The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
North of 60 Mining News – June 25, 2024
The camp at Eskay Creek, a high-grade gold-silver project in Northern B.C. that is home to a past producing underground mine operated by Barrick Gold.
Core from drilling into high-grade mineralization at Eskay Creek, which hosts 3.3 million oz of gold and 88 million oz of silver in reserves.
Walter Coles
With the goal of advancing Eskay Creek into production by the first half of 2027, Skeena Resources Ltd. has secured a $750 million (C$1 billion) financing package to develop a mine at the gold-silver project in British Columbia's Golden Triangle.
"On the back of our positive definitive feasibility study released in November 2023, this financing package lays the foundation on which we build Eskay – unlocking value for all our stakeholders as we progress through this stage of growth," said Skeena Resources Executive Chairman Walter Coles.
The feasibility study details an open pit mine at Eskay Creek that is forecast to produce 2.8 million oz of gold and 81.1 million oz of silver from 39.8 million metric tons of proven and probable reserves averaging 2.6 grams per metric ton (3.3 million oz) gold and 68.7 g/t (88 million oz) silver.
This comes to an annual average of 324,000 oz gold-equivalent, which accounts for the value of both the gold and silver, over the 12 years of mining outlined in the study.
Under the base case scenario prices of US$1,800/oz gold and US$23/oz silver, the open-pit mine detailed in the 2023 Eskay Creek feasibility study is expected to generate an after-tax net present value (5% discount) of C$2 billion (US$1.46 billion) and a 42.9% after-tax internal rate of return.
At US$2,200/oz gold and $27/oz silver, which are closer to the current selling price for these precious metals, Eskay Creek is estimated to generate an after-tax net present value (5% discount) of C$2.81 billion (US$2.06 billion) and a 53% after-tax internal rate of return.
Given the financial robustness of the Eskay Creek mine detailed in the feasibility study, it is only expected to take 1.2 years to pay back the C$713 million (US$521 million) of capital costs estimated to develop the open-pit operation under the base case and one year under the higher gold and silver price scenario.
Core from drilling into high-grade mineralization at Eskay Creek, which hosts 3.3 million oz of gold and 88 million oz of silver in reserves.
Given the robust economics and short payback time indicated by the feasibility study, Skeena was able to pull together a financing package that completely covers development of the Eskay Creek mine.
This $750 million financing package includes:
• $100 million equity investment priced at a meaningful premium to Skeena's five-day average share price.
• $200 million gold stream, with option to buy back up to 66.7% for 12-month period after start of commercial production.
• $350 million of committed capital available from a senior secured loan.
• $100 million cost over-run facility in the form of an additional gold stream.
"This complete financing package is a result of a competitive and comprehensive process undertaken to find the best financing solution for the company," said Coles. "The result is certainty of funding to advance Eskay into production while balancing attractive cost of capital, flexibility, and optionality."
The equity investments, gold stream financings, and secured loan are all being made by Orion Resource Partners.
"We welcome Orion alongside existing shareholders as an aligned and committed stakeholder, further validating the merits of the project," Coles added.
The $100 million equity investment involved Orion buying 12.02 million Skeena shares at C$8.32 per share. On top of that, Orion bought an additional 3.42 million Skeena shares at C$6.65 per share for an additional $16.6 million (C$22.75 million).
Upon completion of its equity investment, Orion will own less than 20% of Skeena's issued and outstanding shares.
The $200 million gold stream financing will be drawn in five tranches based on mine development milestones. Once the stream is fully drawn, Orion will be entitled to receive 10.55% of payable gold produced at Eskay Creek at 10% of the gold price at the time of delivery. Skeena has the option to buy back 66.667% of this gold stream during the first year after the mine begins production.
Orion has also offered to loan Skeena up to $450 million in the form of a $350 million secured loan and a $100 million cost overrun facility.
Walter Coles
This financing package, coupled with the $44 million (C$59 million) Skeena had in its treasury as of the end of March, is more than enough to cover the $528 million (C$713 million) of pre-production capital expenditures estimated in the feasibility study.
"We designed the financing package to provide the company with important strategic flexibility and significant funding prior to final permits, while maintaining optionality as we continue working to maximize stakeholder value by advancing the project," Coles said.
With the financing in place, Skeena is looking forward to hitting several major milestones as it advances Eskay Creek toward production over the next three years.
This begins by finalizing the 2024 early works programs and detailed engineering plans for the coming mine at Eskay Creek.
The company says getting started on an early works program at the mine project that will help to mitigate timing pressures as it completes the environmental assessment and permitting process.
Other major Eskay Creek development milestones include:
• Finalizing and impact benefit agreement with the Tahltan Central Government, the governing body of the Tahltan First Nation, which is expected early in 2025.
• Receiving all remaining permits required for full-scale construction and operation of the mine, which are anticipated by the end of 2025.
• Ramping up to full-scale construction in 2026, subject to receiving all the required permits.
• Achieve initial production at Eskay Creek in the first half of 2027.
Once in production, Eskay Creek is expected to create 800 direct jobs and potentially 2,000 jobs for outside service and contract organizations associated with the operation, as well as contribute roughly C$1.5 billion in direct tax revenue to British Columbia and Canada over the initial 12-year mine life.
Skeena, however, is confident that further exploration at Eskay Creek will extend that life of the mine at Eskay Creek, providing steady and long-term jobs for Northern B.C. residents.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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