We are committed to helping investors come to grips with the resources sector and learn how to interpret news releases made by companies. In these Analyst’s Notes we illustrate how news from companies affects the investment case for the stock, and how it can affect peers as well. The topics are selected based on what the analysts think is both relevant and informative to you, the investor.
In this Analyst's Notes, we have chosen to take a look at Eskay Mining.
Executive Summary
Eskay Mining Corporation (“Eskay”) (TSX:ESK) is an exploration company operating in British Columbia, with a focus the Eskay Creek Mining Camp. Eskay Creek was a famously high grade mine. The core strategy for Eskay and other companies working in the area is “to find another Eskay Creek”.
For many years until mid-2020 made very little progress. In mid-2020 the share price came alive at around the time when Dr Quinton Hennigh joined the Company. Soon after the appointment, positive press releases about the number and size of new “discoveries” all with great similarities to Eskay Creek were published. The company almost immediately embarked on a substantial drilling programme.
It was reported that nearly all drillholes had encountered volcanogenic massive sulphide (“VMS”) styles of mineralisation, including bedded massive sulphide, stockwork feeder and/or sub-seafloor sulphide replacement. From a share price of 17c in May 2020, prices peaked at C$3.28 and are still over ten times higher at C$1.81 per share at the time of writing.
With time, however, the share price is trending lower. Assays reported by Eskay are far below what is being reported at the Eskay Creek mine by Skeena Resources (“Skeena”). Skeena is the company currently exploring extensions of the historic deposit.
Over the last two field seasons the TV and Jeff targets received most attention having had two drill campaigns. Crux Investor has reviewed and analysed these drill results and concludes that only TV has potential merit. Note that drilling has been very inefficient at proving up the dimensions of the deposit. The illustrations provided by Eskay are messy and sometimes blatantly misleading, combining holes drilled along strike with holes supposedly drilling along dip direction. The strike extent of potential economic mineralisation is currently at best 150 m and the dip extent unclear. The width of the mineralisation is highly variable and Eskay still needs to show the outline of the potential economic mineralisation down-dip.
2022 drilling has targeted strike extensions of TV, and latest press releases make much of a new target, referred to as Scarlet Ridge. Eskay presents pictures of impressive gossanous outcrops, but Crux Investor cautions that such outcrops can be the result of sulphide rich deposit without much in terms of economic mineral content. Scarlet Ridge is still at an early stage of exploration and ongoing drilling at Scarlet Ridge South will give more definite information.
To place the current value of Eskay into context Crux Investor has compared its diluted Enterprise Value with that of Skeena. These are surprisingly similar: C$336 million for Eskay and C$427 million for Skeena. There is however a vast difference in project status. Eskay is still at grassroots level with drill sample assays at TV around 1.5 g/t Au and 90 g/t Ag over limited dimensions, whereas Skeena has completed a pre-feasibility study defining reserves of almost 4 million ounces (“Moz”) at an average grade of 3.4 g/t Au and 94 g/t Ag.
Should one want to have exposure to Eskay Creek-type mineralisation, there is no contest; Skeena is the superior choice by far.
Introduction
Eskay Mining Corporation (“Eskay”) (TSX:ESK) is an exploration company operating in British Columbia, with a focus the Eskay Creek Mining Camp. Eskay Creek was a famously high grade mine. The core strategy for Eskay and other companies working in the area is “to find another Eskay Creek”.
Eskay Management Discussion and Analysis (“MDA”) reports go back to the year ending 29 February 2004. At the time Eskay owned 466 claim units covering 10,200 hectares (“ha”), referred to as The Corey property. After initial excitement not much happened to the shares until June 2020 (Figure 1, below).
In September 2019 Dr Quinton Hennigh was appointed as a geological advisor, and he later joined the Board in June 2020. Hennigh is well known in the industry as the champion for Novo Resources, an operating company focused on gold in conglomerates in the Pilbara, Western Australia. On the back of his Novo Resources profile Hennigh built a considerable portfolio of advisory and Board positions with exploration companies. At one stage in 2020/21, he held over 21 appointments.
Hennigh or no, Crux Investor is curious. Has there been a major new development at Eskay? And if so, what is it?
Geology & Mineralisation of the Eskay Deposit
The historic Eskay Creek deposit is the target type of new deposit for Eskay. A technical report dated April 2019 by SRK for Skeena Resources Limited (“Skeena”) provides good source material on the deposit, and a summary of key features is provided below. Skeena is currently exploring extensions to the deposit.
Eskay Creek is a classic example of a high-grade epithermal volcanogenic massive sulphide (“VMS”) deposit that formed in a shallow submarine setting. What distinguishes the Eskay Creek deposit from other VMS deposits are the high concentrations of gold and silver, and an associated suite of antimony, mercury and arsenic. This mineral paragenesis points to deposition at relatively low temperatures.
Figure 2 shows the genetic model for Eskay Creek. The image evolves over time from bottom to top. Rifting and basin development together with intrusion and extrusion of felsic rock (referred to as rhyolite) is the first stage. Hydrothermal activity, shown in black in illustration “b”, is focused along faults and generate in mounds. At intervals the mounds collapse forming debris flows deposited in troughs on the sea floor. The top illustration shows formation of massive sulphide deposits higher in the mudstone during the waning stages of hydrothermal activity.
Mineralisation is therefore present as both stratabound and transgressive styles (see Figure 3).
The transgressive style is found in rhyolites (a volcanic rock) and the stratiform mineralisation in mudstones (ocean floor sediments). The mudstone is by far the richest ore of the two mineralisation types. Figure 4 shows how the mineralisation occurs in a longitudinal section.
As can be seen from the section, the mineralisation has been defined over 1,400 m along strike. The width is 300 m. An amazing amount of metal was produced from such a relatively small deposit.
Over its 14-year production life from 1995 until 2008 the mine yielded 3.27 million ounces of gold and 162.0 million ounces of silver from 2.26 million tonnes treated. This indicated a yield (after metallurgical losses) of 45 g/t Au and 2,232 g/t Ag illustrating the high-grade nature of the deposit. GeoPorter in its review of the mine quotes for 1998 reserves plus historical production 1.9 million tonnes at 60 g/t Au, 2652 g/t Ag, 0.7% Cu, 3.2% Pb and 5.2% Zn. A truly exceptionally rich deposit. The draw back was complex metallurgy, evident from the difference in mine grade and yield achieved.
Small wonder that many companies have attempted to find similar deposits in the general area around the old mining site.
Summary of Exploration of the Eskay Project Area 2010 - June 2020
Exploration in the area dates back to the 1930’s. Here we look at exploration activity in the current tenement area of Eskay since 2010.
Figure 5 shows the Eskay tenement area, including the most important mineral showings (gold stars) and other deposits (red stars). Among the ‘other deposits’ are Eskay Creek itself to the northeast, the Seabridge Cu-Au-porphyries to the east and the Brucejack Au deposit even further east and the Garibaldi Ni-Co deposit to the west.
By February 2011 the company had reviewed data on a block of ground in the south. Efforts had been focused on fieldwork at SIB/Lulu in the north in order to earn an 80% interest in 33,000 ha held by St Andrews Goldfields Limited (“St Andrews”). These licences would give Eskay control of 28 km of the Eskay Rift belt along strike of the Eskay Creek mine.
The SIB claim block abuts the southern extremity of the Eskay Creek mine property, owned at the time by Barrick Gold. The SIB contains a continuous succession of Eskay Rift rhyolite and mudstone, the host units to the Eskay deposits. Furthermore, drilling by past operators led to the discovery of the Lulu Zone, a gold, silver and base metal-enriched zone of stringer and semi-massive sulphides having the same geochemical and geological characteristics as the Eskay deposit. The best historic drill intercept at Lulu had returned a value of 14.43 g/t Au over 14.3 metres.
After January 2013 the company, along with many other juniors, struggled to raise capital. Meaningful activity resumed in 2016 when soil and rock sampling in the southernmost part of the Corey property was undertaken. Anomalous precious metals results along with strongly anomalous pathfinder elements were reported by Eskay.
The next three years saw various exploration campaigns carried out. In 2017, Silver Standard Resources (now SSR Mining) signed a 3-year earn-in and drilled 12 holes totalling 9,336 m. It was established that the target was deep. Ten holes aimed below the Coulter Creek Thrust Fault (“CCFT”) and two holes tested extensions of known mineralisation at Lulu. Whereas alteration was observed considered to be promising, the grades assayed were generally very disappointing.
Also in 2017, Eskay carried out airborne geophysics on the southernmost tenure area aimed at finding more Ni-Cu-Co mineralization, which is not the same as VMS mineralisation. Existing Ni-Cu-Co occurrences included the Red Lightning zone and Garibaldi’s Nickel Mountain on the adjacent property to the west. The conclusions were that Red Lightning was “just one small part of what is likely a much larger, 15 km long, relatively underexplored belt that likely includes other mafic-ultramafic bodies”.
