2018 has seen its fair share of stock price reactions to exploration results. The release of Cuale’s trenching results sent Evrim’s stock to 200% returns within a matter of weeks. Great Bear Resource has seen more than a 600% return since releasing the results from Dixie Lake in September. Conversely, Skeena Resource’s Eskay Creek results have garnered zero impact at all. This discussion will investigate some of the market responses to Skeena’s 2018’s exploration results and try to understand the context behind some of the reaction.
Evrim Resources, Great Bear Resources, and GT Gold had great years, achieving 150% to 700% returns so far in 2018. The charts below track cumulative AuEq gram * meters from intervals >5m in length and over 100 g*m. As I would’ve expected, there’s no clear relationship between cumulative AuEq meters and total stock returns. There is, however, a very strong relationship between the timing of the exploration results and the positive reaction. These folks found something that people weren’t expected.
To contrast possible exploration outcomes, look at the Skeena Resources vs. GT Gold. Similar cumulative AuEq meters, very different outcomes. No reaction at all from Skeena’s results. What gives?
Well Skeena resources is pretty small which I would’ve thought would work in its favor (enterprise value of 22.2M). Ok, so what’s wrong with the asset? Eskay Creek. Results looks pretty interesting. 30g/t for 28 meters at 62 meters from surface. Similar lengths and grades from a couple holes. Project is in BC, that’s good. Barrick used to own it. Lots of ounces produced in the past. Hmmm. Ok. So we’ve got a tired old mine that people are discounting. I imagine these results are as the public has expected? Pretty low enterprise value for 1.4M oz of resource in a good jurisdiction with a site that’s probably easier to permit than most. What am I missing here? Let’s go to their website and check it out.
Ok, interesting. Technical report issued on Nov 1st. What’s this property all about:
- Geology: VMS
- Location: BC, Golden Triangle
- Access: All season road
- History: Mining started in 1995. Barrick mined
it until 2008. On care and maintenance until 2017 when Skeena entered into an
option agreement with Barrick.
- 270 tpd mill
- Drift and fill
- Very high grade, 3.3M oz produced from 2.55M tonnes of ore
- 207K oz of open pit
- 589K oz inf open pit
- 814K oz of indicated underground
- 261K oz of in underground
- Option agreement:
- 10M to Barrick
- Need to spend 3.5M before 2020
- Concentrate production
- Lots of penalty elements
Ok, so Eskay creek is a tired old mine. Small. Not too surprising that the exploration results didn’t yield too much excitement.
The strip ratio is pretty low for such high grade in the open pit. Kind of interesting. 700K ounces at ~ 5g/t. That could produce a decent amount of cash.
Overall, it’s tough to make an investment thesis. The exploration results didn’t do anything for the share price and they are a long way out… I’m kind of surprised that the exploration results didn’t garner any interest. The property would check a lot of boxes. Nothing special but good jurisdiction and appears to have a decent shot at reopening in the future. Skeena seems cheap.