Skeena(SKE) - 2022 Q2 - Quarterly Report

Condensed Interim Consolidated Financial Statements Condensed Interim Consolidated Statements of Financial Position Total assets slightly decreased to $151,128 thousand at June 30, 2022, driven by lower current assets, partially offset by increased exploration interests Consolidated Statements of Financial Position (Thousands of Canadian Dollars) | Item | June 30, 2022 | December 31, 2021 | | :--------------------------------- | :------------ | :------------------ | | ASSETS | | | | Cash and cash equivalents | $36,486 | $40,313 | | Marketable securities | $617 | $840 | | Receivables | $4,290 | $7,254 | | Prepaid expenses | $2,807 | $5,789 | | Total Current Assets | $44,200 | $54,196 | | Exploration and evaluation interests | $86,921 | $75,531 | | Capital assets | $18,075 | $18,775 | | Total Assets | $151,128 | $154,962 | | LIABILITIES | | | | Accounts payable and accrued liabilities | $13,184 | $12,537 | | Flow-through share premium liability | $6,208 | $12,413 | | Total Current Liabilities | $19,819 | $25,444 | | Provision for closure and reclamation | $3,415 | $5,151 | | Total Liabilities | $23,991 | $31,413 | | SHAREHOLDERS' EQUITY | | | | Capital stock | $416,977 | $361,982 | | Deficit | $(322,744) | $(279,041) | | Total Shareholders' Equity | $127,137 | $123,549 | | Total Liabilities and Shareholders' Equity | $151,128 | $154,962 | Condensed Interim Consolidated Statements of Loss and Comprehensive Loss Net loss for the six months ended June 30, 2022, improved to $43,703 thousand, primarily due to reduced exploration and share-based payment expenses Consolidated Statements of Loss and Comprehensive Loss (Thousands of Canadian Dollars) | Item | For the three months ended June 30, 2022 | For the three months ended June 30, 2021 | For the six months ended June 30, 2022 | For the six months ended June 30, 2021 | | :------------------------------------ | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Administrative salaries | $1,209 | $529 | $1,772 | $1,219 | | Communications | $649 | $328 | $1,202 | $571 | | Consulting | $128 | $1,164 | $254 | $1,890 | | Exploration and evaluation | $22,955 | $23,619 | $42,959 | $52,812 | | Flow-through share premium recovery | $(4,246) | $(4,991) | $(7,114) | $(8,031) | | Loss (gain) on marketable securities | $1,023 | $(2,350) | $(771) | $(1,726) | | Share-based payments | $1,903 | $6,708 | $3,072 | $7,461 | | Net loss and comprehensive loss for the period | $(24,687) | $(25,984) | $(43,703) | $(55,896) | | Loss per share – basic and diluted | $(0.36) | $(0.44) | $(0.65) | $(1.00) | | Weighted average number of common shares outstanding | 69,059,604 | 58,400,736 | 67,447,971 | 55,895,868 | Condensed Interim Consolidated Statements of Changes in Shareholders' Equity Total shareholders' equity increased to $127,137 thousand at June 30, 2022, driven by capital stock increases from acquisitions and exercises, offset by net loss Consolidated Statements of Changes in Shareholders' Equity (Thousands of Canadian Dollars, except shares) | Item | Capital Stock (Shares) | Capital Stock (Amount) | Reserves (Stock Options) | Reserves (Restricted Share Units) | Reserves (Investment Rights) | Reserves (Warrants) | Deficit | Total Shareholders' Equity | | :------------------------------------------------ | :--------------------- | :--------------------- | :----------------------- | :------------------------------- | :--------------------------- | :------------------ | :-------- | :------------------------- | | Balance, December 31, 2021 | 65,392,363 | $361,982 | $23,710 | $198 | $2,500 | $14,200 | $(279,041) | $123,549 | | Acquisition of QuestEx Gold & Copper Ltd. | 1,082,553 | $9,528 | $267 | - | - | $61 | - | $9,856 | | Exercise of options | 456,456 | $3,605 | $(1,198) | - | - | - | - | $2,407 | | Vesting of Restricted Share Units | 48,074 | $200 | - | $(200) | - | - | - | - | | Exercise of warrants | 2,812,500 | $41,701 | - | - | - | $(11,326) | - | $30,375 | | Share issue costs | - | $(39) | - | - | - | - | - | $(39) | | Share-based payments | - | - | $3,879 | $813 | - | - | - | $4,692 | | Loss for the period | - | - | - | - | - | - | $(43,703) | $(43,703) | | Balance, June 30, 2022 | 69,791,946 | $416,977 | $26,658 | $811 | $2,500 | $2,935 | $(322,744) | $127,137 | | Total Liabilities and Shareholders' Equity | 151,128 | 154,962 | | | | | | | Condensed Interim Consolidated Statements of Cash Flows Net cash used in operating activities decreased to $41,231 thousand, while investing activities shifted to a net inflow, and financing activities provided $32,568 thousand Consolidated Statements of Cash Flows (Thousands of Canadian Dollars) | Activity | For the six months ended June 30, 2022 | For the six months ended June 30, 2021 | | :-------------------------------------------------- | :------------------------------------- | :------------------------------------- | | OPERATING ACTIVITIES | | | | Loss for the period | $(43,703) | $(55,896) | | Flow-through share premium recovery | $(7,114) | $(8,031) | | Share-based payments | $4,692 | $8,364 | | Net cash used in operating activities | $(41,231) | $(62,691) | | INVESTING ACTIVITIES | | | | Consideration paid on acquisition of QuestEx Gold & Copper Ltd. | $(18,749) | - | | Cash acquired on acquisition of QuestEx Gold & Copper Ltd. | $5,037 | - | | Proceeds from sale of assets acquired from QuestEx Gold & Copper Ltd. | $19,341 | - | | Net cash provided by (used in) investing activities | $4,836 | $(6,637) | | FINANCING ACTIVITIES | | | | Private placements | - | $21,553 | | Bought deal financing | - | $57,500 | | Proceeds from warrant exercises | $30,375 | - | | Proceeds from option exercises | $2,407 | $6,737 | | Net cash provided by financing activities | $32,568 | $86,901 | | Change in cash and cash equivalents during the period | $(3,827) | $17,573 | | Cash and cash equivalents, beginning of the period | $40,313 | $37,821 | | Cash and cash equivalents, end of the period | $36,486 | $55,394 | | Cash | $26,829 | $20,165 | | Cash equivalents | $9,657 | $35,229 | | Cash and cash equivalents, end of the period | $36,486 | $55,394 | Notes to the Condensed Interim Consolidated Financial Statements 1. Nature of Operations Skeena Resources, an exploration-stage company, relies on share issuances for funding, with key activities including Golden Triangle Transport Corp. incorporation and QuestEx acquisition - Skeena Resources Limited is an exploration-stage company focused on mineral properties in British Columbia, Canada, with its stock trading on TSX, NYSE, and Frankfurt Stock Exchange[10] - The Company's ability to continue as a going concern is dependent on successful execution of its business plan, raising additional capital, or evaluating strategic alternatives for its mineral property interests, with future funding expected primarily through share issuances[11] - On February 23, 2022, the Company incorporated Golden Triangle Transport Corp. for regulatory compliance related to the Eskay Creek property, and on June 1, 2022, it acquired QuestEx Gold & Copper Ltd[12] 2. Basis of Presentation These unaudited interim financial statements adhere to IAS 34, with consistent accounting policies, except for fair value estimation of acquired exploration assets - The financial statements are prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, and do not include all disclosures required for full annual financial statements[13] - Accounting policies are consistent with the most recent annual consolidated financial statements, except for the fair values of exploration and evaluation assets acquired, which are capitalized at their estimated fair value at acquisition[14][15] 3. New Standards, Amendments and Interpretations Adopted Amendments to IAS 16 (effective Jan 2022) and IAS 1 (effective Jan 2023) were adopted, clarifying asset cost and liability classification, with no material financial impact expected - Amendments to IAS 16, Property, Plant and Equipment, adopted on January 1, 2022, prohibit deducting proceeds from selling items produced while preparing an asset for its intended use from the asset's cost; instead, these are recognized as sales proceeds and related cost of sales in profit or