Skeena Resources, Geologist Netolitzky, Targets Ready

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Disclosure Please see applicable disclosures here. Peter Epstein, CFA, MBA Twitter: @peterepstein2

It’s difficult to overstate the importance of Skeena Resources’ (SKE.V) latest upsized, non-brokered capital raise. Instead of $4 million, the company raised $6.5 million and it could have raised more. The raise was done at the market. Best of all, no warrants were needed. I honestly can not think of a single capital raise in this forsaken sector that did not include a half or full warrant. Why am I excited about this? It’s yet another vote of confidence in the blue-sky potential of Skeena’s Spectrum Project in the Golden Triangle of northwest British Columbia. It’s one thing for management and the Chairman of the Board Mr. Ron Netolitzky to have strong conviction that Skeena may be onto something meaningful, but having a number of existing and new institutions step up is another thing entirely. All institutions from the prior round participated in this round, except for one. Importantly, Skeena picked up three new institutional supporters. The company now has ample funding for two drill seasons on Spectrum (2015 & 2016).

Most institutions do a tremendous amount of due diligence before investing in a junior gold company. Although there’s been a rash of Canadian gold M&A among larger companies, takeouts of juniors typically occur later in the cycle. Skeena, cashed up for the next 18-24 months even after targeted drilling in 2015-16, is setting up to become a prime takeout candidate. This could occur sooner rather than later. By sooner, I mean by mid next year. Having said that, two things come to mind. First, if Skeena drills a few more high grade holes in the right places, interest from suitors could come before the confirmation of a NI 43-101 report. That’s what can happen in a more, “normal” gold market. My second point, I don’t want Skeena to be taken out too soon! If Skeena is sitting on a viable high grade mine, (still an open question) it’s worth a multiple of its market cap, not merely a 50% premium above the current price.

Regarding the capital injection, Mr. Walter Coles, Jr. CEO of Skeena commented,

“Our Chairman, Ron Netolitzky likes to say that the only way you really make money in this business is by taking shots. That means getting the drills turning so you have a chance at a big discovery. This summer Skeena will be one of the few, well funded junior exploration companies that will be taking the shots [drilling] and hoping to score big.” [See short video clip]

To be clear, finding 1 million ounces is not a sure thing, it’s a question of both “if” and “when.” Still, there’s no mistake that among the several dozen gold juniors in Canada, Skeena is clearly one investors are watching. I received a few emails from readers of my Skeena articles. The gist being that Skeena remains too early stage and that the thesis of finding 1 million ounces lacks adequate support.  My answer? That’s largely correct, but with caveats. At risk of beating a dead horse for readers who have consumed my work [here] & [here] each of which contains valuable information. In my opinion Skeena is much more than a greenfield play because it has substantial historical data and the single best geologist in the Golden Triangle. Both factors, and ongoing strong financial support, suggest that this speculation that institutions embrace is a speculation others should carefully consider. Is finding 1 million ounces going to be difficult? Perhaps, but if Skeena can deliver, then the stated goal of reaching 2-3 million ounces over time becomes substantially more likely. Blue-Blue-sky potential!

I now revisit an earlier comment, that there’s been a slew of M&A activity. It’s been chronicled several times, but a good concise mining.com article can be found here. The article starts with, “investors in Cayden Resources saw their shares swell by 300% in price late last year, when Cayden received a takeover offer from Agnico Eagle Mines” So, there’s the hook to draw us suckers in. There are a few takeaways from this article, first that M&A in Canada is on the rise, which has been documented in several other places. Second, a possible reason is that the weak Canadian dollar is boosting interest in Canadian assets as costs are in C$ and gold is priced in US$. I agree. However, a takeaway not fully appreciated is that upon a rebound in the gold price, mid-tiers and Majors will not do what they did last time– take unwarranted risks in challenging countries. Stakeholders would never allow it.

What this implies (in my opinion) is two things. First, there will be a lot more attention on U.S and Canadian juniors. Second, the natural culling of unviable companies that routinely occurs in bear markets will leave far fewer juniors to choose from. Even juniors with decent projects could be gone if they run out of money one too many times. To reiterate, fewer juniors to shop for and a clear trend of gold companies shopping in Canada. This could fuel a perfect storm of bidding for companies like Skeena. I used one of my less liked phrases, “perfect storm,” but have so far managed to avoid, “re-rating,” “de-risking,” and “black swan event.” Back to Skeena…

Conclusion:

New investors are frequently a catalyst to send a stock higher. Skeena has new investors. Top geologists are frequently an important reason for to investors to remain patient, check that box. Ample cash in the bank comforts shareholders. Absolutely. Blue-sky upside excites investors. Proof of Skeena’s thesis without incremental equity dilution is a good thing as well. High grades mitigate fundamental downside and contribute to potential upside. Access to a treasure trove of historical data got Skeena into the game in the first place. Ron Netolitzky has stated that he’s drawn to three dominant themes. Blue-sky upside, historical drill holes and data with which to formulate attractive new drill targets and most importantly, grade, grade, grade. Mr. Netolitzky is not Chairman and 2nd largest shareholder on a whim, he continues to see great potential and new and existing shareholders share his vision.

Disclosure Please see applicable disclosures here. Peter Epstein, CFA, MBA Twitter: @peterepstein2

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