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Skeena Resources Ltd (3)
Symbol SKE
Shares Issued 115,289,676
Close 2019-11-07 C$ 0.64
Recent Sedar Documents

Skeena pegs Eskay Creek's NPV at $638-million

2019-11-07 12:26 ET - News Release

Mr. Walter Coles Jr. reports

SKEENA DELIVERS ROBUST PROJECT ECONOMICS FOR ESKAY CREEK: AFTER-TAX NPV5% OF C$638M, 51% IRR AND 1.2 YEAR PAYBACK

Skeena Resources Ltd. has released the initial preliminary economic assessment completed by Ausenco Engineering Canada Inc., supported by SRK Consulting (Canada) and AGP Mining Consultants, for the Eskay Creek gold-silver project located in the Golden Triangle of British Columbia.

Eskay Creek 2019 PEA highlights:

  • High-grade open-pit averaging 3.23 grams per tonne gold, 78 g/t silver (4.17 g/t gold equivalent) (diluted);
  • After-tax net present value, 5 per cent, of $638-million ($491-million (U.S.)) and 51 per cent internal rate of return at $1,325 (U.S.) per ounce Au and $16 (U.S.) per ounce Ag;
  • After-tax payback period of 1.2 years preproduction capital expenditures of $303-million ($233-million (U.S.));
  • After-tax NPV:capex ratio of 2.1:1;
  • Life of mine average annual production of 236,000 ounces Au, 5,812,000 ounces Ag (306,000 ounces AuEq);
  • LOM all-in sustaining costs of $983 per ounce ($757 (U.S.) per ounce) AuEq recovered;
  • LOM cash costs of $949 per ounce ($731 (U.S.) per ounce) AuEq recovered;
  • 6,850-tonne-per-day mill and flotation plant producing saleable concentrate.

Skeena's chief executive officer, Walter Coles, commented: "Eskay Creek was a remarkable discovery that became an extraordinary underground mine in 1994 and produced until 2008. This PEA demonstrates that Eskay Creek still has a bright future ahead, revitalized as an open-pit gold and silver mine, with the additional possibility for underground mining. The project has the potential to produce an average of 306,000 gold equivalent ounces per year with a diluted mill feed grade of 4.17 grams per tonne gold equivalent. Also, as a brownfield site, Eskay Creek benefits from tremendous infrastructure installed by the previous operators. Finally, by creating a gold concentrate rather than dore, we are able to keep initial capital costs very low, at $233-million (U.S.), relative to the amount of precious metals produced; this also simplifies and reduces technical risks for the project."

PEA overview

The 2019 Eskay Creek PEA considers an open-pit mine with on-site treatment of the mined material by conventional milling and flotation to recover a gold-silver concentrate for provision to third party smelters. The mine will be an owner-operated, standard truck-and-shovel open pit, with a leased mining fleet. At present, no contributions from previously reported underground resources are incorporated into this study. The processing capacity of 6,850 tonnes per day will result in a production lifespan of 8.6 years. An additional 1.5 years of prestripping, stockpiling and mine access development is planned prior to the processing facility becoming fully operational in year 1. The PEA leverages Eskay Creek's extensive existing infrastructure, including all-weather access roads, previously permitted tailing storage facilities, and proximity to the recently commissioned 195-megawatt hydroelectric facilities and linked power grid.

The PEA is derived from the company's pit-constrained resource estimate (Feb. 28, 2019), and does not include results from the recently initiated and continuing 2019 phase I infill drilling program. The effective date of the PEA is Nov. 7, 2019, and a technical report will be filed on the company's website and SEDAR within 45 days of this disclosure.

Mineral resources are not mineral reserves and do not have demonstrated economic viability. The PEA is preliminary in nature and includes inferred mineral resources that are too speculative to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that PEA results will be realized.

