Franco-Nevada takes strategic stake in Skeena Resources

Franco-Nevada (TSX: FNV) is acquiring 1.47 million flow-through common shares in Skeena Resources (TSX: SKE; NYSE: SKE) at $21 per share in a non-brokered private placement. After the deal closes, Franco-Nevada will own 2.25% of Skeena.

Skeena plans to use the $30.9 million in proceeds to complete infill and exploration drilling at its Eskay Creek gold and silver project in northwestern British Columbia’s Golden Triangle, about 83 km northwest of Stewart.

When in production as an underground mine between 1994 and 2008, Eskay was the highest-grade gold mine in the world. The mine produced 3.3 million ounces of gold and 160 million ounces of silver at average grades of 45 grams gold per tonne and 2,224 grams silver per tonne.

Skeena completed a prefeasibility study in July 2021. The study envisioned putting Eskay back into production as an open pit operation that would produce 352,000 gold-equivalent ounces over a mine life of 9.8 years at an all-in sustaining cost of US$548 per ounce.

The study, which used base case metal prices of US$1,550 per oz. gold and US$22 per oz. silver, forecast an after-tax net present value at a 5% discount rate of $1.4 billion and a post-tax internal rate of return of 56%.

The company plans to release a feasibility study in the first quarter of 2022.

The project has proven and probable reserves of 26.4 million tonnes grading 3.37 grams gold per tonne and 94 grams silver per tonne (4.57 grams gold-equivalent per tonne) for contained metal of 2.87 million oz. of gold and 80.2 million oz. silver for 3.88 million gold-equivalent ounces.

Eskay Creek is a precious metal-rich volcanogenic massive sulphide (VMS) deposit. Exploration at Eskay began in 1932 and in 1988, the 21A and 21B zones were discovered, which led to the opening of the Eskay Creek mine in 1994.

In connection with the private placement, Skeena is granting Franco-Nevada a right of first refusal over the sale of a 0.5% net smelter return (NSR) royalty over the project, matching the portion of the existing Barrick Gold (TSX: ABX; NYSE: GOLD) royalty that can be bought back by the company.

If Skeena has not sold the royalty to Franco-Nevada or a third party by October 2, 2023, Franco-Nevada will have the right to purchase the royalty for $22.5 million for a 30-day period.

In addition, upon closing of the offering, Skeena and Franco-Nevada will enter into an amendment to the terms of their existing royalty agreement such that it will cover the same tenures as are covered in the existing Barrick royalty agreement. Skeena has the right to buy down a 0.5% NSR royalty (from a 1.0% NSR royalty) that is currently held by Barrick, for a payment of $17.5 million, until October 2, 2022.