Versamet Royalties buys $360M gold stream on Skeena’s Eskay Creek in BC

Versamet Royalties (TSX-V: VMET) agreed to buy a cornerstone gold stream on Skeena Resources’ (TSX: SKE; NYSE: SKE) Eskay Creek project in British Columbia in a $360-million (C$500-million) transaction that represents the royalty company’s largest deal to date. Versamet stock jumped.

The stream entitles Versamet to 3.5% of payable gold production over the life of the mine, with no caps, step-downs or buyback provisions, according to a statement issued Monday. The acquisition is expected to close in this month’s first half, subject to customary approvals and the closing of Skeena’s planned $750-million financing package.

“With this acquisition, Versamet is adding a high-quality asset to its portfolio, with near-term positive cash flow on the horizon that will further amplify its free cash flow yield [of 9.7%], which is already the highest amongst its royalty and streaming peers,” National Bank Financial mining analyst Alex Terentiew said Monday in a note to clients.

Versamet shares rose 6.7% to C$14.79 Monday afternoon in Toronto, boosting the company’s market value to about $1.6 billion ($1.2 billion). The stock has traded between C$7 and C$43 in the past year. Shares in Skeena fell 0.7% to C$42.75 for a market capitalization of about C$5.2 billion.

Redevelopment

The agreement calls for Versamet to pay funds managed by Orion Resource Partners and affiliates of Blackstone $340 million in cash and $20 million in shares. For gold ounces delivered to the gold stream, Versamet will make ongoing cash payments equal to 10% of the spot gold price at the time of delivery.

Located in British Columbia’s prolific Golden Triangle, Eskay Creek is a past-producing gold-silver mine that Skeena is advancing as an open-pit redevelopment project. Construction was 49% complete as of late February, with first production targeted for the second quarter of 2027.

Eskay Creek operated from 1994 to 2008, producing about 3.3 million oz. of gold and 160 million oz. of silver at exceptionally high grades. Until its closure, the underground mine ranked among the world’s highest-grade precious metals operations.

A 2023 feasibility study outlined measured and indicated resources of 50.1 million tonnes grading 2.6 grams gold and 63 grams silver per tonne for contained metal of 4.1 million oz. gold and 101.4 million oz. silver.

The study projected average annual production of about 455,000 gold-equivalent oz. in the first five years and 370,000 oz. over the first decade. Life-of-mine output was pegged at 2.8 million oz. gold and more than 81 million oz. silver. 

Canadian exposure

The stream is expected to contribute more than 10,000 oz. of gold annually in the first five years of operation. It will lift Versamet’s portfolio exposure to Canada to roughly 50% by 2028.

As the stream is uncapped, and contains no step-downs or buy-down provisions, the acquisition gives Versamet exposure to mine life extensions, Terentiew said. Although the 2023 feasibility study outlined at 12-year mine life, resource growth should extend the stream beyond that timeline, he added.

Versamet will fund the $340 million cash portion of the acquisition through an amended and restated credit facility. Its existing revolving facility will climb from $200 million to $250 million, maturing in March 2029, while a new $150 million term facility, maturing in March 2028, will be set up.