Skeena Gold + Silver | Walter Coles and Jimmy Connor

Key Concepts

• Escate Creek Mine: A past-producing gold and silver mine in the Golden Triangle region of British Columbia, currently being revitalized by Skina Resources.
• Golden Triangle: A mineral-rich region in northwestern British Columbia known for significant copper, gold, and silver deposits.
• Feasibility Study (2023): A detailed economic and technical assessment of the Escate Creek project, outlining projected costs, production, and profitability.
• All-In Sustaining Cost (AISC): The total cost of producing an ounce of gold equivalent, including operating costs, capital expenditures, and exploration.
• Project Financing: The process of securing funding for the construction and development of the mine, including equity, streams, and debt.
• Stream Agreement: An agreement to sell a portion of future metal production in exchange for upfront capital.
• Hydroelectric Power: A low-cost, renewable energy source crucial to reducing operating costs at Escate Creek.
• Permitting: The process of obtaining necessary approvals from government authorities to construct and operate a mine.

Regulatory Environment & Historical Context

Escape Creek operated as an underground mine from 1994 to 2008, producing 3.3 million ounces of gold and 60 million ounces of silver. During its operational life, it was the highest-grade gold and silver mine globally, with grades of 45 g/ton for gold and 2200 g/ton for silver. Beric Corporation ceased operations due to a combination of factors: a hostile mining regulatory environment in British Columbia during the 1990s (making open-pit permitting nearly impossible), high operating costs driven by diesel and propane power (energy representing over 50% of costs when oil reached $100/barrel), and comparatively low gold and silver prices (averaging $300/ounce for gold).

The situation has dramatically changed. A new hydroelectric facility built nearby in 2012 provides power at 4 cents US/kilowatt-hour (compared to 50-55 cents/kilowatt-hour for diesel-powered operations in remote locations). The regulatory environment has improved, allowing for open-pit mine permitting. Gold prices are now around $2,300/ounce and silver around $83/ounce, significantly increasing project profitability.

Project Economics & Production Profile

The 2023 feasibility study projected $513 million in after-tax free cash flow in the first year of operation, based on gold prices of $1,800/ounce and silver prices of $23/ounce. Current spot prices yield an average of $1.4 billion US in after-tax free cash flow in the first six years. The all-in sustaining cost (AISC) is projected at $684 US per gold equivalent ounce over the life of mine, and $538 US per gold equivalent ounce in the first five years.

The mine is expected to produce an average of 9.5 million ounces of silver per year for the first five years, and 7.7 million ounces over the life of mine. Gold production will average 450,000 gold equivalent ounces per year, making Escate Creek Canada’s fifth-largest precious metals mine upon commencement of operations in 2027. The open-pit grade is projected to average 5.5 grams per ton. Silver contributes approximately 40% to the project’s economic value.

Funding & Financial Strategy

Skina Resources has secured $750 million US in project financing from Blackstone and Orion, comprising a $100 million equity injection, a $200 million stream agreement (selling future gold production), a $350 million senior secured credit facility, and a $100 million cost overrun facility.

The company has already received the equity and stream funding. A key strategy is to refinance the high-interest senior secured credit facility (12-13%) with lower-cost debt, potentially through a high-yield bond offering or private credit, and use additional funding to buy back two-thirds of the gold stream agreement, which was negotiated with a right to repurchase at an 18% IRR. This repurchase is anticipated to cost around $200 million.

Permitting & Government Support

Skina Resources recently received its Environmental Management Act (EMA) permit, enabling construction and production. While acknowledging past challenges with provincial government support for mining, the speaker notes a recent shift in attitude driven by economic pressures and the need for job creation. The BC government is now more supportive of mining projects, recognizing their contribution to tax revenue and economic diversification. The speaker describes a proactive approach, initiating construction on half of the project before final permitting, mirroring Elon Musk’s strategy with Gigafactories, accepting the risk of potential demolition if permits were not granted.

The Golden Triangle & Regional Infrastructure

The Golden Triangle is a well-established mining region with over 150 years of history. Local communities have a strong connection to mining, with multiple generations of families employed in the industry. The presence of existing infrastructure and a supportive local population increases the likelihood of successful project development. The speaker contrasts the favorable conditions in British Columbia and Canada with the risks associated with mining in other regions, such as political instability, nationalization, and security concerns in countries like Pakistan and those in West Africa.

Future Catalysts & Investor Outlook

Key catalysts for investor interest include:

• Full Permitting Confirmation: The market is still absorbing the news of full permitting.
• Debt Refinancing: Replacing the high-interest senior secured credit facility with lower-cost debt (March-April timeframe).
• Stream Buyback: Exercising the right to repurchase two-thirds of the gold stream agreement (March-April timeframe).
• Mine Plan Update: Releasing an updated mine plan demonstrating a sustained production profile of 450,000 gold equivalent ounces per year for at least 10 years (October-November timeframe).
• Cash Flow Generation: Commencing production in 2027 and generating substantial after-tax free cash flow.

The speaker estimates the project could be valued between Lundin Gold (C$26 billion market cap) and Artemis Gold (C$10 billion market cap), suggesting significant upside potential from the current C$4 billion market capitalization. He highlights the opportunity to participate in the “last stage of the LAN curve” as the project moves closer to cash flow.

Notable Quotes

• “When SK operated, it was the highest grade gold and silver mine in the world for those 14 years.” – Walter
• “Mining is an integral part of the culture and the communities up there.” – Walter, describing the Golden Triangle region.
• “Canada and Australia are the two best jurisdictions in the world to be building mines.” – Walter
• “Management teams of mining companies should not sell royalties or streams…we have a duty to our shareholders to protect the optionality on the silver and gold price.” – Walter

Synthesis/Conclusion

Skina Resources is poised to revitalize the high-grade Escate Creek mine, capitalizing on improved regulatory conditions, lower energy costs, and significantly higher gold and silver prices. The project boasts impressive economics, with low all-in sustaining costs and substantial projected cash flow. The secured financing package and recent permitting success de-risk the project, while upcoming catalysts – debt refinancing, stream buyback, and a mine plan update – are expected to drive further investor interest. The project’s location in the politically stable and mining-friendly jurisdiction of British Columbia, combined with its robust economics, positions Escate Creek as a potentially highly profitable and valuable asset.