Skeena(SKE) - 2023 Q1 - Quarterly Report

Condensed Interim Consolidated Financial Statements This section presents Skeena Resources Limited's unaudited interim financial statements, including statements of financial position, loss, changes in equity, and cash flows, for the period ended March 31, 2023 Condensed Interim Consolidated Statements of Financial Position Skeena's financial position as of March 31, 2023, shows decreased total assets and equity, mainly from reduced cash and cash equivalents Key Financial Position Metrics (CAD thousands) | Metric | March 31, 2023 (CAD thousands) | December 31, 2022 (CAD thousands) | | :-------------------------------- | :------------------------------- | :-------------------------------- | | Cash and cash equivalents | 21,702 | 40,602 | | Total current assets | 32,235 | 50,124 | | Exploration and evaluation interests | 95,174 | 95,438 | | Total assets | 151,235 | 167,980 | | Total current liabilities | 17,729 | 20,885 | | Total liabilities | 27,228 | 30,753 | | Total shareholders' equity | 124,007 | 137,227 | Condensed Interim Consolidated Statements of Loss and Comprehensive Loss Q1 2023 net loss decreased year-over-year, primarily due to significantly lower exploration and evaluation expenses and a smaller loss on marketable securities Key Loss and Comprehensive Loss Metrics (CAD thousands) | Metric | Three months ended March 31, 2023 (CAD thousands) | Three months ended March 31, 2022 (CAD thousands) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Exploration and evaluation | 11,052 | 20,004 | | Administrative compensation | 1,384 | 563 | | Share-based payments | 2,160 | 1,169 | | Loss (gain) on marketable securities | 365 | (1,794) | | Loss and comprehensive loss for the period | (16,743) | (19,016) | | Loss per share – basic and diluted | (0.22) | (0.29) | Condensed Interim Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $137,227 thousand to $124,007 thousand in Q1 2023, mainly due to the period's loss, partially offset by share-based payments Changes in Shareholders' Equity Components (CAD thousands) | Metric | Balance Dec 31, 2022 (CAD thousands) | Balance March 31, 2023 (CAD thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Capital Stock | 464,029 | 467,216 | | Reserves | 39,879 | 40,215 | | Deficit | (367,931) | (384,674) | | Total Shareholders' Equity | 137,227 | 124,007 | - The company issued 119,785 common shares valued at $1,500,000 upon the achievement of Milestone 1 for Tahltan Investment Rights during Q1 2023[7][41] - Share-based payments contributed $2,438,000 to equity in Q1 2023, compared to $1,912,000 in Q1 2022[7] Condensed Interim Consolidated Statements of Cash Flows Cash and cash equivalents significantly decreased from $40,602 thousand to $21,702 thousand in Q1 2023, driven by cash used in operating and investing activities Cash Flow Activities (CAD thousands) | Cash Flow Activity | Three months ended March 31, 2023 (CAD thousands) | Three months ended March 31, 2022 (CAD thousands) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net cash used in operating activities | (17,809) | (15,579) | | Net cash used in investing activities | (1,973) | (493) | | Net cash provided by financing activities | 882 | 32,598 | | Change in cash and cash equivalents | (18,900) | 16,526 | | Cash and cash equivalents, end of period | 21,702 | 56,839 | - Proceeds from warrant exercises significantly decreased from $30,375,000 in Q1 2022 to $65,000 in Q1 2023[9] Notes to the Condensed Interim Consolidated Financial Statements This section provides detailed notes to the condensed interim consolidated financial statements, covering accounting policies, financial instruments, exploration activities, and related party transactions 1. Nature of Operations Skeena Resources Limited is an exploration-stage mineral property company in British Columbia, requiring additional capital for long-term exploration and the Eskay Creek project - Skeena Resources Limited is primarily engaged in the exploration of mineral properties in British Columbia, Canada, and is currently in the exploration stage[12] - As of March 31, 2023, the Company had $21,702,000 in cash and cash equivalents, sufficient to fund committed exploration and general administrative costs for at least the next twelve months, but not for current levels of exploration activities beyond that[13] - Long-term viability depends on successful execution of its business plan, including bringing the Eskay Creek project to profitable operation, and raising additional capital primarily through share issuances, with future construction financing anticipated through a combination of debt, equity, and other instruments[13] 2. Basis of Presentation These unaudited interim financial statements, prepared under IAS 34, should be read with the 2022 annual statements, maintaining consistent accounting policies and estimates - The financial statements are prepared in accordance with International Accounting Standard 34 (IAS 34), Interim Financial Reporting[14] - Accounting policies and significant accounting estimates and judgments are consistent with those applied in the audited annual consolidated financial statements for the year ended December 31, 2022[15][16] 3. New Standards, Amendments and Interpretations Adopted Effective January 1, 2023, the Company adopted IAS 1 and IFRS Practice Statement 2 amendments, changing disclosure from 'significant' to 'material' accounting policies - The Company adopted amendments to IAS 1 and IFRS Practice Statement 2, effective January 1, 2023, which change the requirement from disclosing 'significant' to 'material' accounting policies[18][19] 4. Financial Instruments and Risk Management The Company's financial instruments include cash, marketable securities, receivables, and payables, exposed to credit, market, and liquidity risks, with geopolitical and inflation factors increasing operational costs Financial Instrument Carrying Values (CAD thousands) | Financial Instrument | Category | March 31, 2023 (CAD thousands) | December 31, 2022 (CAD thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :-------------------------------- | | Cash and cash equivalents | Amortized cost | 21,702 | 40,602 | | Marketable securities | FVTPL | 2,128 | 2,494 | | Receivables | Amortized cost | 164 | 35 | | Deposits | Amortized cost | 3,942 | 2,128 | | Accounts payable | Amortized cost | 3,551 | 10,209 | | Other liabilities | Amortized cost | 2,525 | 2,497 | - Marketable securities (excluding warrants) are measured using Level 1 inputs, while warrants within marketable securities and contingent consideration receivable use Level 3 inputs in the fair value hierarchy[21] - The Company's operations have not been materially negatively affected by global events like the Russia-Ukraine conflict, apart from increasing costs due to higher inflation on material inputs in 2022 and 2023[27] Credit Risk The Company assesses expected credit losses using a probability-weighted model, identifying no material expected credit losses for amortized cost financial instruments - The Company applies IFRS 9 for recognizing expected credit losses, but no material expected credit losses were identified for financial instruments held at amortized cost as of March 31, 2023[21][22] Market Risk Market risk, including interest rate, foreign currency, and other price risk, primarily impacts marketable securities; a 10% decrease would reduce carrying value by $213,000 - A 10% decrease in the share price of marketable securities at March 31, 2023, would lead to a $213,000 decrease in carrying value and an increase in unrealized loss[23] Liquidity Risk Liquidity risk is managed by cash flow forecasting; total undiscounted financial liabilities are $6,201,000, with most ($5,451,000) maturing within one year Undiscounted Financial Liabilities Maturity (CAD thousands) | Maturity Period | Accounts payable (CAD thousands) | Other liabilities (CAD thousands) | Total (CAD thousands) | | :---------------- | :------------------------------- | :-------------------------------- | :-------------------- | | Less than 1 year | 3,551 | 1,900 | 5,451 | | 1-3 years | — | 750 | 750 | | 3-5 years | — | — | — | | > 5 years | — | — | — | | Total | 3,551 | 2,650 | 6,201 | Other Risks Geopolitical conflicts and global