loss[16][17] - Amendments to IAS 1, Classification of Liabilities as Current or Non-Current, effective January 1, 2023, clarify that liability classification is based on rights in place at the reporting period end, unaffected by expectations of deferring settlement, and settlement includes transfers of cash, equity, other assets, or services[18][19] 4. Financial Instruments and Risk Management The Company manages financial instruments, including marketable securities at fair value, credit, market, and liquidity risks, noting increased COVID-19 operational costs without material negative impact Financial Instruments Carrying Values (Thousands of Canadian Dollars) | Financial Instrument | Category | June 30, 2022 | December 31, 2021 | | :------------------- | :--------------- | :------------ | :------------------ | | Cash and cash equivalents | Amortized cost | $36,486 | $40,313 | | Marketable securities | Fair value through profit or loss | $617 | $5,092 | | Receivables | Amortized cost | $41 | $56 | | Accounts payable | Amortized cost | $9,761 | $10,950 | - Marketable securities are measured using Level 1 inputs in the fair value hierarchy[21] A 10% change in marketable securities' share price would result in a $62,000 change to their carrying value and unrealized gain[22] - The Company manages liquidity risk by forecasting cash flows and reviewing expenditures, with accounts payable generally due within 90 days[23] A reclamation security of $15,950,000 is provided via a surety bond[24] - COVID-19 has increased operational costs (health, safety, housing) and material input inflation, but has not materially negatively affected the Company's operations to date; the duration and impact of the pandemic remain uncertain[25][26] 5. Receivables Receivables decreased to $4,290 thousand at June 30, 2022, mainly due to reduced GST receivables and a slight decrease in METC Receivables Breakdown (Thousands of Canadian Dollars) | Item | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :------------------ | | Mineral Exploration Tax Credit ("METC") | $3,350 | $3,793 | | Goods and services tax | $899 | $3,405 | | Other | $41 | $56 | | Total | $4,290 | $7,254 | 6. Transactions with QuestEx and Newmont Corporation Skeena acquired QuestEx Gold & Copper Ltd. for $41,250 thousand as an asset acquisition, concurrently selling properties to Newmont for $25,598 thousand - On June 1, 2022, Skeena acquired all common shares of QuestEx Gold & Copper Ltd. for $0.65 cash and 0.0367 Skeena common shares per QuestEx share, including replacement options and warrants[28] - The QuestEx Transaction was accounted for as an asset acquisition, not a business combination, as QuestEx did not meet the definition of a business under IFRS 3[30] Consideration Paid and Net Assets Acquired from QuestEx (Thousands of Canadian Dollars) | Item | Amount | | :---------------------------------------------------------------- | :----- | | Consideration Paid: | | | Cash paid | $18,749 | | Shares issued (1,058,597 shares) | $9,178 | | Promissory note issued to Newmont | $6,257 | | Replacement Options | $267 | | Replacement Warrants | $61 | | QuestEx shares held by Skeena prior to QuestEx Transaction | $5,499 | | Transaction costs | $1,239 | | Total Consideration | $41,250 | | Net Assets Acquired: | | | Cash | $5,037 | | Marketable securities | $253 | | Receivables | $74 | | Prepaid expenses | $43 | | Reclamation deposits | $225 | | Exploration and evaluation assets | $38,718 | | Accounts payable and accrued liabilities | $(2,191) | | Flow-through share premium liability | $(909) | | Total Net Assets Acquired | $41,250 | - Concurrent with the QuestEx acquisition, Skeena sold certain QuestEx properties (Northern Properties) to Newmont Corporation for $25,598 thousand, receiving $19,341 thousand in cash and settling a $6,257 thousand promissory note[29][34] 7. Exploration and Evaluation Interests Skeena holds 100% interest in key BC mineral properties, with exploration assets increasing to $86,921 thousand and expenses totaling $42,959 thousand, mainly for Eskay Creek Property Interests Skeena holds 100% interest in Eskay