    2019 ESKAY CREEK 2019 PEA DETAILED PARAMETERS AND OUTPUTS

Assumptions

Gold price (US$)                                          $1,325
Silver price (US$)                                           $16
Exchange rate (US$/$)                                       0.77
Discount rate                                                 5%
Royalties                                                     1%
Contained metals
Contained gold ounces (koz)                                2,212
Contained silver ounces (koz)                             53,404
Contained AuEq ounces (koz)                                2,857
Mining
Mine life (years)                                            8.6
Strip ratio (waste:mineralization)                         7.2:1
Total tonnage mined (t)                                  175,270
Total mineralized material mined (t)                      21,307
Processing
Processing throughput (TPD)                                6,850
Average diluted gold grade (g/t)                            3.23
Average diluted silver grade (g/t)                            78
Average diluted gold equivalent grade (g/t)                 4.17
Production
Gold recovery                                              91.1%
Silver recovery                                            92.4%
LOM gold production (koz)                                  2,022
LOM silver production (koz)                               49,872
LOM gold equivalent production (koz)                       2,624
LOM average annual gold production (koz)                     236
LOM average annual silver production (koz)                 5,812
LOM average annual gold equivalent production (koz)          306
Operating costs
Mining cost ($/t mined)                                    $3.44
Mining cost ($/t milled)                                  $26.32
Processing cost ($/t milled)                              $21.64
G&A cost ($/t milled)                                      $6.06
Total operating cost ($/t milled)                         $54.03
Cash costs and AISC 
LOM cash cost (US$/oz Au) net of silver byproduct           $582
LOM cash cost (US$/oz AuEq) co-product                      $731
LOM AISC (US$/oz Au) net of silver byproduct                $615
LOM AISC (US$/oz AuEq) co-product                           $757
Capital expenditures 
Preproduction capital expenditures ($M)                     $303
Sustaining capital expenditures ($M)                         $27
Reclamation cost ($M)                                        $52
Economics 
After-tax NPV (5%) ($M)                                     $638
After-tax IRR                                                51%
After-tax payback period (years)                             1.2
After-tax NPV:capex ratio                                  2.1:1
Pre-tax NPV (5%) ($M)                                       $993
Pre-tax IRR                                                  63%
Pre-tax payback period (Years)                               1.1
Pre-tax NPV:capex ratio                                    3.3:1
Average annual after-tax free cash flow (year 1-9) ($M)     $147
LOM after-tax free cash flow ($M)                           $959

Sensitivities

After-tax economic sensitivities to commodity prices are presented in the sensitivities table, illustrating the effects of varying gold and silver prices as compared with the base case. Additional project sensitivities will be presented in the technical report.

            AFTER-TAX NPV (5 PER CENT) AND IRR SENSITIVITIES TO COMMODITY PRICES

                                                          Lower case  Base case  Higher case

Gold price (US$/oz)                                           $1,200     $1,325       $1,500     
Silver price (US$/oz)                                            $14        $16          $18        
After-tax NPV (5 per cent) ($M)                                 $453       $638         $878       
After-tax IRR ( per cent)                                        40%        51%          63%        
After-tax payback (Years)                                        1.6        1.2          0.9        
Average annual after-tax free cash flow (years 1-9) ($M)        $117       $147         $187       

Eskay Creek mineral resource estimate

The company's current mineral resource estimate (MRE, effective date of Feb. 28, 2019) completed by SRK Consulting (Canada) forms the basis for this PEA. The MRE does not include drilling results from the company's recently initiated and continuing 2019 phase I infill program.

                 PIT CONSTRAINED MINERAL RESOURCE STATEMENT
                     REPORTED AT 0.7 G/T AUEQ CUT-OFF

                                  Grade              Contained ounces
                 Tonnes  AuEq   Au   Ag      AuEq        Au        Ag      
                  (000)   g/t  g/t  g/t  oz (000)  oz (000)  oz (000)

Total indicated  12,650   5.8  4.3  110     2,340     1,740    44,660  
Total inferred   14,420   2.9  2.3   47     1,340     1,050    21,720  

         UNDERGROUND MINERAL RESOURCE STATEMENT REPORTED AT A
                         5.0 G/T AUEQ CUT-OFF

                                  Grade              Contained ounces
                 Tonnes  AuEq   Au   Ag      AuEq        Au        Ag      
                  (000)   g/t  g/t  g/t  oz (000)  oz (000)  oz (000)

Total indicated     819   8.2  6.4  139       218       169     3,657   
Total inferred      295   8.2  7.1   82        78        68       778     

Mining overview

An open-pit mining scenario is the basis for this PEA; underground precious metal resource contributions are not being considered at this time. The owner-operated, leased mining fleet will utilize conventional truck-and-shovel methods with 22-cubic-metre shovels and 142-tonne haul trucks. Support equipment comprises track dozers, graders and hydraulic excavators; additional support equipment to maintain production during seasonal periods of high snowfall has also been incorporated.

