Skeena Resources, Gold Junior, Aggressively Drilling

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Skeena Resources Limited (TSX.V: SKE) announced the acquisition of 100% of the GJ Property, “GJ from majority owner Teck Resources Ltd. (TSXTCK) and 49% partner, NGEx Resources (TSXNGQ). Skeena 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 (TSX.V: DV) when CEO, Walter Coles and team couldn’t get it at a rock bargain price. The GJ deal announced on October 6th is important in a number of ways,

++ Diversification into a 2nd commodity, copper. GJ adjacent to the east of Skeena’s Spectrum Property. 

++ Low-cost, long-term call option on copper

++ Substantially more property (GJ roughly 10x the size of Spectrum) and the flexibility to use it in synergistic ways,

++ GJ includes the Donnelly & North Donnelly, porphyry copper-gold deposits with a historic resource of 1.1 billion lbs copper & 1.8 million ozs gold, according to a NI 43-101 technical report from 2007, [Notethis data needs to be updated, M&I figures are not currently NI 43-101 compliant]. {Note: the area in focus 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. In today’s dollars that $30 million would clearly be considerably higher.

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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 favorable transaction terms. Why would Teck & NGXe abandon this property given that they and predecessors spent greater than $30 million on GJ since the mid-1960s, including $25 million by Teck & NGEx alone between 2000-2014? Red flag?

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 it 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 Resources Very Savvy
This 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 & 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. Skeena just bought the entire asset for $500k + $1 mm worth of Skeena shares. This transaction is a lot better than the proposed term sheet lays out. Am I being overly bullish or dismissive of risks? Skeena is doing exactly what larger companies do, the Majors often foist a deal like this on the juniors! 

Saving the best for last… Most often a non-compliant NI 43-101 resource needs significant drilling, 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 existing data is only 8 years old, and 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.

October 8th Press Release, More Spectacular 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. 

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, as it appears the zone may be pinching out to depth in this area.”Screen Shot 2015-11-25 at 11.16.16 AM

Ron Netolitzky, Skeena’s Chairman & 2nd largest shareholder commented,

“High-grade sections from the southern portion of the Central Zone are arguably our best yet and represent an important step out to the south. The deposit appears wide open for resource expansions. In the middle Central Zone, we have encountered broad intervals of near-surface porphyry gold-copper mineralization with deeper higher grade intervals consistent with 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.  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 upmost importance. 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. 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 on. As far as I can tell, Skeena remains a High-Grade story through and through. There are 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 some superb cores have been drilled, including roughly 25% with visible gold. All eyes are on drill results, the next of which expected in the next several weeks.

 

Disclosure: Small market cap stocks are highly speculative, not suitable for all investors. I, Peter Epstein, own shares of Skeena Resources. Mr. Epstein is not a licensed financial advisor. Readers should take that fact into careful consideration before buying or selling any stock mentioned. Readers are encouraged to consult with their own investment advisors before buying or selling any stock, especially speculative ones. At the time that this article was posted, Skeena Resources was a sponsor of: http://EpsteinResearch.com. Please consider visiting:  http://EpsteinResearch.com for free updates on Skeena Resources and other companies across a range of sectors. While at http://EpsteinResearch.com, enter an email for instant delivery of my work. Thank you for your support.