Creek, KSP, Kingpin, and Sofia, with Snip under option and Spectrum returned for conservancy - Skeena holds 100% interest in Eskay Creek, KSP, Kingpin, and Sofia properties in British Columbia[35][36][37][40] - The Snip property is subject to an option agreement with Hochschild Mining Holdings Limited, which, if successfully completed, would establish a joint venture[38][39] - The Spectrum property was returned by Skeena to facilitate the creation of a new conservancy for environmental and wildlife protection in Tahltan territory[41] Exploration and Evaluation Assets Exploration and evaluation assets increased to $86,921 thousand at June 30, 2022, mainly due to QuestEx property acquisition, offset by closure liability adjustments Exploration and Evaluation Assets (Thousands of Canadian Dollars) | Item | Eskay | KSP | Kingpin | Snip | Sofia | Total | | :-------------------------------- | :---- | :---- | :------ | :--- | :---- | :------ | | Balance, December 31, 2021 | $74,444 | $ - | $ - | $1,087 | $ - | $75,531 | | Adjust closure liability | $(1,014) | - | - | $(722) | - | $(1,736) | | Additions | $6 | - | - | - | - | $6 | | Acquisition of QuestEx properties | - | $7,872 | $3,936 | - | $1,312 | $13,120 | | Balance, June 30, 2022 | $73,436 | $7,872 | $3,936 | $365 | $1,312 | $86,921 | Exploration and Evaluation Expenses Total exploration and evaluation expenses for the six months ended June 30, 2022, were $42,959 thousand, primarily on Eskay Creek, with no expenses on KSP and Kingpin Exploration and Evaluation Expenses (Thousands of Canadian Dollars) - Six Months Ended June 30, 2022 | Item | Eskay | Snip | Sofia | Total | | :------------------------------------ | :---- | :--- | :---- | :---- | | Geology, geophysics, and geochemical | $10,741 | $18 | $10 | $10,769 | | Fieldwork, camp support | $9,359 | $89 | $46 | $9,494 | | Drilling | $4,883 | - | - | $4,883 | | Equipment rental | $3,640 | $3 | $3 | $3,646 | | Environmental studies | $2,654 | $100 | - | $2,754 | | Transportation and logistics | $2,610 | $1 | $1 | $2,612 | | Share-based payments | $1,620 | - | - | $1,620 | | Fuel | $1,499 | - | $6 | $1,505 | | Assay and analysis/storage | $1,360 | $239 | - | $1,599 | | Helicopter | $1,147 | - | $16 | $1,163 | | Camp and safety | $1,178 | - | - | $1,178 | | Total for the period | $42,399 | $478 | $82 | $42,959 | Exploration and Evaluation Expenses (Thousands of Canadian Dollars) - Three Months Ended June 30, 2022 | Item | Eskay | Snip | Sofia | Total | | :------------------------------------ | :---- | :--- | :---- | :---- | | Geology, geophysics, and geochemical | $4,982 | $18 | $10 | $5,010 | | Fieldwork, camp support | $4,774 | $46 | $46 | $4,866 | | Drilling | $4,300 | - | - | $4,300 | | Equipment rental | $1,378 | $2 | $3 | $1,383 | | Environmental studies | $1,361 | $75 | - | $1,436 | | Transportation and logistics | $1,383 | - | $1 | $1,384 | | Share-based payments | $877 | - | - | $877 | | Fuel | $814 | - | $6 | $820 | | Helicopter | $885 | - | $16 | $901 | | Camp and safety | $763 | - | - | $763 | | Total for the period | $22,715 | $158 | $82 | $22,955 | - No exploration and evaluation expenses were incurred on KSP and Kingpin properties during the three and six months ended June 30, 2022[44][45] 8. Marketable Securities Marketable securities significantly decreased to $617 thousand at June 30, 2022, mainly due to QuestEx share derecognition, partially offset by new acquisitions and unrealized gain Marketable Securities Continuity Schedule (Thousands of Canadian Dollars) | Item | Cost | Fair Value | | :---------------------------------------------------- | :----- | :--------- | | Balance, December 31, 2021 | $3,883 | $5,092 | | Derecognition of QuestEx shares held upon closing of QuestEx Transaction | $(3,415) | $(5,499) | | Acquired upon closing of QuestEx Transaction | $253 | $253 | | Unrealized gain | - | $771 | | Balance, June 30, 2022 | $721 | $617 | - During the six months ended June 30, 2022, the Company recognized an unrealized gain on marketable securities of $771,000, compared to a total gain of $1,726,000 (comprising realized and unrealized