Post by
Ridgeback on Dec 18, 2023 1:03pm
Sprott Report
We estimate a 16% cost of equity and 7% cost of debt for 9% overall cost of capital on today’s funding.
The 0.25xNAV the stock trades at equates to a ~30% cost of equity, making today’s deal very accretive compared to dilutive equity. With the raise to ostensibly fund up to $500m of pre-permit spend planned, this allows Skeena to continue operational momentum through permitting, with the CY28 long-stop date of a convertible talking to a useful buffer against the CY26 target production date.
In real-world terms, the DFS 4.1g/t AuEq reserve grade effectively drops 0.04g/t (1% royalty) in exchange for not ‘giving away’ ~10% of the company in equity dilution, a no-brainer from our point of view.
A nice precent transaction comes from Osino today, who achieved a 37% premium on their SCPe ~0.4xNAV bid price; for Skeena 0.4xNAV would be a ~60% premium to today’s price.
For now, we maintain our BUY rating, lower our C$11.00/sh PT to C$10.70/sh based on dilution. Franco 9% cost-of-capital C$81m financing accretive compared to 30% equity cost; permitting continues Skeena has announced a C$56m 1% NSR royalty sale to Franco-Nevada, and concurrent C$25m 7% unsecured convertible with 35% / C$7.70/sh conversion premium, maturing in 4Q28, or on boardapproved project financing for Eskay Creek.
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: Potential streaming package
2. CY24: Long lead orders and civil (pre-permitting) construction start
3. 2Q24: PFS-level study on Snip based on M&I 4. Mid 2025: permits complete
5. Mid 2026: production start up