Sprott ReportThe main key takeaway from today’s drill results is that Eskay Creek will get bigger, mainly from nearsurface ounce additions, which are NPV accretive in our view.
Currently, we model C$1.75Bn NPV5%-1850 for Eskay Creek at build start, which simply equates to a ~C$50m NPV increase for each 100koz added or +64c/sh, a figure that lifts if over 3.7g/t AuEq reserve grade, and falls if under.
It’s hard to pin down the exact ounce-addition potential, but 21A West and 23 Zones are the engine room. For the pessimists concerned about losses during infill, at worse this would offset such, while the optimists have a flyer on additional high-grade from the rhyolites and near-surface high-grade ounces like some of those drilled today.
Digging in (i) infill drilling at 21A Zone saw 9.3m @ 19.7g/t AuEq from 46m – near surface and substantially higher grade than the current OP resource (5.3Moz @ 3.2g/t) in an area modelled as waste, a big win,
(ii) extension drilling from the newly discovered 21A West Zone hit 5.7m @ 14.9g/t, just 10m below surface, next to the FS pit shell and 100m vertically up-dip from prior 46.8m @ 1.8g/t hit, speaking to continuity for more cheap ounce additions, while (iii) bulk hits from 23 Zone (ie 26.1m @ 1.3g/t) fill out the back end, perhaps with some cherries (6.4m @ 12.9g/t), with the mineralization now being traced for ~800m along strike and 300m below surface.
For now, we maintain our BUY rating and C$12.00/sh PT based on 0.6xNAV5%-1850.
Looking ahead, clearly the upcoming MRE is the main catalyst to provide more torque to Skeena’s share, alongside with early construction works and progress on permitting.
Figure 1. Eskay Creek Plan view and 21A / 21A West Zone vertical section showing today’s drilling Source: Skeena Step-out / infill drilling at 21A W, 23 Zones opens door to ounce growth in 1H23 MRE update Skeena reported results from 91 holes from the 2022 drilling program at Eskay Creek. Infill drilling at the 21A Zone intercepted 9.3m @ 19.7g/t AuEq from 46m, while extension drilling from the newly discovered 21A West Zone hit 5.7m @ 14.9g/t from 10m below surface.
Step-out exploration drilling from the also newly discovered 23 Zone intercepted 6.4m @ 12.9g/t from surface and 26.1m @ 1.3g/t from 61m downhole. An updated MRE is expected by 1H23, which will incorporate all drilling data after September 2021, including the newly discovered 21A West and 23 Zones, that as of now have not been included in any MRE or economic analysis to date.
Why we like Skeena Resources • Large high-grade open pit with SCPe >500koz upside potential in coming 12-18M 22 February 2023 Page 2
• Shift in market dynamics allows concentrate sales for lower capex
• Optionality from high-grade Snip mine nearby to blend concentrate or add ounces
• Catalyst heavy with drilling, metallurgy, and DFS optimizations in coming 12M
Catalysts • 1H23: Updated MRE
• 2023: Permitting updates • 3Q23: SCPe build start
• CY26: SCPe first production • 2H22: Exploration and AWF infill / expansion drilling