gains) in the prior year period[48] 9. Capital Assets Capital assets carrying value slightly decreased to $18,075 thousand at June 30, 2022, influenced by additions, disposals, depreciation, and Right-of-Use asset transfers Capital Assets Carrying Value (Thousands of Canadian Dollars) | Category | December 31, 2021 | June 30, 2022 | | :-------------------------- | :---------------- | :-------------- | | Computer Hardware & Software | $41 | $35 | | Equipment | $2,001 | $1,570 | | Buildings & Structures | $12,120 | $15,394 | | Right-of-Use Asset - Office Lease | $1,017 | $898 | | Right-of-Use Asset - Equipment Leases | $1,293 | $178 | | Leasehold Improvements | $2,303 | $ - | | Total Carrying Value | $18,775 | $18,075 | - During the six months ended June 30, 2022, the Company sold equipment with a carrying value of $342,000 for $255,000, resulting in a loss of $87,000 recorded in exploration and evaluation expenses[49] 10. Related Party Transactions Key management compensation decreased to $4,743 thousand for the six months ended June 30, 2022, mainly due to reduced share-based payments, with minor related party transactions Key Management Compensation (Thousands of Canadian Dollars) | Item | 2022 | 2021 | | :-------------------------------- | :--- | :--- | | Director remuneration | $88 | $118 | | Officer & key management remuneration | $1,712 | $748 | | Share-based payments | $2,943 | $7,535 | | Total Key Management Compensation | $4,743 | $8,401 | - Share-based payment expenses to related parties recorded in exploration and evaluation expense and general and administrative expense amounted to $691,000 and $2,252,000, respectively, for the six months ended June 30, 2022[50] - The Company recovered $5,000 in salaries from a company with a common officer during the six months ended June 30, 2022, and had $10,000 in receivables from such companies at period-end[51][52] 11. Flow-Through Share Premium Liability Flow-through share premium liability decreased to $6,208 thousand at June 30, 2022, due to expenditure settlement, with remaining CEE commitments of $15,350 thousand and $3,198 thousand Flow-Through Share Premium Liability Continuity Schedule (Thousands of Canadian Dollars) | Item | Amount | | :---------------------------------------------------------------- | :----- | | Balance, December 31, 2021 | $12,413 | | Assumption of flow-through share premium liability upon acquisition of QuestEx | $909 | | Settlement of flow-through share premium liability pursuant to qualified expenditures | $(7,114) | | Balance, June 30, 2022 | $6,208 | - As of June 30, 2022, the Company had a remaining commitment of $15,350,000 to incur qualifying Canadian exploration expenses (CEE) from its 2021 flow-through share issuances, and an additional $3,198,000 from the QuestEx acquisition, both to be satisfied by December 31, 2022[54][55] 12. Capital Stock and Reserves Capital stock and reserves saw significant activity, including 2021 financings, Tahltan Investment Rights, and 2022 share-based payments, with specific weighted average exercise prices for options and warrants Authorized Shares The Company is authorized to issue an unlimited number of voting common shares without par value - The Company is authorized to issue an unlimited number of voting common shares without par value[56] Private Placements and Public Offerings In 2021, the Company raised $21,553 thousand through private placements and $57,500 thousand via a bought deal public offering - In March and April 2021, the Company completed three tranches of non-brokered private placements, raising a total of $21,553,000 by issuing 1,197,398 flow-through shares at $18.00 per share[57][58] - On May 17, 2021, a bought deal public offering raised $57,500,000 by issuing 4,637,097 common shares at $12.40 per common share[58] Tahltan Investment Rights The Tahltan Central Government invested $5,000,000 in Skeena via Tahltan Investment Rights, with 199,642 rights converting to common shares by July 2021 - On April 16, 2021, the Tahltan Central Government invested $5,000,000 by purchasing 399,285 Tahltan Investment Rights, which convert