Skeena(SKE) - 2024 Q2 - Quarterly Report

Condensed Interim Consolidated Financial Statements This section presents the unaudited condensed interim consolidated financial statements and accompanying notes for Skeena Resources Limited Financial Statements This section presents the unaudited condensed interim consolidated financial statements for Skeena Resources Limited, including the statements of financial position, loss and comprehensive loss, changes in shareholders' equity, and cash flows for the three and six months ended June 30, 2024 and 2023 Condensed Interim Consolidated Statements of Financial Position This statement provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates Balance Sheet Highlights (June 30, 2024 vs. December 31, 2023) | Metric | June 30, 2024 (CAD '000) | December 31, 2023 (CAD '000) | Change (CAD '000) | % Change | | :-------------------------------- | :-------------------------- | :---------------------------- | :---------------- | :--------- | | Total Assets | 248,435 | 194,987 | 53,448 | 27.41% | | Cash and cash equivalents | 127,261 | 91,135 | 36,126 | 39.64% | | Exploration and evaluation interests | 70,641 | 62,414 | 8,227 | 13.18% | | Total Liabilities | 78,313 | 70,452 | 7,861 | 11.16% | | Current portion of flow-through share premium liability | 11,831 | 3,137 | 8,694 | 277.14% | | Total Shareholders' Equity | 170,122 | 124,535 | 45,587 | 36.60% | Condensed Interim Consolidated Statements of Loss and Comprehensive Loss This statement details the company's financial performance, including expenses and net loss, over specific interim periods Loss and Comprehensive Loss (Three Months Ended June 30) | Metric | June 30, 2024 (CAD '000) | June 30, 2023 (CAD '000) | Change (CAD '000) | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Exploration and evaluation expenses | 27,260 | 14,677 | 12,583 | 85.73% | | Change in fair value of convertible debenture | 1,973 | — | 1,973 | N/A | | Share-based payments | 744 | 2,352 | (1,608) | -68.37% | | Loss for the period | (34,985) | (19,486) | (15,499) | 79.54% | | Loss per share – basic and diluted | (0.38) | (0.24) | (0.14) | 58.33% | Loss and Comprehensive Loss (Six Months Ended June 30) | Metric | June 30, 2024 (CAD '000) | June 30, 2023 (CAD '000) | Change (CAD '000) | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Exploration and evaluation expenses | 47,307 | 25,729 | 21,578 | 83.87% | | Change in fair value of convertible debenture | 3,153 | — | 3,153 | N/A | | Share-based payments | 3,745 | 4,512 | (767) | -17.00% | | Loss for the period | (62,403) | (36,229) | (26,174) | 72.25% | | Loss per share – basic and diluted | (0.69) | (0.45) | (0.24) | 53.33% | Condensed Interim Consolidated Statements of Changes in Shareholders' Equity This statement outlines the movements in the company's equity accounts over the reporting period Shareholders' Equity Changes (December 31, 2023 to June 30, 2024) | Item | Amount (CAD '000) | | :------------------------------------------ | :----------------- | | Balance December 31, 2023 | 124,535 | | Private placement | 122,750 | | Share issue costs | (1,085) | | Flow-through share premium | (20,000) | | Share-based payments | 6,126 | | Loss for the period | (62,403) | | Balance June 30, 2024 | 170,122 | Condensed Interim Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (Six Months Ended June 30) | Activity | June 30, 2024 (CAD '000) | June 30, 2023 (CAD '000) | Change (CAD '000) | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Net cash used in operating activities | (45,163) | (32,380) | (12,783) | 39.48% | | Net cash used in investing activities | (11,855) | (5,068) | (6,787) | 133.93% | | Net cash provided by financing activities | 93,612 | 70,292 | 23,320 | 33.18% | | Change in cash and cash equivalents | 36,126 | 32,844 | 3,282 | 9.99% | | Cash and cash equivalents, end of period | 127,261 | 73,446 | 53,815 | 73.27% | Notes to the Condensed Interim Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, covering the company's operations, accounting policies, financial instruments, exploration activities, recent financing, capital structure, and contingencies Nature of Operations This note describes the company's primary business activities and its going concern considerations - Skeena Resources Limited's principal business activity is the exploration and evaluation of mineral properties focused in British Columbia, Canada[10] - On June 24, 2024, the Company entered into binding commitments with Orion Resource Partners for a construction financing package (private placements, a Gold Stream, and a Senior Secured Term Loan facility) for the development and construction of the Eskay Project[11] - The Company's ability to continue as a going concern is dependent