Skeena Resources Limited (TO:SKE) [“the Company”] announced the acquisition of 100% of the GJ Property, “GJ“ from majority owner Teck Resources Ltd (NYSE:TCK) and 49% partner, NGEx Resources Inc (TO:NGQ). Skeena Resources picked up GJ for a song. These days, when no one wants to (and can’t afford to anyway) explore, drill, develop or buy assets, Skeena is on the hunt. Recall that the Company recently relinquished an acquisition attempt of Dolly Varden Silver Corporation (TO:DV) when CEO, Walter Coles and team couldn’t get it at a rock bargain price (my opinion only). The deal announced on October 6th is important in a number of ways,
++ A low-cost, long-term call option on the price of copper,
++ Diversification into a 2nd prospective opportunity, adjacent to the east of Skeena’s Spectrum Property
++ Substantially more property (GJ roughly 10x the size of Spectrum) and the flexibility to use it in synergistic ways,
++ Diversification into a 2nd commodity, copper. No longer solely a gold play,
++ GJ includes the Donnelly & North Donnelly, porphyry copper-gold deposits, with a historic Measured & Indicated resource of 1.1 billion lbs copper & 1.8 million ozs gold, according to a NI 43-101 technical report from 2007, [Note: this data needs to be updated, M&I figures are not currently NI 43-101 compliant]. {Note: the yet to be re-submitted, no longer complaint resource, is contained in well under 5% of the entire land package.}
++ More than $30 million in exploration work done at GJ by various operators since the mid-1960s, including nearly $25 million spent by Teck & NGEx alone between 2000 and 2014. In today’s dollars I image that $30 million would be considerably higher.
Can anyone throw cold water on any of my six claimed benefits? In my opinion, this is very good news, an attractive acquisition, with strong optionality, even before considering very appealing transaction terms. Red Flag? Why would Teck & NGXe abandon this property given that combined, they and predecessors had spent more than $30 million on GJ dating back to the mid-1960s? That includes nearly $25 million spent by Teck & NGEx alone between 2000 and 2014. Is it that since Teck and NGXe are under pressure to curtail cash outlays, lower debt, slow spending on their pipeline of assets and reduce headcount? Is this a vote of non-confidence in DJ since Teck and NGXe sold it instead of another asset? NO! DJ was the definition of a non-core asset. Neither Teck’s nor NGXe’s corporate websites or presentations made a single reference to GJ. Red Flag resolved.
Terms of deal with Teck Resources & NGEx ResourcesThis is one of the more important, and frankly awesome, aspects of the acquisition. Summarizing a bit, $500,000 cash and $1 million worth of Skeena shares are required upon closing, $1.5 million of Skeena shares, at the Company’s timing and discretion, anytime within 2 years from closing, $1.5 million of Skeena shares, at the Company’s timing and discretion, anytime within 5 years from closing. A $4 million cash payment, anytime until 45 days prior to Commercial Production from the GJ Property. Finally, there’s the fairly routine mechanism whereby GJ’s main claim block would be subject to a 2% Net Smelter Return royalty (“NSR”) payable to Teck and NGEx.
Think this through with me. Skeena has up to 2 years after the closing to proceed, or walk away. Therefore, nothing more need ever be paid, no shares, no cash, no NSR, nothing. In (my opinion only), Skeena just bought the entire asset for $500k + $1 mm worth of Skeena shares. This transaction is actually a lot better than the proposed term sheet lays out. Am I being overly bullish or dismissive of risks? I don’t think so. In fact, Skeena is doing exactly what much larger companies do, the Majors often foist a deal like this on the juniors! One last thing before I move on to the October 8th, release of more assays.
Saving the best for last? Most often a non-compliant NI 43-101 resource needs drilling to be done, such as twinning prior holes to demonstrate high correlation between old and new. In speaking with management, I learned that no additional drill holes need be drilled to prove up a (new) NI 43-101 compliant resource. This is simply because the old holes are only 8 years old, and new assays (from existing data) will be included. To be clear, this does not mean that the (new) NI 43-101 compliant resource will be any larger or higher grade, it should be about the same, 1.8 million ozs gold and 1.1 billion lbs copper, (non Ni 43-101 compliant at this time).
October 8th press release, more assays reported
Clearly, I’m quite optimistic about Skeena Resources’ acquisition. Now I turn to the most recent set of assays. First off, the Company reported one of its best holes ever. Quote from press release,
“…at the south end of the deposit, [Skeena] intersected three high-grade intervals between 197 and 232 m. The most significant interval is 11.4 m grading 16.73 g/t Au, including 2.0 m grading 81.8 g/t Au. The other significant intervals included 4 m grading 24.24 g/t Au including 2 m grading 44.8 g/t Au, and 4 m grading 26.59 g/t Au, including 2 m grading 46.5 g/t Au. These high-grade intervals in especially noteworthy because they are located 45 m south of hole SP-14-009 which cut several high-grade sections, including 2 m grading 254.5 g/t.
The press release continues with a review of assay results from northern portions of the Central Zone. A number of assays returned values that were disappointing, they, “encountered only weak mineralization and it appears the zone may be pinching out to depth in this area. Strong gold in soil values to the north and east of the area indicate the mineralization could continue, but the mineralized trend may shift over to the Boundary and Road Zones.”
Ron Netolitzky, Skeena’s Chairman and 2nd largest shareholder commented,
“The high-grade sections in hole S15-043 from the southern portion of the Central Zone are arguably our best yet and represent a step out to the south from hole SP14-009. The deposit appears open for resource expansion to the south. In the middle of the Central Zone, we have encountered broad intervals of near-surface porphyry gold-copper mineralization with deeper higher grade intervals consistent with the historic drilling results. At the north end of the Central Zone, we need to do more work to understand how the high-grade gold zones are controlled. Our near-term objective remains to establish a high-grade gold resource by the end of Q1 2016 and these latest results take us another step towards achieving that goal.”
I don’t dare miss a quote from Mr. Netolitzky, as his sentiment is of vital importance to Skeena Resources as he leads the Company’s technical team and drill target analysis efforts. Reading between the lines, some investors might be disappointed by the results on the northern portions, but each and every drill hole, good, very good, mediocre and bad, provides valuable information for future drilling, of which there will be plenty of. To date, 59 drill holes have been punched, for a total of 16,500 meters this season.
Skeena is drilling the last two holes now. According to, Mike Cathro, M. Sc.,P. Geo, VP Operations, All-in that will be 61 drill holes & 17,500 meters, As Mr.Netolitzky, said the they, “encountered broad intervals of near-surface porphyry gold-copper mineralization.” The team has the winter to figure out what, if anything, to follow up with this not entirely surprising result. As far as I can tell, Skeena remains a High-Grade story through and through. There are still a number of assays in the lab waiting to be reported. My understanding is that most of them are on the sexier southern portion, where of course some superb cores have been drilled, including roughly 25% with visible gold. All eyes on the next set of drill results, expected in the next several weeks.
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