into common shares upon achievement of key Company and permitting milestones or over time[59] - By July 19, 2021, Milestones 2 and 3 were met, resulting in the conversion of 199,642 Rights into 199,642 common shares valued at $2,500,000[59] Share-based Payments Skeena granted 103,264 stock options and 522,054 RSUs, and issued shares, replacement options, and warrants as part of the QuestEx acquisition - On April 21, 2022, the Company granted 103,264 stock options with a 5-year term and a weighted average fair value of $675,000, vesting over 36 months[61] - On April 21, 2022, the Company granted 522,054 Restricted Share Units (RSUs) with a fair value of $6,787,000, vesting on April 21, 2024, or over 24 months for a portion[62][63] - As part of the QuestEx Transaction, Skeena issued 1,058,597 common shares ($9,178,000), 77,158 Replacement Options ($267,000), and 150,691 Replacement Warrants ($61,000)[64][65][66] Share Purchase Warrant, RSU, and Stock Option Transactions Summary | Item | Warrants (Number) | Warrants (Weighted Average Exercise Price) | RSUs (Number) | Stock Options (Number) | Stock Options (Weighted Average Exercise Price) | | :-------------------------------- | :---------------- | :----------------------------------------- | :------------ | :--------------------- | :-------------------------------------------- | | Outstanding, December 31, 2021 | 2,812,500 | $10.80 | 56,074 | 5,275,124 | $10.18 | | Granted | - | - | 522,054 | 103,264 | $13.00 | | Exercised | (2,812,500) | $10.80 | (48,074) | (456,456) | $5.27 | | Cancelled | - | - | (3,096) | (44,634) | $12.73 | | Replacement Warrants (Note 6) | 150,691 | $14.19 | - | - | - | | Replacement Options (Note 6) | - | - | - | 77,158 | $9.87 | | Outstanding, June 30, 2022 | 150,691 | $14.19 | 526,958 | 4,954,456 | $10.67 | | Exercisable, June 30, 2022 | 150,691 | $14.19 | - | 3,265,274 | $9.69 | 13. Supplemental Disclosure with Respect to Cash Flows Non-cash transactions for the six months ended June 30, 2022, included $208 thousand in capital asset additions and $16 thousand from equipment sales, with no interest or income tax payments Non-Cash Transactions (Thousands of Canadian Dollars) | Item | 2022 | 2021 | | :---------------------------------------------------- | :--- | :--- | | Capital asset additions included in accounts payable and accrued liabilities | $208 | $ - | | Proceeds from sale of equipment recorded in receivables | $16 | $ - | - The Company did not make any payments towards interest or income taxes during the six months ended June 30, 2022 and 2021[72] 14. Contingencies The Company faces legal and tax contingencies, including claims related to Spectrum property and Albino Lake Storage Facility, with no material financial impact expected - Eilat Exploration Ltd. has asserted claims against the Company related to the Asset Purchase Agreement for the Spectrum property, with an application to dismiss one claim adjourned[74] - The Company is appealing a Chief Gold Commissioner's decision that an individual owns materials in the Albino Lake Storage Facility, which contains tailings and minerals from the former Eskay Creek Mine[75] - The outcomes of these legal matters are not determinable at this time, but they are not expected to have a material effect on the Company's financial statements[74][75] 15. Subsequent Events Subsequent to June 30, 2022, Skeena issued conditional Performance-Linked Options and RSUs, and acquired three additional properties in the Golden Triangle area - Subsequent to June 30, 2022, the Company issued conditional Performance-Linked Options (maximum 275,616) and Performance-Linked RSUs (maximum 975,684), vesting based on ESG criteria and Eskay Creek Feasibility Study results[76] - The Company also granted 50,000 RSUs and 50,000 incentive stock options for recruitment, retention, and incentive purposes, with specific vesting schedules[77] - Skeena entered into an asset purchase agreement with Coast Copper Corp. to acquire three properties totaling 8,724 hectares in the Golden Triangle area, near Eskay, for $3,000,000 payable in semi-annual cash and share payments[78]