upon successful execution of its business plan, including bringing the Eskay Creek project to profitable operation, and securing further financing if current facilities are insufficient[12] Basis of Presentation This note outlines the accounting principles and significant estimates used in preparing the financial statements Statement of Compliance This section confirms adherence to International Accounting Standard 34 for interim financial reporting - The unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 (IAS 34)[13] - Accounting policies applied are consistent with those in the Company's audited annual consolidated financial statements as at and for the year ended December 31, 2023, except as disclosed in Note 3[14] Significant Accounting Estimates and Judgments This section highlights key areas requiring management's judgment and estimation in financial reporting - Critical accounting estimates include the fair values of derivatives and other financial instruments, particularly the stream derivative liability, which involves a high degree of estimation uncertainty associated with inputs like forecast gold production, gold prices, volatility, and credit spread[16][17] New Standards, Amendments and Interpretations Adopted This note details the impact of recently adopted and upcoming accounting standards on the financial statements New Accounting Policy Adopted in 2024 This section describes the new accounting policy for derivatives implemented in the current year - Derivatives are initially recognized at fair value and subsequently re-measured at fair value at each statement of financial position date, with changes recognized in the consolidated statement of loss[18] Adoption of New Accounting Standards in 2024 This section outlines the new accounting standards adopted in 2024 and their financial impact - The Company adopted amendments to IAS 7 and IFRS 7 related to supplier finance arrangements effective January 1, 2024, which had no material impact on the financial statements[20][21] New Standards and Interpretations Not Yet Adopted in 2024 This section identifies future accounting standards and their potential impact on the company's financial reporting - The IASB issued IFRS 18, Presentation and Disclosure in Financial Statements, effective for annual reporting periods beginning on or after January 1, 2027, which the Company is currently evaluating for impact[22][23] Financial Instruments and Risk Management This note describes the company's financial instruments and its strategies for managing associated risks Carrying Values and Fair Value Hierarchy This section presents the valuation of financial instruments and their classification within the fair value hierarchy Financial Instrument Carrying Values (June 30, 2024 vs. December 31, 2023) | Financial Instrument | Category | June 30, 2024 (CAD '000) | December 31, 2023 (CAD '000) | | :-------------------------------- | :----------------------- | :-------------------------- | :---------------------------- | | Cash and cash equivalents | Amortized cost | 127,261 | 91,135 | | Marketable securities | Fair value through profit or loss | 910 | 1,554 | | Receivables | Amortized cost | 27 | 957 | | Deposits | Amortized cost | 3,633 | 2,102 | | Accounts payable | Amortized cost | 21,415 | 16,074 | | Convertible debenture | Fair value through profit or loss | — | 22,775 | - In June 2024, the Company repaid the convertible debenture in full ($25,928,000, including $928,000 of accrued interest) following the completion of project financing[27] Prior to repayment, the fair value of the liability component increased by $1,973,000 (three months ended June 30, 2024) and $3,153,000 (six months ended June 30, 2024) Credit Risk This section details the company's exposure to credit risk and its mitigation strategies - The Company's credit risk is primarily attributable to its cash and cash equivalents, receivables, and deposits, totaling $132,486,000 at June 30, 2024 (December 31, 2023 – $96,462,000)[28] - Credit risk is limited by dealing with high credit quality counterparties, with cash and cash equivalents primarily held at large creditworthy Canadian financial institutions[28] Market Risk This section discusses the company's exposure to market risks, including interest rate, currency, and other price risks - The Company is exposed to interest rate risk on cash and cash equivalents; a 1% increase (decrease) in interest rates at June 30, 2024, would have decreased (increased) net loss before tax by $1,260,000[30] - The Company is exposed to currency risk with US$16,658,000 of cash and cash equivalents; a 1% increase (decrease) in foreign exchange rates at June 30, 2024, would have decreased (increased) net loss before tax by $223,000[31] - Other