During the 2018 field season eleven holes were drilled at the SIB property. Four holes targeted the hanging wall lithologies and intersected broad zones of “feeder style” VMS mineralisation, but with little by way of grade. The other holes were less promising. Eskay declared the drilling season a technical success, indicating exploration potential. SSR Mining did not agree and abandoned the option on 30 January 2019 without earning any interest in the SIB Property.
Next Eskay commissioned an extensive Versatile Time Domain Electromagnetic (“VTEM”) survey over 136 km squared, which generated a suite of early-stage targets in the form of geophysical anomalies. With no SSR and only early-stage Ni-Cu-Co targets elsewhere, no exploration was undertaken in 2019.
So far, so inconclusive.
Exploration of the Eskay Project Area During the 2020 and 2021 Field Seasons
On arrival, Dr Hennigh supervised a press release in July 2020 that laid out the 2020 exploration programme. The release claimed that a review of historic diamond drill core from holes drilled at numerous prospects within the tenement area indicated that all display VMS affinity. Prospects named were Cumberland, Red Lightning (no longer Ni-Cu-Co Garibaldi type mineralisation?), C10, TV, Jeff, SIB and Lulu (see Figure 5). To generate targets for a drilling campaign starting in August an airborne Skytem electromagnetic survey and ground based induced polarisation and magneto-telluric surveys were commissioned.
The July 2020 announcement coincided with the share price ticking higher.
The first drillhole result announced on 22 September 2020, was 11.2 m @ 1.23 g/t Au and 210 g/t Ag. These results led to a share price dip. Rightly so, in our opinion.
By mid-October 2020 the drill programme of 20 holes was completed for a total length of 4,336 m. Eleven holes were drilled TV and nine at Jeff. These two targets are approximately 1.8 km apart, but the press release noted that the geophysics had shown these very likely to be part of a single large VMS system. Nearly all drillholes had encountered VMS styles of mineralisation including bedded massive sulphide, stockwork feeder and/or sub-seafloor sulphide replacement. The press release of 16 October continued to emphasise numerous aspects that showed the prospectivity of the area.
On 22 December 2020 Eskay announced that it had “confirmed discovery of two precious metal-rich volcanogenic massive sulphide (“VMS”) deposits at the TV and Jeff targets on joint venture ground held with Kirkland Lake Gold Ltd” (which by that time had acquired St Andrews Goldfields). This was substantiated by the release of assay results for nine of the 20 holes drilled. The six holes at TV typically gave grades of 2-3 g/t Au equivalent (“Au eq.”) over 15-40 metres. The three holes at Jeff were generally narrower, but with some very good grades such as 5.1 m @ 33.1 g/t Au eq.
The press release strongly suggested that the mineralisation was very similar to that at the Eskay Creek mine and holding out the prospect of finding similarly high grades. The share price more than doubled based on this good news. In the excitement leading up to the next set of drillhole results, the price had tripled. However, once the market had digested the assay results released on 2 February 2021, there was a sharp drop in the price. The grades were generally mediocre, far below the expectation created for Eskay Creek type intercepts.
On 25 February 2021 the Company announced the definition of numerous new precious metal-rich VMS targets based on results of stream sampling carried out in the 2020 field season. The exploration team had also generated a new model of the tectonic architecture with the defined anomalies fitting with this model. Kirkland Lake Gold limited was not convinced. The company withdrew from the joint venture, leaving it with a 2% net smelter royalty (“NSR”). The positive Eskay spin on the decision was that Eskay was “acquiring” a 100% interest in the project.
In April 2021 Eskay announced that it had “reviewed all data from its 2020 exploration campaign and … conclusively identified multiple mineralized horizons”. The press release continuous by advising that six such horizons had been confirmed.
In April 2021 it was also announced that Eskay had commissioned yet another SkyTEM survey, but now “property wide”. The survey aimed to reveal additional targets, which would be field checked in the 2021 field season.
A 30,000 m drill campaign started on 28 June 2021 to follow up at TV and Jeff, both down dip and along strike. Dr Hennigh expressed the hope to have by the end of the year a good handle on the size and magnitude of the Jeff and TV zones. The Company also aimed to make further, similar discoveries in this target-rich environment.
On 13 July 2021 it was announced that “extensive stockwork feeder mineralization was encountered at the Jeff target and the new SkyTEM data has identified extensive new targets. Interestingly, this latest interpretation of the geophysical survey stated that the “entire trend is highly prospective for Eskay Creek style mineralization and that the TV and Jeff discoveries are highly likely contemporaneous and genetically linked to the Eskay Creek deposit.”
In mid-September two new large VMS systems, referred to as New York and Vermilion, were discovered based on soil sampling and SkyTEM anomalies, which were checked through “ground truthing”. The New York target is 7 km east of the Eskay Creek mine and Vermilion is located 2 km east of the C10 target and 1 km southwest of Spearhead.
The discussion on drilling results includes wording such a “long intervals of sulphide stockwork”, “significant sulphide mineralization” and “the strong potential of the Consolidated Eskay property to deliver further VMS discoveries”.
On 8 November 2021 the first drill hole assay results were released under the headline that includes “broad intercepts of precious metal rich stockwork feeder mineralization at TV”. The positive language caused the share price to spike to its highest price of almost C$3.3. However, when the market digested that the grades over larger intervals were only just above 1.0 g/t Au and between 15 g/t Ag and 125 g/t Ag, disappointment set in. A sharp retraction in the share price occurred, and it continued when the second tranche of results were released on 8 December 2021.
Final assay results were released on 19 January and 15 March 2022. With full results available the press release included some illustrations with map views of drillhole traces and with some cross sections. Crux Investor notices that a hole drilled parallel to the strike was included in a cross section. More below.
Review and Analysis of the Drill Results Obtained to Date
What is clear from the illustrations provided by Eskay is that the grades at C10 and Vermillion were low and not of economic interest. The jury is still open on TV and Jeff based on the review of Crux Investor as set out below.
Drill Results at TV
Figure 6 shows a map view of TV with drill hole traces showing Au eq. values for all 2021 drill holes. The legend shows that colours warmer than orange are of interest, exceeding 1 g/t Au Eq.
The problem with drilling in difficult terrain is that drill platforms need to be built and rigs and accessories are transported by helicopter transport. To reduce costs, Eskay chose to use each platform for a number of holes. Ideally companies work systematically and drill deposits along fences. Drilling a planar structure in many directions makes interpretation difficult. Eskay has annotated the map view by showing that the strike direction of mineralisation is roughly north-south and the dip direction (strangely) oblique to the strike instead of perpendicular to strike.
Crux Investor has circled in red the holes that could be considered roughly along strike for a longitudinal section and in blue those holes roughly along the dip direction. Considerable latitude was given to include sufficient holes.
Figure 7 is an orthographic projection of a longitudinal section east, provided by Eskay, which includes many holes that are at a great angle to the strike and should not be there.
The reader should concentrate on the circled drillhole numbers to get an impression of intercepts along strike. Hole 51 is vertical and can be considered for both the longitudinal section and cross section. The illustration shows that the intersections with grade colours warmer than orange define a strike length of at best 150 m.
Figure 8 is an is an orthographic projection of a cross section looking north, provided by Eskay, which again includes many holes that are at a great angle to the dip direction and should not be included. Interestingly holes 46, 48, 52 and 56 identified by Crux Investor on the map view in Figure 6 as drilled along dip direction have been very much under-emphasised by Eskay. These holes in Figure 6 have very narrow intercepts and detract from Eskay’s pitch that a wide body is present. Crux Investor has annotated Figure 8 by adding an arrow with “Please Note” for these holes with narrow intercepts.
The “true thickness” as per Eskay is mostly defined by holes 51, 54 and 59. However, even these holes show major width variation over short distances. All the other holes are much less impressive in width and/or grade. The holes drilled from the collar position identified by the “Please Note” label are drilled perfectly along the dip direction postulated by Eskay, 260-282 degrees.The mineralisation width is very much reduced compared to the suggested “true thickness”. It would have been interesting to see how Eskay interprets these holes.
Table 1 summarises the intersections for the highlighted holes along strike and along dip.
As can be seen from the table the grades are very consistently around approximately 2.55 g/t Au Eq. The average width of the intersections drilled along the dip direction is 47 m, but this must not be seen as the true width as the holes were drilled obliquely to the strike and not perpendicularly to the dip direction. The “Please Note” holes have an average width below 10 m, but with similar average grades.
Based on the above Crux Investor concludes that there remain many uncertainties about the size and consistency of the TV “discovery”. The strike extent does not yet exceed 150 m and the width along dip is highly variable. Given an average grade of around 1.5 g/t Au and 90 g/t Ag the economics of the mineralisation is still very much open as massive sulphide deposits have very uncertainty metallurgical characteristics and generally give poor recoveries.
Figure 9 is cross section A-A’ on the map view in Figure 6, presented in the press release with the final drill results of the 2021 campaign. It differs from Figure 8 as no longer being an “orthographic projection”. This means that it should only include drillholes drilled with an azimuth of the dip direction and with drillholes with collar positions in a narrow zone around the A-A’ trace. However, Crux Investor records that it includes three drillholes (their numbers circled in red), that are drilled along strike. Hole 56 is drilled very oblique to the dip direction.