economic volatility, including inflation, have increased operational costs, with future impacts remaining uncertain - The Russia-Ukraine conflict and global economic volatility (inflation, supply chain challenges) have increased operational costs for the Company in 2022 and 2023, though direct material negative effects on operations have not occurred to date[25][26][27] 5. Exploration and Evaluation Interests Exploration and evaluation assets totaled $95,174 thousand as of March 31, 2023, with Q1 2023 expenses significantly decreasing to $11,052 thousand, mainly due to reduced Eskay spending Exploration and Evaluation Assets (CAD thousands) | Property | Balance Dec 31, 2022 (CAD thousands) | Balance March 31, 2023 (CAD thousands) | | :---------------- | :----------------------------------- | :----------------------------------- | | Eskay | 78,488 | 78,347 | | KSP | 7,872 | 7,872 | | Kingpin | 3,936 | 3,936 | | Red Chris | 2,871 | 2,871 | | Snip | 959 | 836 | | Sofia | 1,312 | 1,312 | | Total | 95,438 | 95,174 | - In April 2023, Hochschild Mining Holdings Limited terminated its right to earn 60% of the Snip property[31] - Total exploration and evaluation expenses for Q1 2023 were $11,052,000, a significant decrease from $20,004,000 in Q1 2022, with Eskay Creek accounting for the majority of expenses in both periods[33][34] Exploration and Evaluation Assets Exploration and evaluation assets slightly decreased to $95,174 thousand by March 31, 2023, mainly due to closure liability adjustments for Eskay and Snip Exploration and Evaluation Assets by Property (CAD thousands) | Property | Balance Dec 31, 2022 (CAD thousands) | Balance March 31, 2023 (CAD thousands) | | :---------------- | :----------------------------------- | :----------------------------------- | | Eskay | 78,488 | 78,347 | | Snip | 959 | 836 | | Total | 95,438 | 95,174 | Eskay Creek Property, British Columbia, Canada In April 2023, the Company paid $1,400,000 cash to Tudor Gold Corp. for the Eskay North mineral property acquisition - In April 2023, Skeena made a $1,400,000 cash payment to Tudor Gold Corp. for the Eskay North mineral property acquisition[29] Red Chris Properties, British Columbia, Canada In April 2023, the Company paid $250,000 cash and issued 30,413 common shares to Coast Copper Corp. for the Red Chris Properties - In April 2023, Skeena paid $250,000 in cash and issued 30,413 common shares to Coast Copper Corp. for the Red Chris Properties[30] Snip Property, British Columbia, Canada Hochschild Mining Holdings Limited terminated its option to earn 60% of the Snip property in April 2023 - Hochschild Mining Holdings Limited terminated its right to earn 60% of the Snip property in April 2023[31] Exploration and Evaluation Expenses Q1 2023 exploration and evaluation expenses significantly decreased to $11,052 thousand from $20,004 thousand, primarily due to reduced Eskay spending Exploration and Evaluation Expenses by Category (CAD thousands) | Expense Category | Q1 2023 (CAD thousands) | Q1 2022 (CAD thousands) | | :-------------------------------- | :---------------------- | :---------------------- | | Environmental studies | 3,329 | 1,318 | | Geology, geophysics, and geochemical | 3,735 | 5,759 | | Fieldwork, camp support | 692 | 4,628 | | Assays and analysis/storage | 955 | 1,204 | | Total for the period | 11,052 | 20,004 | - No exploration and evaluation expenses were incurred on KSP, Kingpin, and Red Chris properties during Q1 2023[33] 6. Related Party Transactions Related party transactions mainly involve increased key management compensation in Q1 2023, alongside minor salary recoveries and intercompany receivables/payables Key Management Compensation (CAD thousands) | Compensation Type | Q1 2023 (CAD thousands) | Q1 2022 (CAD thousands) | | :-------------------------------- | :---------------------- | :---------------------- | | Director remuneration | 81 | 86 | | Officer & key management remuneration | 854 | 818 | | Termination benefits | 675 | — | | Share-based payments | 1,630 | 1,092 | - Share-based payment expenses to related parties were $1,630,000 in Q1 2023, allocated as $126,000 to exploration and