price risk relates to marketable securities; a 10% decrease in their share price at June 30, 2024, would have resulted in a $91,000 decrease to their carrying value[31] Liquidity Risk This section describes how the company manages its liquidity to meet short-term and long-term financial obligations - The Company manages liquidity risk by forecasting cash flows and anticipating investing and financing activities, with the recently secured construction financing package for Eskay expected to fund capital requirements until commercial production[32][33] Undiscounted Financial Liabilities and Commitments (June 30, 2024) | Category | Less than 1 year (CAD '000) | 1-5 years (CAD '000) | Greater than 5 years (CAD '000) | Total (CAD '000) | | :------------------------------------------ | :-------------------------- | :------------------- | :-------------------------- | :---------------- | | Accounts payable | 21,415 | — | — | 21,415 | | Commitments to spend on exploration and development | 58,004 | 52,953 | — | 110,957 | | Reclamation and mine closure | 33 | 304 | 26,859 | 27,196 | | Leases | 11,851 | 7,635 | 12,058 | 31,544 | | Other liabilities | 712 | 540 | — | 1,252 | | Contractual obligations | 7,224 | — | — | 7,224 | | Total | 99,239 | 61,432 | 38,917 | 199,588 | Exploration and Evaluation Interests This note details the company's investments in mineral exploration and evaluation activities Exploration and Evaluation Assets This section provides a breakdown of capitalized exploration and evaluation expenditures by property Exploration and Evaluation Assets (June 30, 2024 vs. December 31, 2023) | Property | June 30, 2024 (CAD '000) | December 31, 2023 (CAD '000) | | :-------------------------------- | :-------------------------- | :---------------------------- | | Eskay | 53,246 | 44,822 | | Snip | 1,272 | 1,469 | | Other | 16,123 | 16,123 | | Total | 70,641 | 62,414 | - During the six months ended June 30, 2024, the Company incurred and capitalized $7,979,000 relating to the engineering and fabrication of certain mill equipment and preliminary drawings for the future mine plant at Eskay[37] - In April 2024, the Company made the fourth payment for three properties in the Golden Triangle area, consisting of $250,000 in cash and 40,193 common shares[39] Exploration and Evaluation Expenses This section details the expenses incurred in exploration and evaluation activities for the reporting periods Exploration and Evaluation Expenses (Three Months Ended June 30) | Category | June 30, 2024 (CAD '000) | June 30, 2023 (CAD '000) | Change (CAD '000) | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Environmental studies | 8,550 | 3,960 | 4,590 | 115.91% | | Geology, geophysics, and geochemical | 5,948 | 4,235 | 1,713 | 40.45% | | Fieldwork, camp support | 3,832 | 1,833 | 1,999 | 109.06% | | Depreciation | 1,440 | 439 | 1,001 | 228.02% | | Total for the period | 27,260 | 14,677 | 12,583 | 85.73% | Exploration and Evaluation Expenses (Six Months Ended June 30) | Category | June 30, 2024 (CAD '000) | June 30, 2023 (CAD '000) | Change (CAD '000) | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Environmental studies | 15,791 | 7,289 | 8,502 | 116.64% | | Geology, geophysics, and geochemical | 14,199 | 7,970 | 6,229 | 78.16% | | Fieldwork, camp support | 4,798 | 2,525 | 2,273 | 90.02% | | Depreciation | 1,964 | 872 | 1,092 | 125.23% | | Total for the period | 47,307 | 25,729 | 21,578 | 83.87% | Project Financing Package This note outlines the details of the recently secured financing package for the Eskay Project Equity Investment This section describes the equity component of the project financing, including private placements - Orion committed to purchase US$100 million of the Company's common shares[44] As of June 30, 2024, US$75 million has been purchased through a $100 million development flow-through private placement and a $22.75 million common share private placement - The remaining US$25 million of common shares will be purchased by Orion at a later date, with pricing to be set at the time of investment[44] Gold Stream This section details the gold stream agreement, including deposit tranches and delivery obligations - A total deposit of US$200,000,000 is to be provided in five tranches, with the first US$5,000,000 received on July 5, 2024[48] - The Gold Stream entails deliveries of 10.55% of payable gold production from Eskay upon satisfaction of a completion test by September 30, 2027, with the percentage increasing if the test is not met[48] - The Gold Stream is accounted for as a derivative instrument measured at fair value through profit and loss; no amounts related to the Gold Stream were recorded in the financial statements at June 30, 2024, as there were no draws[49] Senior