Without including the holes drilled along strike the picture would look distinctly different and less attractive. Crux Investor finds it concerning that Eskay gives such a distorted presentation.
Drill Results at Jeff
Figure 10 is a map view of holes drilled at Jeff. Except for very narrow intervals with colours warmer than yellow, the grades intersected appear to be uneconomic.
Crux Investor believes that there is little merit in continuing drilling at Jeff.
Exploration of the Eskay Project Area During the 2022 Field Season
In preparation of a capital raise of C$7 million the company issued a press release on 21 March. The heading read “Eskay Mining Identifies Numerous New Precious Metal Rich VMS Targets in Preparation for its 2022 Drill Campaign”. This was again based on SkyTEM data and soil and rock chip analyses. There were three focus areas: TV-Jeff, C-10_Vermillion-Spearhead and Scarlet Ridge (for their location, refer to Figure 10). The latter was based on historic data dating to 1989-1991, which “clearly indicates the presence of significant precious metal rich VMS mineralization.”
The company had identified eight targets in proximity to TV and Jeff, four along strike and three on the western limb of the anticline opposite to TV-Jeff and to which they referred as the Excelsior area.
The poor drill results at C10-Vermillion had obviously not discouraged Eskay. The company planned to drill a number of geochemical anomalies in proximity of the deposits.
Scarlet Ridge, which is located much closer than the Eskay Creek mine site, was suddenly given high priority based on the company “identifying and compiling historical data dating to 1989-1991”. This includes 18 shallow diamond drill holes widely scattered along a 4-km long northeast corridor.
By 7 July 2022 13 holes had been completed over 5,370 m which was less than 20% of the 30,000 m planned. These holes were drilled north of the 2021 campaign holes at Jeff. No assay results were published. As usual it was announced that multiple new volcanogenic massive sulphide (“VMS”) deposits had been discovered.
At Scarlet Ridge two “extensive VMS feeder zones” had been discovered: the Southern and Northern Feeder Zones. The Southern Feeder Zone has been the focus of early season investigations and will be further tested by drilling in 2022. The press release includes some pictures of impressive gossanous outcrops of stockwork and replacement style sulphide mineralisation.
The latest press release is dated 27 July 2022 advising that two additional feeder zones had been identified: Scarlet Valley and Scarlet Knob, each spaced approximately 1 km apart. Drilling during 2022 would be carried out at all, except Scarlet Ridge North. At the release date drilling had started at Scarlet Ridge South.
Market Valuation of Eskay in Context
Given that Eskay’s target deposit is the mineralisation of the defunct Eskay Creek mine it is of interest to compare its market value to Skeena Resources, owner of the mineral rights around the Eskay Creek mine area.
Table 2 derives the Enterprise Values for the two companies. The information for Skeena is reasonable reliable as it is based on an August 2022 corporate presentation. For Eskay Crux Investor had to rely on the number of issued shares as per the TMX website financial statements dated 31 March 2022.
There is surprisingly little difference in the Enterprise Values between Eskay and Skeena, especially given the enormous difference in the status of the projects.
According to Skeena it released a pre-feasibility study for Eskay Creek in July 2021 which yielded an after-tax NPV5 of C$1.4 billion, 56% IRR, and a 1.4-year payback at US$1,550/oz Au. Skeena has declared open pittable Measured and Indicated resources of 5.28 million oz (“Moz”) at an average grade of 3.1 g/t Au and 82 g/t Ag and reserves of 3.99 Moz at an average grade of 3.4 g/t Au and 94 g/t Ag. At the current Enterprise Value its ounces are valued at C$90/oz M&I resource and C$122/oz in reserves.
Should one want to have exposure to Eskay Creek-type mineralisation, there is no contest; Skeena is the superior choice by far.
Conclusion
Eskay Mining Corporation (“Eskay”) (TSX:ESK) is an exploration company operating in British Columbia, with a focus the Eskay Creek Mining Camp. Eskay Creek was a famously high grade mine. The core strategy for Eskay and other companies working in the area is “to find another Eskay Creek”.
For many years until mid-2020 made very little progress. In mid-2020 the share price came alive at around the time when Dr Quinton Hennigh joined the Company. Soon after the appointment, positive press releases about the number and size of new “discoveries” all with great similarities to Eskay Creek were published. The company almost immediately embarked on a substantial drilling programme. It was reported that nearly all drillholes had encountered volcanogenic massive sulphide (“VMS”) styles of mineralisation, including bedded massive sulphide, stockwork feeder and/or sub-seafloor sulphide replacement. From a share price of 17c in May 2020, prices peaked at C$3.28 and are still over ten times higher at C$1.90 per share at the time of writing.
With time, however, the share price is trending lower. Assays reported by Eskay are far below what is being reported at the Eskay Creek mine by Skeena Resources (“Skeena”). Skeena is the company currently exploring extensions of the historic deposit.
Over the last two field season the TV and Jeff targets received most attention having had two drill campaigns. Crux Investor has reviewed and analysed these drill results and concludes that only TV has potential merit. Note that drilling has been very inefficient at proving up the dimensions of the deposit. The illustrations provided by Eskay are messy and sometimes blatantly misleading, combining holes drilled along strike with holes supposedly drilling along dip direction. The strike extent of potential economic mineralisation is currently at best 150 m and the dip extent unclear. The width of the mineralisation is highly variable and Eskay still needs to show the outline of the potential economic mineralisation down-dip.
2022 drilling has targeted strike extensions of TV, and latest press releases make much of a new target, referred to as Scarlet Ridge. Eskay presents pictures of impressive gossanous outcrops, but Crux Investor cautions that such outcrops can be the result of sulphide rich deposit without much in terms of economic mineral content. Scarlet Ridge is still at an early stage of exploration and ongoing drilling at Scarlet Ridge South will give more definite information.
To place the current value of Eskay into context Crux Investor has compared its diluted Enterprise Value with that of Skeena. These are surprisingly similar: C$394 million for Eskay and C$475 million for Skeena. There is however a vast difference in project status. Eskay is still at grassroots level with drill sample assays at TV around 1.5 g/t Au and 90 g/t Ag over limited dimensions, whereas Skeena has completed a pre-feasibility study defining reserves of almost 4 million ounces (“Moz”) at an average grade of 3.4 g/t Au and 94 g/t Ag.
Should one want to have exposure to Eskay Creek-type mineralisation, there is no contest; Skeena is the superior choice by far.
If you are a Family Office investor, or an Institutional investor, and you would like the full report behind this article, please contact matthew@cruxinvestor.com
We are committed to helping investors come to grips with the resources sector and learn how to interpret news releases made by companies. In these Analyst’s Notes we illustrate how news from companies affects the investment case for the stock, and how it can affect peers as well. The topics are selected based on what the analysts think is both relevant and informative to you, the investor.
In this Analyst's Notes, we have chosen to take a look at Eskay Mining.
Executive Summary
Eskay Mining Corporation (“Eskay”) (TSX:ESK) is an exploration company operating in British Columbia, with a focus the Eskay Creek Mining Camp. Eskay Creek was a famously high grade mine. The core strategy for Eskay and other companies working in the area is “to find another Eskay Creek”.
For many years until mid-2020 made very little progress. In mid-2020 the share price came alive at around the time when Dr Quinton Hennigh joined the Company. Soon after the appointment, positive press releases about the number and size of new “discoveries” all with great similarities to Eskay Creek were published. The company almost immediately embarked on a substantial drilling programme.
It was reported that nearly all drillholes had encountered volcanogenic massive sulphide (“VMS”) styles of mineralisation, including bedded massive sulphide, stockwork feeder and/or sub-seafloor sulphide replacement. From a share price of 17c in May 2020, prices peaked at C$3.28 and are still over ten times higher at C$1.81 per share at the time of writing.
With time, however, the share price is trending lower. Assays reported by Eskay are far below what is being reported at the Eskay Creek mine by Skeena Resources (“Skeena”). Skeena is the company currently exploring extensions of the historic deposit.
Over the last two field seasons the TV and Jeff targets received most attention having had two drill campaigns. Crux Investor has reviewed and analysed these drill results and concludes that only TV has potential merit. Note that drilling has been very inefficient at proving up the dimensions of the deposit. The illustrations provided by Eskay are messy and sometimes blatantly misleading, combining holes drilled along strike with holes supposedly drilling along dip direction. The strike extent of potential economic mineralisation is currently at best 150 m and the dip extent unclear. The width of the mineralisation is highly variable and Eskay still needs to show the outline of the potential economic mineralisation down-dip.
2022 drilling has targeted strike extensions of TV, and latest press releases make much of a new target, referred to as Scarlet Ridge. Eskay presents pictures of impressive gossanous outcrops, but Crux Investor cautions that such outcrops can be the result of sulphide rich deposit without much in terms of economic mineral content. Scarlet Ridge is still at an early stage of exploration and ongoing drilling at Scarlet Ridge South will give more definite information.
