On today’s TSX Breakouts report, there are 37 stocks on the positive breakouts list (stocks with positive price momentum), of which nearly half of the names are gold stocks, and 50 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a gold stock that is on the positive breakouts list – Skeena Resources Ltd. (SKE-T).
Year-to-date, the share price is up 36 per cent, making it the 22nd best performing stock out of 255 stocks in the S&P/TSX SmallCap Index. Analysts anticipate the positive price momentum will continue. The stock has a unanimous buy call from 10 analysts and a one-year expected return topping 60 per cent.
A brief outline on Skeena is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Headquartered in Vancouver, Skeena is an exploration and development company with operations located in northwest B.C. Management is focused on redeveloping its flagship Eskay Creek gold-silver mine with production anticipated to begin in 2026.
The Eskay Creek project was previously owned by Barrick Gold Corp., and the mine produced 3.3 million ounces of gold between 1994 and 2008 . When in production, it was the highest-grade gold mine worldwide. In 2008, the mine closed.
In July 2020, Skeena bought 100 per cent of the Eskay Creek project.
In 2017, Skeena bought the past-producing Snip mine also from Barrick. Between 1991 and 1999, the Snip mine produced roughly 1 million ounces of gold. The Snip gold project is located 40 kilometers west of Eskay Creek.
Based on a 2022 feasibility study for Eskay Creek, management’s base case scenario calls for average after-tax annual free cash flow of $293-million with a gold price assumption of US$1,700 an ounce and silver price of U.S$19 an ounce suggesting an after-tax payback of one year and an after-tax internal rate of return (IRR) of 50 per cent. All-in sustaining costs (AISC) are low at US$652 an ounce.
The mine life is nine years, but management believes this will increase. To bring this mine back into production, management has estimated pre-production capital expenditures of $592-million. Management’s near-term objectives are to obtain construction and operating permits, and advance construction on site based on existing permits. Management targets production to begin at Eskay Creek in early 2026.
Meanwhile, management is continuing its exploration drilling program with an update in the 21A West Zone at Eskay Creek expected this month and an updated resource on its 100-per-=cent owned Snip gold project is anticipated in the third quarter.
The chief executive officer Randy Reichert was formerly at B2Gold Inc. (BTO-T), where he held the position as vice-president of operations and joined Skeena in April 2022.
In January of 2023, Shane Williams, the chief operating officer, departed from the company after working at Skeena for nearly three years. A replacement has yet to be announced and the CEO is temporarily assuming these responsibilities.
Also in January., the company completed a $27 million royalty sale with Franco-Nevada Corp. (FNV-T). Skeena granted a 0.5-per-cent net smelter returns royalty on Eskay Creek to Franco-Nevada.
Investment thesis
- Low-risk mining jurisdiction with operations in Canada.
- High-grade gold ore. Management notes that this really makes Skeena a standout with about three times the grade of most open-pit gold mines (i.e. high-grade ore suggests there is high gold concentration).
- Open-pit operations with low AISC costs of Us$652 per ounce.
- Access to infrastructure already in place, like roads and power.
- The 2022 feasibility study indicated average annual gold production of 431,000 ounces over the first five years. Over the life of the mine, gold production is expected to total 3.2 million ounces along with silver production of 66.7 million ounces.
- The company will need to raise money to fund the Eskay Creek project.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
This small-cap stock with a market capitalization of $765-million is well covered by the Street. The stock has a unanimous buy recommendation from 10 analysts.
The firms providing research coverage on the company are as follows in alphabetical order: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Clarus Securities, Desjardins Securities, Raymond James, RBC Dominion Securities, Scotiabank, Sprott Capital Partners, and Velocity.
Revised recommendations
In April, three analysts raise their target prices
- BMO’s Andrew Mikitchook to $16 to $15.
- RBC’s Michael Siperco to $15 from $14.
- Scotiabank’s Ovais Habib to $16.50 from $16.
Valuation
The stock is commonly valued on a price-to-net asset value basis.
The average one-year target price is $15.76, implying the stock price may appreciate 61 per cent over the next 12 months. Target prices are concentrated in the $16 to $17 range. Individual target prices are: $12 (from Sprott’s Brock Salier), $15, four at $16, two at $16.50, $16.85, and $17 (from CIBC’s Allison Carson).
Insider transaction activity
Year-to-date, one insider has reported trading activity in the public market.
On March 27, executive chairman Walter Coles sold 10,000 shares at a price per share of $7.534 with 795,425 shares remaining in this particular account. Proceeds from this sale totaled over $75,000, excluding commission charges.
Between Jan. 30 and Feb. 1, Mr. Coles sold a total of 40,100 shares at an average price per share of approximately $8.01. Proceeds exceeded $321,000, not including trading fees.
Mr. Coles is the company’s former president and chief executive officer.
Chart watch
The share price can be very volatile. Between April 2022 and July 2022, the stock price plunged to below $6 (closed at $5.92 on July 15) from the mid-teen’s (closed at $14.30 on April 1). The price of gold was under pressure at the time but only declined 12 per cent during this time frame.
Year-to-date, the share price is up 36 per cent, making it the 22nd-best performing stock out of 255 stocks in the S&P/TSX SmallCap Index.
In terms of key technical resistance and support levels, the stock is approaching initial resistance between $10 and $10.50. After that, there is a ceiling of resistance around $12. Looking at the downside, there is technical support around $8, near its 50-day moving average (at $8.04). Failing that, there is support around $6.
ESG Risk Rating
Looking at three risk providers, Sustainalytics, MSCI, and Bloomberg, Skeena currently does not have an environmental, social and governance (ESG) risk rating.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
This report should not be considered an investment recommendation.
Jennifer Dowty