Secured Term Loan This section describes the terms and conditions of the senior secured term loan facility - The facility amount is US$350,000,000 with a maturity date of September 30, 2031, available as a non-revolving multi-draw facility after the US$100 million Gold Stream deposit has been drawn[53] - The loan carries a coupon of 3-month term Secured Overnight Financing Rate plus a margin of 7.75%[53] - The Senior Secured Term Loan is accounted for as a loan commitment until drawn upon, at which point it will be accounted for at amortized cost No amounts were drawn at June 30, 2024[51] Transaction Costs This section outlines the costs incurred in securing the project financing package - Total transaction costs of $4,228,000 were incurred for the Project Financing Package, allocated to private placements ($1,085,000 as share issuance costs), Gold Stream ($1,143,000 expensed), and Senior Secured Term Loan ($2,000,000 recorded as Other Assets)[52] Capital Stock and Reserves This note provides details on the company's share capital, including private placements and share-based payments Private Placements and Bought Deal Offering This section describes recent equity issuances through private placements - On June 24, 2024, the Company closed a non-brokered private placement offering, raising $22,750,000 by issuing 3,418,702 common shares[55] - Also on June 24, 2024, a $100,000,000 non-brokered private placement of 12,021,977 flow-through shares resulted in a $20,000,000 flow-through share premium liability[56] - Share issuance costs of $1,085,000 were incurred in connection with the private placements[57] Tahltan Investment Rights This section details the conversion of Tahltan Investment Rights into common shares - In April 2024, the Company issued the final share payment related to Milestone 4, converting 79,858 Tahltan Investment Rights into 79,858 common shares[59] Share-based Payments This section outlines the company's share-based compensation plans and associated expenses - During the six months ended June 30, 2024, the Company granted 1,172,093 stock options, 533,852 RSUs, and 158,643 DSUs to various directors, officers, employees, and consultants[64] Share-based Payments Expense (Six Months Ended June 30) | Category | June 30, 2024 (CAD '000) | June 30, 2023 (CAD '000) | Change (CAD '000) | % Change | | :---------------- | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Stock options | 1,897 | 1,728 | 169 | 9.78% | | RSUs | 2,618 | 3,975 | (1,357) | -34.14% | | PSUs | 684 | — | 684 | N/A | | DSUs | 600 | 75 | 525 | 700.00% | | Total | 5,799 | 5,778 | 21 | 0.36% | Weighted Average Fair Value per Unit (2024 vs. 2023) | Category | 2024 (CAD) | 2023 (CAD) | | :---------------- | :--------- | :--------- | | Stock options | 2.49 | 4.14 | | RSUs | 6.34 | 8.15 | | DSUs | 5.84 | 6.38 | Supplemental Disclosure with Respect to Cash Flows This note provides additional information on non-cash transactions affecting the company's financial position Non-Cash Transactions (Six Months Ended June 30, 2024) | Transaction | Amount (CAD '000) | | :---------------------------------------------------------- | :----------------- | | Recognition of right-of-use assets and lease liabilities | 9,104 | | Deposits reclassified to exploration and evaluation interests | 5,207 | | Project financing costs in accounts payable and accrued liabilities | 2,595 | | Deposits reclassified to capital assets | 769 | | Depreciation capitalized in exploration and evaluation interests | 673 | | Acquisition of vehicles through loan financing | 615 | Related Party Transactions This note discloses transactions with related parties, including key management compensation Key Management Compensation (Six Months Ended June 30) | Category | June 30, 2024 (CAD '000) | June 30, 2023 (CAD '000) | Change (CAD '000) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Director remuneration | 191 | 163 | 28 | 17.18% | | Officer & key management remuneration | 1,752 | 1,697 | 55 | 3.24% | | Share-based payments | 4,603 | 4,054 | 549 | 13.54% | | Total | 6,546 | 5,914 | 632 | 10.69% | Share-based Payment Expenses to Related Parties (Six Months Ended June 30) | Category | June 30, 2024 (CAD '000) | June 30, 2023 (CAD '000) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Exploration and evaluation expense | 513 | 365 | | General and administrative expense | 4,090 | 3,689 | Contingencies This note describes potential future obligations or assets arising from past events - In July 2024, the British Columbia Court of Appeal overturned previous decisions regarding mineral rights to materials in the Albino Lake Storage Facility, referring the matter back for rehearing[80] The outcome is not expected to affect the carrying value of Eskay