To place the current value of Eskay into context Crux Investor has compared its diluted Enterprise Value with that of Skeena. These are surprisingly similar: C$336 million for Eskay and C$427 million for Skeena. There is however a vast difference in project status. Eskay is still at grassroots level with drill sample assays at TV around 1.5 g/t Au and 90 g/t Ag over limited dimensions, whereas Skeena has completed a pre-feasibility study defining reserves of almost 4 million ounces (“Moz”) at an average grade of 3.4 g/t Au and 94 g/t Ag.
Should one want to have exposure to Eskay Creek-type mineralisation, there is no contest; Skeena is the superior choice by far.
Introduction
Eskay Mining Corporation (“Eskay”) (TSX:ESK) is an exploration company operating in British Columbia, with a focus the Eskay Creek Mining Camp. Eskay Creek was a famously high grade mine. The core strategy for Eskay and other companies working in the area is “to find another Eskay Creek”.
Eskay Management Discussion and Analysis (“MDA”) reports go back to the year ending 29 February 2004. At the time Eskay owned 466 claim units covering 10,200 hectares (“ha”), referred to as The Corey property. After initial excitement not much happened to the shares until June 2020 (Figure 1, below).
In September 2019 Dr Quinton Hennigh was appointed as a geological advisor, and he later joined the Board in June 2020. Hennigh is well known in the industry as the champion for Novo Resources, an operating company focused on gold in conglomerates in the Pilbara, Western Australia. On the back of his Novo Resources profile Hennigh built a considerable portfolio of advisory and Board positions with exploration companies. At one stage in 2020/21, he held over 21 appointments.
Hennigh or no, Crux Investor is curious. Has there been a major new development at Eskay? And if so, what is it?
Geology & Mineralisation of the Eskay Deposit
The historic Eskay Creek deposit is the target type of new deposit for Eskay. A technical report dated April 2019 by SRK for Skeena Resources Limited (“Skeena”) provides good source material on the deposit, and a summary of key features is provided below. Skeena is currently exploring extensions to the deposit.
Eskay Creek is a classic example of a high-grade epithermal volcanogenic massive sulphide (“VMS”) deposit that formed in a shallow submarine setting. What distinguishes the Eskay Creek deposit from other VMS deposits are the high concentrations of gold and silver, and an associated suite of antimony, mercury and arsenic. This mineral paragenesis points to deposition at relatively low temperatures.
Figure 2 shows the genetic model for Eskay Creek. The image evolves over time from bottom to top. Rifting and basin development together with intrusion and extrusion of felsic rock (referred to as rhyolite) is the first stage. Hydrothermal activity, shown in black in illustration “b”, is focused along faults and generate in mounds. At intervals the mounds collapse forming debris flows deposited in troughs on the sea floor. The top illustration shows formation of massive sulphide deposits higher in the mudstone during the waning stages of hydrothermal activity.
Mineralisation is therefore present as both stratabound and transgressive styles (see Figure 3).
The transgressive style is found in rhyolites (a volcanic rock) and the stratiform mineralisation in mudstones (ocean floor sediments). The mudstone is by far the richest ore of the two mineralisation types. Figure 4 shows how the mineralisation occurs in a longitudinal section.
As can be seen from the section, the mineralisation has been defined over 1,400 m along strike. The width is 300 m. An amazing amount of metal was produced from such a relatively small deposit.
Over its 14-year production life from 1995 until 2008 the mine yielded 3.27 million ounces of gold and 162.0 million ounces of silver from 2.26 million tonnes treated. This indicated a yield (after metallurgical losses) of 45 g/t Au and 2,232 g/t Ag illustrating the high-grade nature of the deposit. GeoPorter in its review of the mine quotes for 1998 reserves plus historical production 1.9 million tonnes at 60 g/t Au, 2652 g/t Ag, 0.7% Cu, 3.2% Pb and 5.2% Zn. A truly exceptionally rich deposit. The draw back was complex metallurgy, evident from the difference in mine grade and yield achieved.
Small wonder that many companies have attempted to find similar deposits in the general area around the old mining site.
Summary of Exploration of the Eskay Project Area 2010 - June 2020
Exploration in the area dates back to the 1930’s. Here we look at exploration activity in the current tenement area of Eskay since 2010.
Figure 5 shows the Eskay tenement area, including the most important mineral showings (gold stars) and other deposits (red stars). Among the ‘other deposits’ are Eskay Creek itself to the northeast, the Seabridge Cu-Au-porphyries to the east and the Brucejack Au deposit even further east and the Garibaldi Ni-Co deposit to the west.
By February 2011 the company had reviewed data on a block of ground in the south. Efforts had been focused on fieldwork at SIB/Lulu in the north in order to earn an 80% interest in 33,000 ha held by St Andrews Goldfields Limited (“St Andrews”). These licences would give Eskay control of 28 km of the Eskay Rift belt along strike of the Eskay Creek mine.
The SIB claim block abuts the southern extremity of the Eskay Creek mine property, owned at the time by Barrick Gold. The SIB contains a continuous succession of Eskay Rift rhyolite and mudstone, the host units to the Eskay deposits. Furthermore, drilling by past operators led to the discovery of the Lulu Zone, a gold, silver and base metal-enriched zone of stringer and semi-massive sulphides having the same geochemical and geological characteristics as the Eskay deposit. The best historic drill intercept at Lulu had returned a value of 14.43 g/t Au over 14.3 metres.
After January 2013 the company, along with many other juniors, struggled to raise capital. Meaningful activity resumed in 2016 when soil and rock sampling in the southernmost part of the Corey property was undertaken. Anomalous precious metals results along with strongly anomalous pathfinder elements were reported by Eskay.
The next three years saw various exploration campaigns carried out. In 2017, Silver Standard Resources (now SSR Mining) signed a 3-year earn-in and drilled 12 holes totalling 9,336 m. It was established that the target was deep. Ten holes aimed below the Coulter Creek Thrust Fault (“CCFT”) and two holes tested extensions of known mineralisation at Lulu. Whereas alteration was observed considered to be promising, the grades assayed were generally very disappointing.
Also in 2017, Eskay carried out airborne geophysics on the southernmost tenure area aimed at finding more Ni-Cu-Co mineralization, which is not the same as VMS mineralisation. Existing Ni-Cu-Co occurrences included the Red Lightning zone and Garibaldi’s Nickel Mountain on the adjacent property to the west. The conclusions were that Red Lightning was “just one small part of what is likely a much larger, 15 km long, relatively underexplored belt that likely includes other mafic-ultramafic bodies”.
During the 2018 field season eleven holes were drilled at the SIB property. Four holes targeted the hanging wall lithologies and intersected broad zones of “feeder style” VMS mineralisation, but with little by way of grade. The other holes were less promising. Eskay declared the drilling season a technical success, indicating exploration potential. SSR Mining did not agree and abandoned the option on 30 January 2019 without earning any interest in the SIB Property.
Next Eskay commissioned an extensive Versatile Time Domain Electromagnetic (“VTEM”) survey over 136 km squared, which generated a suite of early-stage targets in the form of geophysical anomalies. With no SSR and only early-stage Ni-Cu-Co targets elsewhere, no exploration was undertaken in 2019.
So far, so inconclusive.
Exploration of the Eskay Project Area During the 2020 and 2021 Field Seasons
On arrival, Dr Hennigh supervised a press release in July 2020 that laid out the 2020 exploration programme. The release claimed that a review of historic diamond drill core from holes drilled at numerous prospects within the tenement area indicated that all display VMS affinity. Prospects named were Cumberland, Red Lightning (no longer Ni-Cu-Co Garibaldi type mineralisation?), C10, TV, Jeff, SIB and Lulu (see Figure 5). To generate targets for a drilling campaign starting in August an airborne Skytem electromagnetic survey and ground based induced polarisation and magneto-telluric surveys were commissioned.
The July 2020 announcement coincided with the share price ticking higher.
The first drillhole result announced on 22 September 2020, was 11.2 m @ 1.23 g/t Au and 210 g/t Ag. These results led to a share price dip. Rightly so, in our opinion.
By mid-October 2020 the drill programme of 20 holes was completed for a total length of 4,336 m. Eleven holes were drilled TV and nine at Jeff. These two targets are approximately 1.8 km apart, but the press release noted that the geophysics had shown these very likely to be part of a single large VMS system. Nearly all drillholes had encountered VMS styles of mineralisation including bedded massive sulphide, stockwork feeder and/or sub-seafloor sulphide replacement. The press release of 16 October continued to emphasise numerous aspects that showed the prospectivity of the area.
On 22 December 2020 Eskay announced that it had “confirmed discovery of two precious metal-rich volcanogenic massive sulphide (“VMS”) deposits at the TV and Jeff targets on joint venture ground held with Kirkland Lake Gold Ltd” (which by that time had acquired St Andrews Goldfields). This was substantiated by the release of assay results for nine of the 20 holes drilled. The six holes at TV typically gave grades of 2-3 g/t Au equivalent (“Au eq.”) over 15-40 metres. The three holes at Jeff were generally narrower, but with some very good grades such as 5.1 m @ 33.1 g/t Au eq.
