One of Canada’s highest grade gold mines took another step closer to being resurrected under new ownership this week, after Vancouver junior miner Skeena Resources (TSX-V:SKE) inked a deal with Barrick Gold (TSX: ABX, NYSE:GOLD) to fully acquire the Eskay Creek gold-silver mine.
The Eskay Creek mine, which is located in the Golden Triangle of northwest B.C., operated as an underground gold mine from 1988 to 1994 before shutting down, due to low gold prices.
It was said to have some of the highest grades of gold in Canada at the time, as well as being a significant silver producer, with smaller amounts of zinc and lead.
Throughout its lifetime, Eskay Creek produced 3.3 million ounces of gold at grades of 45 grams per tonne, and 160 million ounces of silver at 2,224 grams per tonne, according to Skeena Resources.
Three years ago, Skeena concluded an agreement with Barrick that would allow Skeena to eventually acquire 100% of the former underground mine, with the aim of restarting it as an open-pit mine, and has spent $25 million to date on proving out the mine’s potential new resources.
Barrick had a back-in right that would have allowed it to buy back 51%. But this week, the two companies signed an agreement that, when concluded, will give Skeena 100% ownership of Eskay Creek.
Under terms of the deal, Barrick will receive 22.5 million units in Skeena, comprised of one common share and a half warrant.
That will give Barrick a 12.4% ownership in Skeena, with options to increase it to 17.2% on the exercise of warrants. Barrick will also get a 1% net smelter return royalty on gold and silver produced.
In April, Skeena raised $33 million in a flow-through share offering, and in June it announced a summer drilling program as part of a new preliminary feasibility study.
"Skeena is well financed with almost C$50 million of cash and we continue to believe there are meaningful opportunities to increase the grade and size of this project with aggressive exploration drilling," the company said in a news release.
Gold prices were at around US$900 per ounce in the late 1980s when the Eskay Creek mine went into production, and had dropped to about US$400 per ounce in 1994 when it was shut down.
This week, gold prices hit US$2,000 per ounce, as investors seek safe havens during the current pandemic-induced recession.
Since the beginning of this year, Skeena’s stock has more than tripled in value, from $0.73 per share on January 3 to $2.89 as of Thursday, August 6
“We were encouraged by the positive market reaction to the announcement of the binding term sheet in respect to the Eskay Creek transaction with Barrick and are delighted to now announce the signing of the Definitive Agreement,” Skeena CEO Walter Coles Jr. said in a press release.