The mine designs and scheduling were engineered to provide 2.5 megatonnes per year of mineralization to the 6,850 tonnes per day process plant. A total of 21.3 megatonnes of diluted mill feed averaging 3.23 g/t gold and 78 g/t silver (4.17 g/t AuEq) is expected to be processed over the life of mine from the main pit area and a smaller satellite pit hosting the 22 zone. Mill feed will be trucked to a primary crusher located to the west of the main pit and then conveyed overland two kilometres to the process facility. Waste totalling 154 megatonnes will be stored in a dump adjacent to the main and satellite open pits with a portion backfilled into the pit as the mining sequence advances toward the north. Open-pit mining dilution has been factored at 15 per cent.

Conservative pit slopes were applied to the mine design with recognition of areas that exhibit lower rock quality. Default interramp angles (IRA) are 42 degrees throughout the hanging-wall andesites and foot-wall rhyolites, with 32-degree IRA slope allowance in the less-competent mudstones. Batter angles of 65 degrees have been applied throughout the entire design.

Metallurgical optimizations

The former Eskay Creek mine operated over 14 years from 1994 and produced approximately 3.3 million ounces of gold and 160 million ounces of silver, either in flotation concentrate, with average grades of 45 g/t Au and 2,224 g/t Ag, or as direct shipped ore (DSO).

To support this PEA, metallurgical test work was conducted by Blue Coast Research using recently drilled samples from the 21A, 21B and 22 zones, which represent a significant proportion of the open-pit mine plan. Test work included comminution, whole-ore leaching with gravity recovery as well as flotation of a bulk sulphide concentrate. Low-recovery cyanide leach extractions were observed in the test work, attributable to the free gold occurring as fine particles associated with sulphide minerals. In addition, in this test work, gravity concentration did not increase the overall gold recovery.

The 2019 metallurgical program has focused on optimizing bulk sulphide flotation, resulting in higher recoveries and lower mass pull than was historically realized at Eskay Creek during its previous operation. Flotation tests were performed on samples over a range of gold and silver head grades to generate recovery relationships, which were used to estimate the annual concentrate production over the mine life. The results indicate that at an average head grade of 3.2 g/t gold and 78 g/t silver, recoveries of 91 per cent for gold and 92 per cent for silver were estimated, with production of a saleable concentrate containing 25 g/t Au, 604 g/t Ag, 620 parts per million mercury, 0.71 per cent arsenic and 1.25 per cent antimony.

Processing overview

Run-of-mine (ROM) material is trucked from the mine and either stockpiled or direct tipped into the primary crusher. Primary crushed feed material is in turn conveyed overland two km to the mill facility and stacked onto a covered coarse stockpile. The ROM material is considered relatively competent with a design competency measurement of 32, and bond rod and ball mill work indices of 21.0 kilowatts per hour per tonne and 19.4 kilowatts per hour per tonne, respectively. To provide the target particle size of P80 75 microm, the comminution circuit comprises a 3.3-megawatt semi-autogenous grinding (SAG) mill, 7.9 m diameter by 3.7 m effective grinding length and a six-megawatt ball mill, 6.1 m diameter by 8.8 m length. A pebble-crushing circuit is also included. Ground material is processed through a conventional flotation circuit including rougher/scavenger tank cells. Rougher-scavenger concentrate is subsequently ground to a target size of P80 20 microm prior to multiple stages of cleaning to produce a gold-silver concentrate. Ultimately, flotation tailings are pumped to the existing tailings storage facility for disposal. Flotation concentrate is thickened and filtered, and trucked to the port at Stewart, B.C., for loading onto ships and transportation to third party smelters worldwide.

Concentrate marketing studies

Multiple marketing assessments have been completed to support this PEA, which confirm that Eskay Creek concentrate, at a target grade of 25 g/t Au, is readily saleable. The preferred preliminary contract terms for the concentrate have been provided by Chinese smelters, however multiple off takes are available. Smelters onshore and within Europe have also been identified as potential markets, however, they may apply higher penalties for non-payable elements. The company has been offered a term sheet for the entire concentrate production, which has been used as the basis for the financial model, and includes gold and silver payabilities, industry-standard treatment and refining charges, and penalties for impurities; antimony is not considered to be a payable element at this time.