The press release strongly suggested that the mineralisation was very similar to that at the Eskay Creek mine and holding out the prospect of finding similarly high grades. The share price more than doubled based on this good news. In the excitement leading up to the next set of drillhole results, the price had tripled. However, once the market had digested the assay results released on 2 February 2021, there was a sharp drop in the price. The grades were generally mediocre, far below the expectation created for Eskay Creek type intercepts.
On 25 February 2021 the Company announced the definition of numerous new precious metal-rich VMS targets based on results of stream sampling carried out in the 2020 field season. The exploration team had also generated a new model of the tectonic architecture with the defined anomalies fitting with this model. Kirkland Lake Gold limited was not convinced. The company withdrew from the joint venture, leaving it with a 2% net smelter royalty (“NSR”). The positive Eskay spin on the decision was that Eskay was “acquiring” a 100% interest in the project.
In April 2021 Eskay announced that it had “reviewed all data from its 2020 exploration campaign and … conclusively identified multiple mineralized horizons”. The press release continuous by advising that six such horizons had been confirmed.
In April 2021 it was also announced that Eskay had commissioned yet another SkyTEM survey, but now “property wide”. The survey aimed to reveal additional targets, which would be field checked in the 2021 field season.
A 30,000 m drill campaign started on 28 June 2021 to follow up at TV and Jeff, both down dip and along strike. Dr Hennigh expressed the hope to have by the end of the year a good handle on the size and magnitude of the Jeff and TV zones. The Company also aimed to make further, similar discoveries in this target-rich environment.
On 13 July 2021 it was announced that “extensive stockwork feeder mineralization was encountered at the Jeff target and the new SkyTEM data has identified extensive new targets. Interestingly, this latest interpretation of the geophysical survey stated that the “entire trend is highly prospective for Eskay Creek style mineralization and that the TV and Jeff discoveries are highly likely contemporaneous and genetically linked to the Eskay Creek deposit.”
In mid-September two new large VMS systems, referred to as New York and Vermilion, were discovered based on soil sampling and SkyTEM anomalies, which were checked through “ground truthing”. The New York target is 7 km east of the Eskay Creek mine and Vermilion is located 2 km east of the C10 target and 1 km southwest of Spearhead.
The discussion on drilling results includes wording such a “long intervals of sulphide stockwork”, “significant sulphide mineralization” and “the strong potential of the Consolidated Eskay property to deliver further VMS discoveries”.
On 8 November 2021 the first drill hole assay results were released under the headline that includes “broad intercepts of precious metal rich stockwork feeder mineralization at TV”. The positive language caused the share price to spike to its highest price of almost C$3.3. However, when the market digested that the grades over larger intervals were only just above 1.0 g/t Au and between 15 g/t Ag and 125 g/t Ag, disappointment set in. A sharp retraction in the share price occurred, and it continued when the second tranche of results were released on 8 December 2021.
Final assay results were released on 19 January and 15 March 2022. With full results available the press release included some illustrations with map views of drillhole traces and with some cross sections. Crux Investor notices that a hole drilled parallel to the strike was included in a cross section. More below.
Review and Analysis of the Drill Results Obtained to Date
What is clear from the illustrations provided by Eskay is that the grades at C10 and Vermillion were low and not of economic interest. The jury is still open on TV and Jeff based on the review of Crux Investor as set out below.
Drill Results at TV
Figure 6 shows a map view of TV with drill hole traces showing Au eq. values for all 2021 drill holes. The legend shows that colours warmer than orange are of interest, exceeding 1 g/t Au Eq.
The problem with drilling in difficult terrain is that drill platforms need to be built and rigs and accessories are transported by helicopter transport. To reduce costs, Eskay chose to use each platform for a number of holes. Ideally companies work systematically and drill deposits along fences. Drilling a planar structure in many directions makes interpretation difficult. Eskay has annotated the map view by showing that the strike direction of mineralisation is roughly north-south and the dip direction (strangely) oblique to the strike instead of perpendicular to strike.
Crux Investor has circled in red the holes that could be considered roughly along strike for a longitudinal section and in blue those holes roughly along the dip direction. Considerable latitude was given to include sufficient holes.
Figure 7 is an orthographic projection of a longitudinal section east, provided by Eskay, which includes many holes that are at a great angle to the strike and should not be there.
The reader should concentrate on the circled drillhole numbers to get an impression of intercepts along strike. Hole 51 is vertical and can be considered for both the longitudinal section and cross section. The illustration shows that the intersections with grade colours warmer than orange define a strike length of at best 150 m.
Figure 8 is an is an orthographic projection of a cross section looking north, provided by Eskay, which again includes many holes that are at a great angle to the dip direction and should not be included. Interestingly holes 46, 48, 52 and 56 identified by Crux Investor on the map view in Figure 6 as drilled along dip direction have been very much under-emphasised by Eskay. These holes in Figure 6 have very narrow intercepts and detract from Eskay’s pitch that a wide body is present. Crux Investor has annotated Figure 8 by adding an arrow with “Please Note” for these holes with narrow intercepts.
The “true thickness” as per Eskay is mostly defined by holes 51, 54 and 59. However, even these holes show major width variation over short distances. All the other holes are much less impressive in width and/or grade. The holes drilled from the collar position identified by the “Please Note” label are drilled perfectly along the dip direction postulated by Eskay, 260-282 degrees.The mineralisation width is very much reduced compared to the suggested “true thickness”. It would have been interesting to see how Eskay interprets these holes.
Table 1 summarises the intersections for the highlighted holes along strike and along dip.
As can be seen from the table the grades are very consistently around approximately 2.55 g/t Au Eq. The average width of the intersections drilled along the dip direction is 47 m, but this must not be seen as the true width as the holes were drilled obliquely to the strike and not perpendicularly to the dip direction. The “Please Note” holes have an average width below 10 m, but with similar average grades.
Based on the above Crux Investor concludes that there remain many uncertainties about the size and consistency of the TV “discovery”. The strike extent does not yet exceed 150 m and the width along dip is highly variable. Given an average grade of around 1.5 g/t Au and 90 g/t Ag the economics of the mineralisation is still very much open as massive sulphide deposits have very uncertainty metallurgical characteristics and generally give poor recoveries.
Figure 9 is cross section A-A’ on the map view in Figure 6, presented in the press release with the final drill results of the 2021 campaign. It differs from Figure 8 as no longer being an “orthographic projection”. This means that it should only include drillholes drilled with an azimuth of the dip direction and with drillholes with collar positions in a narrow zone around the A-A’ trace. However, Crux Investor records that it includes three drillholes (their numbers circled in red), that are drilled along strike. Hole 56 is drilled very oblique to the dip direction.
Without including the holes drilled along strike the picture would look distinctly different and less attractive. Crux Investor finds it concerning that Eskay gives such a distorted presentation.
Drill Results at Jeff
Figure 10 is a map view of holes drilled at Jeff. Except for very narrow intervals with colours warmer than yellow, the grades intersected appear to be uneconomic.
Crux Investor believes that there is little merit in continuing drilling at Jeff.
Exploration of the Eskay Project Area During the 2022 Field Season
In preparation of a capital raise of C$7 million the company issued a press release on 21 March. The heading read “Eskay Mining Identifies Numerous New Precious Metal Rich VMS Targets in Preparation for its 2022 Drill Campaign”. This was again based on SkyTEM data and soil and rock chip analyses. There were three focus areas: TV-Jeff, C-10_Vermillion-Spearhead and Scarlet Ridge (for their location, refer to Figure 10). The latter was based on historic data dating to 1989-1991, which “clearly indicates the presence of significant precious metal rich VMS mineralization.”
The company had identified eight targets in proximity to TV and Jeff, four along strike and three on the western limb of the anticline opposite to TV-Jeff and to which they referred as the Excelsior area.
The poor drill results at C10-Vermillion had obviously not discouraged Eskay. The company planned to drill a number of geochemical anomalies in proximity of the deposits.
Scarlet Ridge, which is located much closer than the Eskay Creek mine site, was suddenly given high priority based on the company “identifying and compiling historical data dating to 1989-1991”. This includes 18 shallow diamond drill holes widely scattered along a 4-km long northeast corridor.
By 7 July 2022 13 holes had been completed over 5,370 m which was less than 20% of the 30,000 m planned. These holes were drilled north of the 2021 campaign holes at Jeff. No assay results were published. As usual it was announced that multiple new volcanogenic massive sulphide (“VMS”) deposits had been discovered.
At Scarlet Ridge two “extensive VMS feeder zones” had been discovered: the Southern and Northern Feeder Zones. The Southern Feeder Zone has been the focus of early season investigations and will be further tested by drilling in 2022. The press release includes some pictures of impressive gossanous outcrops of stockwork and replacement style sulphide mineralisation.
The latest press release is dated 27 July 2022 advising that two additional feeder zones had been identified: Scarlet Valley and Scarlet Knob, each spaced approximately 1 km apart. Drilling during 2022 would be carried out at all, except Scarlet Ridge North. At the release date drilling had started at Scarlet Ridge South.
