Skeena Resources (TSX: SKE; NYSE: SKE) closed an C$81 million ($60m) financing package with Franco-Nevada (TSX: FNV). The proceeds will be used to develop Skeena’s 100%-owned Eskay Creek gold-silver project located in the Golden Triangle of northwest British Columbia.
The financing consists of the sale of a 1.0% net smelter return (NSR) royalty on Eskay Creek production for C$56 million and a C$25 million unsecured convertible debenture. Franco-Nevada now holds a 2.5% NSR on all of the Eskay Creek properties.
“As a management team and shareholders ourselves, we are striving to minimize shareholder dilution in what is currently an extremely difficult capital markets environment for mine developers in Canada” said Skeena chair Walter Coles.
“To achieve this, we are pursuing less conventional financing pathways that limit the issuance of straight common equity. At $2,000/oz. gold, this 1% royalty will add about $20 to Eskay Creek’s very low all-In sustaining cost of $687/oz., which implies that Skeena will still maintain a very substantial profit margin.”
The debenture will carry an interest rate of 7% and mature on the earlier of Dec. 19, 2028, or on the completion of a board-approved project financing for Eskay Creek. The debenture will be convertible into common shares at a conversion price of C$7.70, representing a 35% conversion premium to Skeena’s five-day TSX volume weighted average price.
Last month Skeena released the feasibility study for Eskay Creek. The project will produce 455,000 oz. of gold annually during the first five years of production. The project was given an after-tax net present value with a 5% discount of C$2.0 billion, an internal rate of return of 43%, and a payback period of 1.2 years.