Capital costs

                     PROJECT CAPITAL COST ESTIMATES ($M)
                     (Totals may differ due to rounding)

                                 Contingency  Initial  Sustaining  LOM total

Mine                                                                
Prestripping                                      $62          --        $62      
Mining equipment                                  $14          $6        $20      
Mine capital                                       $7          $3         $9       
Subtotal mine                             $4      $83          $9        $91      
Processing                                                          
Bulk earthworks                                    $7          --         $7       
Processing                                        $74          $7        $81      
Reagents and plant services                        $7          $1         $8       
Tailings and water treatment                      $19          $2        $21      
Onsite infrastructure                             $22          $2        $23      
Subtotal Processing                      $21     $129         $12       $141     
Infrastructure                                                      
Power                                             $13          --        $13      
TSF, water supply & treatment                      $2          $4        $6       
Subtotal infrastructure                   $5      $15          $4        $19      
Total directs                                    $226         $24       $250     
Indirects                                 $7      $27                    $27      
Total directs and indirects                      $253         $24       $277     
Owner's costs                             $4      $10                    $10      
Total excluding contingency                      $263         $24       $287     
Project contingency                      $40                   $3        $43      
Subtotal including contingency                   $303         $27       $330     
Closure                                            --         $52        $52      
Total                                            $303         $79       $382     
  

Environmental and permitting considerations

Eskay Creek represents a closed mine with existing permits for mine discharge and waste disposal. The site has been maintained in good standing, and environmental monitoring has been continuing during operations and since the site was closed in 2008. There is a substantial database of environmental information for the site and region spanning almost 30 years. To accommodate the mine design contemplated by the PEA, updated environmental assessment and mine permits will be required. The company is currently performing a gap analysis of existing environmental data to identify additional data needs with the intent of carrying out environmental baseline studies to advance the permitting process.

Community relations

Eskay Creek has maintained a long-standing relationship with the Tahltan Nation. Previous operators maintained agreements with the Tahltan, which included provisions for training, employment and contracting opportunities. The company has been working in the Tahltan territory since 2016 and has developed a strong working relationship with the nation. Skeena also maintains formal agreements with the Tahltan central government, which guide communications, environmental practices, and contracting and employment opportunities for projects in Tahltan territory. Skeena participates in the B.C. regional mining alliance (BCRMA), which is a partnership between first nations, the B.C. government, AME BC (Association of Mineral Exploration B.C.) and exploration companies operating in the Golden Triangle region of B.C. The BCRMA provides a platform for all parties to collaborate in communications with potential investment partners on opportunities in the region.

Project opportunities and value enhancements

The 2019 PEA clearly demonstrates that Eskay Creek has the potential to become an economically viable project. Additional opportunities and next steps include:

  • Continued drill conversion of inferred resources to the measured and indicated categories;
  • Potential for expansion and upgrading of the existing pit constrained and inclusion of underground resources;
  • Mine scheduling investigations allowing for the further optimization of blending scenarios;
  • Supplementary metallurgical optimizations including deposit-wide variability testing;
  • Geotechnical investigations to complement and potentially enhance the current pit slope designs;
  • Gap analyses and environmental baseline studies to support expedited permitting;
  • Further optimization of water management infrastructure.

Qualified persons

In accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects, Paul Geddes, PGeo, vice-president of exploration and resource development, is the qualified person for the company and has prepared, validated and approved the technical and scientific content of this news release.

Sheila Ulansky, PGeo, senior resource geologist for SRK Consulting, is an independent qualified person as defined by NI 43-101, and has reviewed and approved the contents of this news release. Ms. Ulansky is responsible for the 2019 mineral resource estimate for the Eskay Creek project.

Robin Kalanchey, PEng, director, minerals and metals -- Western Canada, for Ausenco, is an independent qualified person as defined by NI 43-101, and has reviewed and approved the contents of this news release. Mr. Kalanchey is responsible for processing, process and infrastructure capital, and operating cost estimation, financial analysis and marketing.

Gordon Zurowski, PEng, principal mining engineer for AGP Mining, is an independent qualified person as defined by NI 43-101, and has reviewed and approved the contents of this news release. Mr. Zurowski is responsible for mine capital and operating cost estimation, and supervision of the mine design.

Adrian Dance, PEng, principal consultant (metallurgy) for SRK Consulting, is an independent qualified person as defined by NI 43-101, and has reviewed and approved the contents of this news release. Dr. Dance is responsible for mineral processing and metallurgical testing.

The company strictly adheres to CIM best practices guidelines in conducting, documenting and reporting the exploration and development activities on its projects.

About Skeena Resources Ltd.

Skeena is a junior Canadian mining exploration company focused on developing prospective precious and base metal properties in the Golden Triangle of northwest B.C. The company's primary activities are the exploration and development of the pastproducing Snip mine and the Eskay Creek mine, both acquired from Barrick. In addition, the company has completed a PEA on the GJ copper-gold porphyry project.

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