Market Valuation of Eskay in Context
Given that Eskay’s target deposit is the mineralisation of the defunct Eskay Creek mine it is of interest to compare its market value to Skeena Resources, owner of the mineral rights around the Eskay Creek mine area.
Table 2 derives the Enterprise Values for the two companies. The information for Skeena is reasonable reliable as it is based on an August 2022 corporate presentation. For Eskay Crux Investor had to rely on the number of issued shares as per the TMX website financial statements dated 31 March 2022.
There is surprisingly little difference in the Enterprise Values between Eskay and Skeena, especially given the enormous difference in the status of the projects.
According to Skeena it released a pre-feasibility study for Eskay Creek in July 2021 which yielded an after-tax NPV5 of C$1.4 billion, 56% IRR, and a 1.4-year payback at US$1,550/oz Au. Skeena has declared open pittable Measured and Indicated resources of 5.28 million oz (“Moz”) at an average grade of 3.1 g/t Au and 82 g/t Ag and reserves of 3.99 Moz at an average grade of 3.4 g/t Au and 94 g/t Ag. At the current Enterprise Value its ounces are valued at C$90/oz M&I resource and C$122/oz in reserves.
Should one want to have exposure to Eskay Creek-type mineralisation, there is no contest; Skeena is the superior choice by far.
Conclusion
Eskay Mining Corporation (“Eskay”) (TSX:ESK) is an exploration company operating in British Columbia, with a focus the Eskay Creek Mining Camp. Eskay Creek was a famously high grade mine. The core strategy for Eskay and other companies working in the area is “to find another Eskay Creek”.
For many years until mid-2020 made very little progress. In mid-2020 the share price came alive at around the time when Dr Quinton Hennigh joined the Company. Soon after the appointment, positive press releases about the number and size of new “discoveries” all with great similarities to Eskay Creek were published. The company almost immediately embarked on a substantial drilling programme. It was reported that nearly all drillholes had encountered volcanogenic massive sulphide (“VMS”) styles of mineralisation, including bedded massive sulphide, stockwork feeder and/or sub-seafloor sulphide replacement. From a share price of 17c in May 2020, prices peaked at C$3.28 and are still over ten times higher at C$1.90 per share at the time of writing.
With time, however, the share price is trending lower. Assays reported by Eskay are far below what is being reported at the Eskay Creek mine by Skeena Resources (“Skeena”). Skeena is the company currently exploring extensions of the historic deposit.
Over the last two field season the TV and Jeff targets received most attention having had two drill campaigns. Crux Investor has reviewed and analysed these drill results and concludes that only TV has potential merit. Note that drilling has been very inefficient at proving up the dimensions of the deposit. The illustrations provided by Eskay are messy and sometimes blatantly misleading, combining holes drilled along strike with holes supposedly drilling along dip direction. The strike extent of potential economic mineralisation is currently at best 150 m and the dip extent unclear. The width of the mineralisation is highly variable and Eskay still needs to show the outline of the potential economic mineralisation down-dip.
2022 drilling has targeted strike extensions of TV, and latest press releases make much of a new target, referred to as Scarlet Ridge. Eskay presents pictures of impressive gossanous outcrops, but Crux Investor cautions that such outcrops can be the result of sulphide rich deposit without much in terms of economic mineral content. Scarlet Ridge is still at an early stage of exploration and ongoing drilling at Scarlet Ridge South will give more definite information.
To place the current value of Eskay into context Crux Investor has compared its diluted Enterprise Value with that of Skeena. These are surprisingly similar: C$394 million for Eskay and C$475 million for Skeena. There is however a vast difference in project status. Eskay is still at grassroots level with drill sample assays at TV around 1.5 g/t Au and 90 g/t Ag over limited dimensions, whereas Skeena has completed a pre-feasibility study defining reserves of almost 4 million ounces (“Moz”) at an average grade of 3.4 g/t Au and 94 g/t Ag.
Should one want to have exposure to Eskay Creek-type mineralisation, there is no contest; Skeena is the superior choice by far.
If you are a Family Office investor, or an Institutional investor, and you would like the full report behind this article, please contact matthew@cruxinvestor.com
We are committed to helping investors come to grips with the resources sector and learn how to interpret news releases made by companies. In these Analyst’s Notes we illustrate how news from companies affects the investment case for the stock, and how it can affect peers as well. The topics are selected based on what the analysts think is both relevant and informative to you, the investor.
In this Analyst's Notes, we have chosen to take a look at Eskay Mining.
Executive Summary
Eskay Mining Corporation (“Eskay”) (TSX:ESK) is an exploration company operating in British Columbia, with a focus the Eskay Creek Mining Camp. Eskay Creek was a famously high grade mine. The core strategy for Eskay and other companies working in the area is “to find another Eskay Creek”.
For many years until mid-2020 made very little progress. In mid-2020 the share price came alive at around the time when Dr Quinton Hennigh joined the Company. Soon after the appointment, positive press releases about the number and size of new “discoveries” all with great similarities to Eskay Creek were published. The company almost immediately embarked on a substantial drilling programme.
It was reported that nearly all drillholes had encountered volcanogenic massive sulphide (“VMS”) styles of mineralisation, including bedded massive sulphide, stockwork feeder and/or sub-seafloor sulphide replacement. From a share price of 17c in May 2020, prices peaked at C$3.28 and are still over ten times higher at C$1.81 per share at the time of writing.
With time, however, the share price is trending lower. Assays reported by Eskay are far below what is being reported at the Eskay Creek mine by Skeena Resources (“Skeena”). Skeena is the company currently exploring extensions of the historic deposit.
Over the last two field seasons the TV and Jeff targets received most attention having had two drill campaigns. Crux Investor has reviewed and analysed these drill results and concludes that only TV has potential merit. Note that drilling has been very inefficient at proving up the dimensions of the deposit. The illustrations provided by Eskay are messy and sometimes blatantly misleading, combining holes drilled along strike with holes supposedly drilling along dip direction. The strike extent of potential economic mineralisation is currently at best 150 m and the dip extent unclear. The width of the mineralisation is highly variable and Eskay still needs to show the outline of the potential economic mineralisation down-dip.
2022 drilling has targeted strike extensions of TV, and latest press releases make much of a new target, referred to as Scarlet Ridge. Eskay presents pictures of impressive gossanous outcrops, but Crux Investor cautions that such outcrops can be the result of sulphide rich deposit without much in terms of economic mineral content. Scarlet Ridge is still at an early stage of exploration and ongoing drilling at Scarlet Ridge South will give more definite information.
To place the current value of Eskay into context Crux Investor has compared its diluted Enterprise Value with that of Skeena. These are surprisingly similar: C$336 million for Eskay and C$427 million for Skeena. There is however a vast difference in project status. Eskay is still at grassroots level with drill sample assays at TV around 1.5 g/t Au and 90 g/t Ag over limited dimensions, whereas Skeena has completed a pre-feasibility study defining reserves of almost 4 million ounces (“Moz”) at an average grade of 3.4 g/t Au and 94 g/t Ag.
Should one want to have exposure to Eskay Creek-type mineralisation, there is no contest; Skeena is the superior choice by far.
Introduction
Eskay Mining Corporation (“Eskay”) (TSX:ESK) is an exploration company operating in British Columbia, with a focus the Eskay Creek Mining Camp. Eskay Creek was a famously high grade mine. The core strategy for Eskay and other companies working in the area is “to find another Eskay Creek”.
Eskay Management Discussion and Analysis (“MDA”) reports go back to the year ending 29 February 2004. At the time Eskay owned 466 claim units covering 10,200 hectares (“ha”), referred to as The Corey property. After initial excitement not much happened to the shares until June 2020 (Figure 1, below).
In September 2019 Dr Quinton Hennigh was appointed as a geological advisor, and he later joined the Board in June 2020. Hennigh is well known in the industry as the champion for Novo Resources, an operating company focused on gold in conglomerates in the Pilbara, Western Australia. On the back of his Novo Resources profile Hennigh built a considerable portfolio of advisory and Board positions with exploration companies. At one stage in 2020/21, he held over 21 appointments.
Hennigh or no, Crux Investor is curious. Has there been a major new development at Eskay? And if so, what is it?
Geology & Mineralisation of the Eskay Deposit
The historic Eskay Creek deposit is the target type of new deposit for Eskay. A technical report dated April 2019 by SRK for Skeena Resources Limited (“Skeena”) provides good source material on the deposit, and a summary of key features is provided below. Skeena is currently exploring extensions to the deposit.
Eskay Creek is a classic example of a high-grade epithermal volcanogenic massive sulphide (“VMS”) deposit that formed in a shallow submarine setting. What distinguishes the Eskay Creek deposit from other VMS deposits are the high concentrations of gold and silver, and an associated suite of antimony, mercury and arsenic. This mineral paragenesis points to deposition at relatively low temperatures.
