RE:Outperform Recommendation Issued On SKE By BMO CapitalBy our math, we estimate an overall ~15% cost of capital on this week’s pre-permit funding from Orion. We calculate the stream at US$2,000/oz gold price and US$30/oz silver, equating to 14% IRR (or ~18% at spot) assuming the stream is drawn at SCPe build start 4Q24, which is a key sensitivity worth noting i.e. the IRR increases if drawn later.
Same goes for the over-run facility, where we estimate a ~23.5% IRR if drawn 6M before first production – the real ‘icing on the cake’ for Orion in our view, albeit we think post permitting / de-risking should warrant a positive re-financing opportunity before the over-run facility is needed.
Most importantly, the funding allows Skeena to continue operational momentum through permitting towards 1H27 production target date, meaning some long lead items / pre-construction work can commence before full permits are granted, which helps maintain target dates—a key de-risking catalyst in our view.
As such, we update our model for the Orion funding (incl. higher cash + share count) and lift our 0.5xNAV multiple to 0.8xNAV to reflect the lower risk given SCPe implied $139m ‘buffer’ based on 1H27 first gold.
As such, we maintain our BUY rating and lift our C$12.30/sh PT to C$15.00/sh based on 0.8x NAV5%-2,000 for the asset at build start plus a nominal US$75/oz for Snip.
Stepping back, Skeena is positioned to be Canada’s next gold-silver mine build upon submitting the EA draft application this summer. While currently in the inevitable Lassonde curve ‘valley’, we think this could change quickly over the coming 12M on positive permitting catalysts, commencement of pre-construction activities, and with further gold / silver price momentum (70-30 / Au-Ag revenue).
US$750m Orion financing preserves schedule through permitting towards 1H27 production Earlier this week, Skeena announced a US$750 million project financing package with Orion Resource Partners for the development, construction, and general working capital needed to advance the Eskay Creek Gold-Silver Project towards 1H27 production.
The financing package includes: • US$100m Equity Investment: with a portion priced and closing immediately, and US$25m closing later. Orion will own less than 20% of Skeena’s shares upon completion and has rights to participate in future equity offerings.
• US$200m Gold Stream: drawn in five tranches (incl. initial US$5m, US$45m following receipt of the Technical Sample permit, and remaining three in US$50m tranches available as neede). Orion will receive 10.55% of payable gold (for the area +500m around existing MRE/reserve limits) once fully drawn at 10% of the LBMA AM gold fixing price for the LOM. Skeena has the option to buy back 66.7% of the stream in the 12 months following the project completion date.
• US$350m Senior Secured Loan: A 5.75-year term drawn over four equal US$87.5m tranches @ 3- month SOFR+7.75%. Interest will be paid quarterly, and principal repayments will start three months post-project completion in 15 quarterly installments. Additionally, there is a 1% standby fee and no break fee.
• US$100m Cost Over-Run Facility: provided at similar terms to the Senior Secured Loan, with a 2% original issue discount and a 1% availability fee.
Why we like Skeena 1. Large high-grade open pit with SCPe >500koz upside potential in coming 12-18M
2. Shift in market dynamics allows concentrate sales for lower capex
3. Optionality from high-grade Snip mine nearby to blend concentrate or add ounces
4. Catalyst heavy with drilling, metallurgy, and DFS optimizations in coming 12M Catalysts 1. CY24: Long lead orders and civil (pre-permitting) construction start 2. 2Q24: PFS-level study on Snip based on M&I 3. Mid 2025: permits complete