The gold price has soared to new record highs and we are starting to see gold and silver exploration stocks benefit. One of my favorite gold exploration companies owns a project that was once the highest-grade gold producer in the world. They are operating in the Golden Triangle of northwest British Columbia, located next to several mines owned by Newmont Mining (NEM), which has a valuation of more than $50 billion!
Before I name the project, let me get you excited about the future potential by quickly visiting the past. The mine was in production from 1994 to 2008 and during those 14 years produced 3.3 million ounces of gold at a grade of 45 g/t! And while most investors focus on the gold, the mine also produced 160 million ounces of silver, also at incredibly high grades. That is a revenue split of around 60% gold / 40% silver at the average gold/silver ratio of that time, which is more than many “primary” silver producers today. Future production is expected to be closer to 75% gold / 25% silver, which is still a considerable amount of silver.
Pit-constrained proven and probable reserves include 3.3 million ounces of gold and 88 million ounces of silver as of November, 2023. The project is incredibly economic with an after-tax NPV of C$3.1B and IRR of 57% at current spot prices. This NPV is more than 3x the current company valuation. After-tax payback in under a year is industry-leading, especially for a project of this size with a mine life of at least 12 years.
The capital expenditures to build the mine are estimated at just over C $700 million. But the company has already secured a financing package of C $1 billion ($750 million) from Orion Resource Partners for development, construction, and general working capital required to advance the project. The total financing package comprises an equity investment, gold stream, senior secured loan, and a cost over-run facility. Upon completion of the full $100 million equity investment, Orion will own less than 20% of the issued and outstanding shares of the company.
Production is expected to begin in the first half of 2027 and the company will produce around 450,000 gold equivalent ounces per year for the first five years. Significant quantities of antimony, zinc & copper have been identified as well and are not included in the current economics. They have the potential to increase concentrate payabilities and bolster project economics.
Eskay Creek will be one of Canada’s largest open-pit gold mines, ranking third in Canada in the first 5 years of operation. Grades are almost triple the average of open-pit mines worldwide.
The company also acquired 100 % of the Snip project in 2017 from Barrick Gold. Snip has a historical production of 1.1 Moz @ 27.5 g/t Au & includes 8,435 metres of existing underground workings. The 2023 maiden resource estimate demonstrated an increase of 579,000 Au ounces from the 2020 MRE. The project has 823,000 ounces of indicated gold and another 114,000 ounces of inferred gold.
Most mining stock investors likely know this company from the details above. But for those that do not, the company is Skeena Resources (SKE). The share price is currently $7.50 with an enterprise value of around $700 million or $950 million Canadian. I believe the company’s valuation will climb toward Eskay Creek’s NPV of C$3.1 billion as they near production. This implies that the share price will triple in value over the next 2.5 years.
Of course, that assume a steady gold price and I believe the gold price is likely to double by 2027 to around $5,000 per ounce. This rise will greatly outpace increasing costs and give us a price target for Skeena that is more like 5x the current level. This represents significant upside for a company that is fully funded, largely de-risked and nearly 100% certain to become a producing mine.
Skeena’s share price has bounced recently, largely rising in sympathy with Osisko Mining after Gold Field’s $2.1 billion takeover offer. Shares of Osisko Mining jumped over 60% on the news. This shows an appetite from the major mining companies to snap up Canadian gold exploration stocks at a hefty premium. Skeena could be next.
The most recent corporate presentation from Skeena’s Executive Chairman Walter Coles at Mining Journal Select 2024:
These types of favorable risk/reward setups are what we look for at Nicoya Research. We are up 54% year-to-date on Skeena in 2024. We just added a new position to the Gold Stock Bull portfolio last week and three new gold exploration plays to our Mastermind portfolio today. If you would like to receive our top picks and detailed research, you can get started by going here: https://nicoyaresearch.com/investment-newsletters/gold-stock-bull/