Sprott ReportWe see three main key takeaways from today’s Snip MRE update: First, we were pleased to see the resource growing by 45% to a total of 937koz (vs 646koz in 3Q20 maiden MRE), with the additional ounces gained partially from improved metallurgical recoveries (now 96% vs 90% previously) / infill drilling / higher Au price and partially from the discovery of new veins (new number of veins in upd. resource is 94 vs 72 in 3Q20 MRE).
Second, with 88% of the resource already in indicated category, we think Skeena can get to PFS quickly (maiden engineering study guided for 1H24) and give to the market a better understanding on the economics of this project, and third, given that (i) indicated resource grade is already >2x the current reserve grade (3.85Moz @ 4g/t AuEq), and (ii) 8,435m of existing UG workings at Snip, we now see potential for high value accretive ounce additions from the V&S veins (775koz @ 9.4g/t in indicated) to the mill schedule and extend it for 2 or even more years, at a low capital intensity, albeit the materiality of it depends on timing and mine schedule.
Even better, the concentrate market is all about grade. The high insite Snip grade practically translates to high concentrate grade, generating very accretive blending option with Eskay Creek’s feed for Skeena.
Stepping back, in 3Q22 DFS we saw a 73% OP resource conversion to reserve for Eskay and given that the 2Q23 MRE grew substantially to 5.6Moz AuEq with 99% of it in M&I, in our view we can expect a higher conversion rate – perhaps at 85%, that could add ~1Moz (or ~3y of additional LOM). Adding to that the satellite feed from Snip that will not only extend the LOM but also the concentrate’s payability, we now see multiple pathways for value growth closer to C$2b.
For now, we maintain our BUY rating and our C$10.90/sh PT based on 0.6xNAV5%-1850. Looking ahead, the DFS update by year end is the main catalyst to provide more torque to Skeena’s share price, alongside with updates on permitting and progress on the financing package. Material updates on permitting / detailed engineering and financing have become more material now given the permitting roadmap (EA certificate by 2H24, final permits to be issued in 1H25) was recently published in 1Q23.