evaluation expense and $1,504,000 to general and administrative expense[35] Key Management Compensation Key management compensation for Q1 2023 increased to $3,240 thousand from $1,996 thousand, driven by termination benefits and higher share-based payments Key Management Compensation Details (CAD thousands) | Compensation Type | Q1 2023 (CAD thousands) | Q1 2022 (CAD thousands) | | :-------------------------------- | :---------------------- | :---------------------- | | Director remuneration | 81 | 86 | | Officer & key management remuneration | 854 | 818 | | Termination benefits | 675 | — | | Share-based payments | 1,630 | 1,092 | Recoveries The Company recovered $4,000 in salary from a company with a common officer in Q1 2023 - Salary recoveries from a company with a common officer amounted to $4,000 in Q1 2023, up from $1,000 in Q1 2022[36] Receivables Receivables from companies with common directors or officers totaled $4,000 as of March 31, 2023 - Receivables from companies with common directors or officers were $4,000 at March 31, 2023, down from $6,000 at December 31, 2022[37] Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities included $1,048,000 due to key management personnel as of March 31, 2023 - Accounts payable and accrued liabilities included $1,048,000 due to key management personnel at March 31, 2023, an increase from $708,000 at December 31, 2022[38] 7. Capital Stock and Reserves Capital stock consists of unlimited common shares; Q1 2023 included Tahltan Investment Rights conversion, RSU grants, and option/warrant exercises - The Company has an unlimited number of authorized voting common shares without par value[39] - As of March 31, 2023, 4,674,257 stock options and 110 warrants were outstanding, with weighted average exercise prices of $10.76 and $2.72, respectively[43] - Subsequent to March 31, 2023, all outstanding and exercisable warrants expired unexercised[43] Tahltan Investment Rights Milestone 1 for Tahltan Investment Rights was met in Q1 2023, converting 119,785 Rights into common shares valued at $1,500,000 - Milestone 1 for Tahltan Investment Rights was met in Q1 2023, converting 119,785 Rights into common shares valued at $1,500,000[41] Share-based Payments Q1 2023 share-based payments included 145,000 RSU grants valued at $1,056,000, vesting over 36 months, with weighted average exercise prices of $7.42 for options and $7.69 for warrants Share-based Payment Instruments Activity (Q1 2023) | Instrument | Outstanding Dec 31, 2022 | Granted Q1 2023 | Exercised Q1 2023 | Cancelled Q1 2023 | Outstanding March 31, 2023 | | :---------------- | :----------------------- | :-------------- | :---------------- | :---------------- | :------------------------- | | Warrants | 12,823 | — | (9,657) | (3,056) | 110 | | RSUs | 1,835,821 | 145,000 | — | (186,515) | 1,794,306 | | Stock Options | 5,033,425 | — | (260,108) | (99,060) | 4,674,257 | - 145,000 RSUs were granted on February 14, 2023, with a fair value of $1,056,000, vesting over a 36-month period[44] - The weighted average share price at the date of exercise for stock options was $7.42 in Q1 2023 (vs. $15.68 in Q1 2022), and for warrants was $7.69 in Q1 2023 (vs. $15.78 in Q1 2022)[42] 8. Supplemental Disclosure with Respect to Cash Flows Q1 2023 non-cash transactions included $142,000 in capital asset additions within accounts payable; no interest or income tax payments were made Non-Cash Transactions (CAD thousands) | Non-Cash Transaction | Q1 2023 (CAD thousands) | Q1 2022 (CAD thousands) | | :-------------------------------- | :---------------------- | :---------------------- | | Capital asset additions included in accounts payable and accrued liabilities | 142 | 587 | - The Company did not make any payments towards interest or income taxes during the three months ended March 31, 2023, or 2022[46] 9. Contingencies The Company accrues legal and tax liabilities when amounts are estimable and probable to require future economic outflow - The Company accrues liabilities for legal and tax matters when the amount is reasonably estimable and settlement is probable to require an outflow of future economic benefits[47]