$8.1 million capital raise with no warrants attached. This is a tremendous outcome that de-risks Skeena’s Spectru
In addition, geological mapping is being led by Dr. Jim Oliver, PGeo, consultant. Camp and drill pad construction is underway, and drilling is expected to begin on or about July 2nd. A total of 10,000 to 12,000 m of drilling in 50 to 60 holes is planned for this season, with holes averaging 200 m, and ranging from 50 m to 350 m in depth. The drill program has been designed to expand the historic resource, while other holes will test the East Creek zone and other outlying targets. A NI 43-101 resource estimate is expected to be completed in the fall of 2015.
I see a good chance of Skeena delivering a solid maiden resource in the next six months and possibly a second one within six months of the maiden resource. In my opinion, if 1 million + ounces in a first or second resource report is achieved, the stock price of C$0.065 could double or triple by then, $0.065 would be a distant memory. Further, it’s my understanding that due in part to the historic data, a meaningful portion of the next two NI 43-101 reports could be in the Indicated category. Readers of my prior articles [Here], [Here] and [Here] know the following: Skeena is drilling on a site with a non NI 43-101 compliant historical resource of 244k ounces of gold and has confirmed high-grade gold with its own drill campaigns (see below). The company’s very valuable database of geological mapping, geochemical sampling, trenching and more than 100 diamond drill holes (>14,000 metres) and one adit on Hawk vein (278m of workings) makes the Spectrum Project more than merely an early-stage prospect. One of the foremost geologists on the planet, Ron K. Netolitzky, M. Sc, with extensive knowledge of the Gold Triangle of Northwestern British Columbia, is the Chairman and second largest shareholder. Add to the above facts, a large pile of cash on the balance sheet.
Although I’ve mentioned Mr. Netolitzky in prior articles, I’ve not explicitly stated his claim(s) to fame. Please consider the historic mines in NW B.C. where Netolitzky was the driving force behind their development.
Snip Gold Mine
1 million oz. Au (gold) produced at 25 g/t
Eskay Creek Mine
3.27 million oz. Au produced at 49 g/t AND 158 million oz. Ag (silver) produced at 2,406 g/t
Those mines sported bonanza grades, an indication to me that Skeena’s longer-term goal of 2-3 million ounces at a grade of 12+ g/t is not a pipe dream. Evidence of Skeena’s potential can be found in the drill results completed in 2014.
[NOTE: For convenience,
- 14-SP-003: 23.84 g/t Au over 6.5 m, including 40.43 g/t Au over 3.5 m
- 14-SP-004: 10.63 g/t Au over 27.0 m, including 66.00 g/t Au over 2.0 m and 20.4 g/t Au over 2.0 m, 9.2 g/t Au over 2.0 m, 8.0 g/t Au over 2.0 m and 22.7 g/t Au over 2.0 m
- 14-SP-005: 18.60 g/t Au over 2.0 m and 7.32 g/t Au over 2.0 m
- 14-SP-006: 43.80 g/t Au over 2.0
- 14-SP-007: 9.50 g/t Au over 2.0 m
- 14-SP-008: 4.58 g/t Au over 9.0 m
- 14-SP-009: 13.70 g/t Au over 4.0 m and 254.50 g/t Au over 2.0 m.
How Does Skeena Compare to Peer Junior Gold Companies?
For junior gold companies there are more differences than similarities. Jurisdiction, grade, depth of deposit, infrastructure, balance sheet, capital to reach production, strength of management and Board, etc. Instead of ticking off Skeena’s boxes on those metrics, I refer readers to page 18 of the company’s new (June) corporate presentation. In my analysis I replaced Pretium, Roxgold, Continental and Rubicon with much smaller companies Unigold, Nio Gold and Goldstrike Resources. I derived an average EV/oz of $47/oz. That figure does not include Goldstrike, an early-stage company in the Yukon, with no defined resource yet having an EV of $20 million. Skeena has an EV of $7.8 million. Assuming that company achieves a NI 43-101 compliant resource of 1 million + ounces on its first or second resource estimate, the company would be trading at an 83% discount on an EV/oz comparison.
Of course, Skeena has not booked one million ounces, it has ~244k ounces of historic non NI 43-101 compliant resource. That’s why it’s trading at an 83% discount! Still, if Skeena can step up with a solid maiden resource and if coming up short, a second resource report delineating one million + ounces in the next 6-12 months, I believe that the huge Ev/oz chasm would narrow. As a valuation exercise, if one gives the company credit for one million ounces and cuts the cash liquidity from $8 million to $4 million, (due to ongoing drilling) the pro forma EV of $11.8 would trade at an unwarranted 75% discount to peers. However, peers will presumably be spending cash, and raising capital, both of which would increase their EVs. Therefore, the pro forma discount could remain at 80% or more for a company possibly endowed with a NI 43-101 compliant resource of 1 million + ounces in the next 6-12 months.
For those skeptical of my pro forma 1 million ounce + resource premise, viewing it as too aggressive, I argue that one is getting that outcome virtually for free due to the massive valuation discount. This is where leverage comes into play, no not debt leverage, Skeena has no debt. If the company’s stock price were to double implying a $23.6 million EV, SKE.V would still be trading at a 50% discount to the peer $47 EV/oz metric. Clearly, there’s ample room for improvement in Skeena’s valuation relative to peers without suggesting that the entire valuation gap will be erased. Most of the peers are pre-PEA, unlike Skeena, most are not privy to very extensive historical data. Unlike peers, most don’t have a lead Geologist, Mr. Netolitzky, as capable, with proven success in the region. As mentioned, unlike Skeena, most don’t have a fully funded balance sheet with a 12-18 month liquidity runway.
Conclusion: A Compelling Risk/Reward Proposition
With an admittedly unproven thesis on my part that Skeena Resources will achieve a NI 43-101 complaint resource of 1 million + ounces in the next 6-12 months, i.e. upon the first or second delivered resource report, I stand by my valuation exercise. Junior miners are inherently difficult to value, However, there’s only one key assumption, the million + ounce resource. I realize of course that this presumption is not just a key assumption, but the most important one. Given the luxury of being able to deliver not one but 2 NI-43-101 compliant resource reports in the next 6-12 months, supported by the unparalleled historical database, Mr. Netolitzky's expertise and drilling results in 2014, I consider the overall risk/reward proposition as quite compelling.
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