Figure 2 shows the genetic model for Eskay Creek. The image evolves over time from bottom to top. Rifting and basin development together with intrusion and extrusion of felsic rock (referred to as rhyolite) is the first stage. Hydrothermal activity, shown in black in illustration “b”, is focused along faults and generate in mounds. At intervals the mounds collapse forming debris flows deposited in troughs on the sea floor. The top illustration shows formation of massive sulphide deposits higher in the mudstone during the waning stages of hydrothermal activity.
Mineralisation is therefore present as both stratabound and transgressive styles (see Figure 3).
The transgressive style is found in rhyolites (a volcanic rock) and the stratiform mineralisation in mudstones (ocean floor sediments). The mudstone is by far the richest ore of the two mineralisation types. Figure 4 shows how the mineralisation occurs in a longitudinal section.
As can be seen from the section, the mineralisation has been defined over 1,400 m along strike. The width is 300 m. An amazing amount of metal was produced from such a relatively small deposit.
Over its 14-year production life from 1995 until 2008 the mine yielded 3.27 million ounces of gold and 162.0 million ounces of silver from 2.26 million tonnes treated. This indicated a yield (after metallurgical losses) of 45 g/t Au and 2,232 g/t Ag illustrating the high-grade nature of the deposit. GeoPorter in its review of the mine quotes for 1998 reserves plus historical production 1.9 million tonnes at 60 g/t Au, 2652 g/t Ag, 0.7% Cu, 3.2% Pb and 5.2% Zn. A truly exceptionally rich deposit. The draw back was complex metallurgy, evident from the difference in mine grade and yield achieved.
Small wonder that many companies have attempted to find similar deposits in the general area around the old mining site.
Summary of Exploration of the Eskay Project Area 2010 - June 2020
Exploration in the area dates back to the 1930’s. Here we look at exploration activity in the current tenement area of Eskay since 2010.
Figure 5 shows the Eskay tenement area, including the most important mineral showings (gold stars) and other deposits (red stars). Among the ‘other deposits’ are Eskay Creek itself to the northeast, the Seabridge Cu-Au-porphyries to the east and the Brucejack Au deposit even further east and the Garibaldi Ni-Co deposit to the west.
By February 2011 the company had reviewed data on a block of ground in the south. Efforts had been focused on fieldwork at SIB/Lulu in the north in order to earn an 80% interest in 33,000 ha held by St Andrews Goldfields Limited (“St Andrews”). These licences would give Eskay control of 28 km of the Eskay Rift belt along strike of the Eskay Creek mine.
The SIB claim block abuts the southern extremity of the Eskay Creek mine property, owned at the time by Barrick Gold. The SIB contains a continuous succession of Eskay Rift rhyolite and mudstone, the host units to the Eskay deposits. Furthermore, drilling by past operators led to the discovery of the Lulu Zone, a gold, silver and base metal-enriched zone of stringer and semi-massive sulphides having the same geochemical and geological characteristics as the Eskay deposit. The best historic drill intercept at Lulu had returned a value of 14.43 g/t Au over 14.3 metres.
After January 2013 the company, along with many other juniors, struggled to raise capital. Meaningful activity resumed in 2016 when soil and rock sampling in the southernmost part of the Corey property was undertaken. Anomalous precious metals results along with strongly anomalous pathfinder elements were reported by Eskay.
The next three years saw various exploration campaigns carried out. In 2017, Silver Standard Resources (now SSR Mining) signed a 3-year earn-in and drilled 12 holes totalling 9,336 m. It was established that the target was deep. Ten holes aimed below the Coulter Creek Thrust Fault (“CCFT”) and two holes tested extensions of known mineralisation at Lulu. Whereas alteration was observed considered to be promising, the grades assayed were generally very disappointing.
Also in 2017, Eskay carried out airborne geophysics on the southernmost tenure area aimed at finding more Ni-Cu-Co mineralization, which is not the same as VMS mineralisation. Existing Ni-Cu-Co occurrences included the Red Lightning zone and Garibaldi’s Nickel Mountain on the adjacent property to the west. The conclusions were that Red Lightning was “just one small part of what is likely a much larger, 15 km long, relatively underexplored belt that likely includes other mafic-ultramafic bodies”.
During the 2018 field season eleven holes were drilled at the SIB property. Four holes targeted the hanging wall lithologies and intersected broad zones of “feeder style” VMS mineralisation, but with little by way of grade. The other holes were less promising. Eskay declared the drilling season a technical success, indicating exploration potential. SSR Mining did not agree and abandoned the option on 30 January 2019 without earning any interest in the SIB Property.
Next Eskay commissioned an extensive Versatile Time Domain Electromagnetic (“VTEM”) survey over 136 km squared, which generated a suite of early-stage targets in the form of geophysical anomalies. With no SSR and only early-stage Ni-Cu-Co targets elsewhere, no exploration was undertaken in 2019.
So far, so inconclusive.
Exploration of the Eskay Project Area During the 2020 and 2021 Field Seasons
On arrival, Dr Hennigh supervised a press release in July 2020 that laid out the 2020 exploration programme. The release claimed that a review of historic diamond drill core from holes drilled at numerous prospects within the tenement area indicated that all display VMS affinity. Prospects named were Cumberland, Red Lightning (no longer Ni-Cu-Co Garibaldi type mineralisation?), C10, TV, Jeff, SIB and Lulu (see Figure 5). To generate targets for a drilling campaign starting in August an airborne Skytem electromagnetic survey and ground based induced polarisation and magneto-telluric surveys were commissioned.
The July 2020 announcement coincided with the share price ticking higher.
The first drillhole result announced on 22 September 2020, was 11.2 m @ 1.23 g/t Au and 210 g/t Ag. These results led to a share price dip. Rightly so, in our opinion.
By mid-October 2020 the drill programme of 20 holes was completed for a total length of 4,336 m. Eleven holes were drilled TV and nine at Jeff. These two targets are approximately 1.8 km apart, but the press release noted that the geophysics had shown these very likely to be part of a single large VMS system. Nearly all drillholes had encountered VMS styles of mineralisation including bedded massive sulphide, stockwork feeder and/or sub-seafloor sulphide replacement. The press release of 16 October continued to emphasise numerous aspects that showed the prospectivity of the area.
On 22 December 2020 Eskay announced that it had “confirmed discovery of two precious metal-rich volcanogenic massive sulphide (“VMS”) deposits at the TV and Jeff targets on joint venture ground held with Kirkland Lake Gold Ltd” (which by that time had acquired St Andrews Goldfields). This was substantiated by the release of assay results for nine of the 20 holes drilled. The six holes at TV typically gave grades of 2-3 g/t Au equivalent (“Au eq.”) over 15-40 metres. The three holes at Jeff were generally narrower, but with some very good grades such as 5.1 m @ 33.1 g/t Au eq.
The press release strongly suggested that the mineralisation was very similar to that at the Eskay Creek mine and holding out the prospect of finding similarly high grades. The share price more than doubled based on this good news. In the excitement leading up to the next set of drillhole results, the price had tripled. However, once the market had digested the assay results released on 2 February 2021, there was a sharp drop in the price. The grades were generally mediocre, far below the expectation created for Eskay Creek type intercepts.
On 25 February 2021 the Company announced the definition of numerous new precious metal-rich VMS targets based on results of stream sampling carried out in the 2020 field season. The exploration team had also generated a new model of the tectonic architecture with the defined anomalies fitting with this model. Kirkland Lake Gold limited was not convinced. The company withdrew from the joint venture, leaving it with a 2% net smelter royalty (“NSR”). The positive Eskay spin on the decision was that Eskay was “acquiring” a 100% interest in the project.
In April 2021 Eskay announced that it had “reviewed all data from its 2020 exploration campaign and … conclusively identified multiple mineralized horizons”. The press release continuous by advising that six such horizons had been confirmed.
In April 2021 it was also announced that Eskay had commissioned yet another SkyTEM survey, but now “property wide”. The survey aimed to reveal additional targets, which would be field checked in the 2021 field season.
A 30,000 m drill campaign started on 28 June 2021 to follow up at TV and Jeff, both down dip and along strike. Dr Hennigh expressed the hope to have by the end of the year a good handle on the size and magnitude of the Jeff and TV zones. The Company also aimed to make further, similar discoveries in this target-rich environment.
On 13 July 2021 it was announced that “extensive stockwork feeder mineralization was encountered at the Jeff target and the new SkyTEM data has identified extensive new targets. Interestingly, this latest interpretation of the geophysical survey stated that the “entire trend is highly prospective for Eskay Creek style mineralization and that the TV and Jeff discoveries are highly likely contemporaneous and genetically linked to the Eskay Creek deposit.”
In mid-September two new large VMS systems, referred to as New York and Vermilion, were discovered based on soil sampling and SkyTEM anomalies, which were checked through “ground truthing”. The New York target is 7 km east of the Eskay Creek mine and Vermilion is located 2 km east of the C10 target and 1 km southwest of Spearhead.
The discussion on drilling results includes wording such a “long intervals of sulphide stockwork”, “significant sulphide mineralization” and “the strong potential of the Consolidated Eskay property to deliver further VMS discoveries”.
On 8 November 2021 the first drill hole assay results were released under the headline that includes “broad intercepts of precious metal rich stockwork feeder mineralization at TV”. The positive language caused the share price to spike to its highest price of almost C$3.3. However, when the market digested that the grades over larger intervals were only just above 1.0 g/t Au and between 15 g/t Ag and 125 g/t Ag, disappointment set in. A sharp retraction in the share price occurred, and it continued when the second tranche of results were released on 8 December 2021.
Final assay results were released on 19 January and 15 March 2022. With full results available the press release included some illustrations with map views of drillhole traces and with some cross sections. Crux Investor notices that a hole drilled parallel to the strike was included in a cross section. More below.
Review and Analysis of the Drill Results Obtained to Date
What is clear from the illustrations provided by Eskay is that the grades at C10 and Vermillion were low and not of economic interest. The jury is still open on TV and Jeff based on the review of Crux Investor as set out below.
Drill Results at TV
Figure 6 shows a map view of TV with drill hole traces showing Au eq. values for all 2021 drill holes. The legend shows that colours warmer than orange are of interest, exceeding 1 g/t Au Eq.
The problem with drilling in difficult terrain is that drill platforms need to be built and rigs and accessories are transported by helicopter transport. To reduce costs, Eskay chose to use each platform for a number of holes. Ideally companies work systematically and drill deposits along fences. Drilling a planar structure in many directions makes interpretation difficult. Eskay has annotated the map view by showing that the strike direction of mineralisation is roughly north-south and the dip direction (strangely) oblique to the strike instead of perpendicular to strike.
Crux Investor has circled in red the holes that could be considered roughly along strike for a longitudinal section and in blue those holes roughly along the dip direction. Considerable latitude was given to include sufficient holes.
Figure 7 is an orthographic projection of a longitudinal section east, provided by Eskay, which includes many holes that are at a great angle to the strike and should not be there.
The reader should concentrate on the circled drillhole numbers to get an impression of intercepts along strike. Hole 51 is vertical and can be considered for both the longitudinal section and cross section. The illustration shows that the intersections with grade colours warmer than orange define a strike length of at best 150 m.
Figure 8 is an is an orthographic projection of a cross section looking north, provided by Eskay, which again includes many holes that are at a great angle to the dip direction and should not be included. Interestingly holes 46, 48, 52 and 56 identified by Crux Investor on the map view in Figure 6 as drilled along dip direction have been very much under-emphasised by Eskay. These holes in Figure 6 have very narrow intercepts and detract from Eskay’s pitch that a wide body is present. Crux Investor has annotated Figure 8 by adding an arrow with “Please Note” for these holes with narrow intercepts.
The “true thickness” as per Eskay is mostly defined by holes 51, 54 and 59. However, even these holes show major width variation over short distances. All the other holes are much less impressive in width and/or grade. The holes drilled from the collar position identified by the “Please Note” label are drilled perfectly along the dip direction postulated by Eskay, 260-282 degrees.The mineralisation width is very much reduced compared to the suggested “true thickness”. It would have been interesting to see how Eskay interprets these holes.
Table 1 summarises the intersections for the highlighted holes along strike and along dip.
As can be seen from the table the grades are very consistently around approximately 2.55 g/t Au Eq. The average width of the intersections drilled along the dip direction is 47 m, but this must not be seen as the true width as the holes were drilled obliquely to the strike and not perpendicularly to the dip direction. The “Please Note” holes have an average width below 10 m, but with similar average grades.
Based on the above Crux Investor concludes that there remain many uncertainties about the size and consistency of the TV “discovery”. The strike extent does not yet exceed 150 m and the width along dip is highly variable. Given an average grade of around 1.5 g/t Au and 90 g/t Ag the economics of the mineralisation is still very much open as massive sulphide deposits have very uncertainty metallurgical characteristics and generally give poor recoveries.
Figure 9 is cross section A-A’ on the map view in Figure 6, presented in the press release with the final drill results of the 2021 campaign. It differs from Figure 8 as no longer being an “orthographic projection”. This means that it should only include drillholes drilled with an azimuth of the dip direction and with drillholes with collar positions in a narrow zone around the A-A’ trace. However, Crux Investor records that it includes three drillholes (their numbers circled in red), that are drilled along strike. Hole 56 is drilled very oblique to the dip direction.
Without including the holes drilled along strike the picture would look distinctly different and less attractive. Crux Investor finds it concerning that Eskay gives such a distorted presentation.
Drill Results at Jeff
Figure 10 is a map view of holes drilled at Jeff. Except for very narrow intervals with colours warmer than yellow, the grades intersected appear to be uneconomic.
Crux Investor believes that there is little merit in continuing drilling at Jeff.
Exploration of the Eskay Project Area During the 2022 Field Season
In preparation of a capital raise of C$7 million the company issued a press release on 21 March. The heading read “Eskay Mining Identifies Numerous New Precious Metal Rich VMS Targets in Preparation for its 2022 Drill Campaign”. This was again based on SkyTEM data and soil and rock chip analyses. There were three focus areas: TV-Jeff, C-10_Vermillion-Spearhead and Scarlet Ridge (for their location, refer to Figure 10). The latter was based on historic data dating to 1989-1991, which “clearly indicates the presence of significant precious metal rich VMS mineralization.”
The company had identified eight targets in proximity to TV and Jeff, four along strike and three on the western limb of the anticline opposite to TV-Jeff and to which they referred as the Excelsior area.
The poor drill results at C10-Vermillion had obviously not discouraged Eskay. The company planned to drill a number of geochemical anomalies in proximity of the deposits.
Scarlet Ridge, which is located much closer than the Eskay Creek mine site, was suddenly given high priority based on the company “identifying and compiling historical data dating to 1989-1991”. This includes 18 shallow diamond drill holes widely scattered along a 4-km long northeast corridor.
By 7 July 2022 13 holes had been completed over 5,370 m which was less than 20% of the 30,000 m planned. These holes were drilled north of the 2021 campaign holes at Jeff. No assay results were published. As usual it was announced that multiple new volcanogenic massive sulphide (“VMS”) deposits had been discovered.
At Scarlet Ridge two “extensive VMS feeder zones” had been discovered: the Southern and Northern Feeder Zones. The Southern Feeder Zone has been the focus of early season investigations and will be further tested by drilling in 2022. The press release includes some pictures of impressive gossanous outcrops of stockwork and replacement style sulphide mineralisation.
The latest press release is dated 27 July 2022 advising that two additional feeder zones had been identified: Scarlet Valley and Scarlet Knob, each spaced approximately 1 km apart. Drilling during 2022 would be carried out at all, except Scarlet Ridge North. At the release date drilling had started at Scarlet Ridge South.
Market Valuation of Eskay in Context
Given that Eskay’s target deposit is the mineralisation of the defunct Eskay Creek mine it is of interest to compare its market value to Skeena Resources, owner of the mineral rights around the Eskay Creek mine area.
Table 2 derives the Enterprise Values for the two companies. The information for Skeena is reasonable reliable as it is based on an August 2022 corporate presentation. For Eskay Crux Investor had to rely on the number of issued shares as per the TMX website financial statements dated 31 March 2022.
There is surprisingly little difference in the Enterprise Values between Eskay and Skeena, especially given the enormous difference in the status of the projects.
According to Skeena it released a pre-feasibility study for Eskay Creek in July 2021 which yielded an after-tax NPV5 of C$1.4 billion, 56% IRR, and a 1.4-year payback at US$1,550/oz Au. Skeena has declared open pittable Measured and Indicated resources of 5.28 million oz (“Moz”) at an average grade of 3.1 g/t Au and 82 g/t Ag and reserves of 3.99 Moz at an average grade of 3.4 g/t Au and 94 g/t Ag. At the current Enterprise Value its ounces are valued at C$90/oz M&I resource and C$122/oz in reserves.
Should one want to have exposure to Eskay Creek-type mineralisation, there is no contest; Skeena is the superior choice by far.
Conclusion
Eskay Mining Corporation (“Eskay”) (TSX:ESK) is an exploration company operating in British Columbia, with a focus the Eskay Creek Mining Camp. Eskay Creek was a famously high grade mine. The core strategy for Eskay and other companies working in the area is “to find another Eskay Creek”.
For many years until mid-2020 made very little progress. In mid-2020 the share price came alive at around the time when Dr Quinton Hennigh joined the Company. Soon after the appointment, positive press releases about the number and size of new “discoveries” all with great similarities to Eskay Creek were published. The company almost immediately embarked on a substantial drilling programme. It was reported that nearly all drillholes had encountered volcanogenic massive sulphide (“VMS”) styles of mineralisation, including bedded massive sulphide, stockwork feeder and/or sub-seafloor sulphide replacement. From a share price of 17c in May 2020, prices peaked at C$3.28 and are still over ten times higher at C$1.90 per share at the time of writing.
With time, however, the share price is trending lower. Assays reported by Eskay are far below what is being reported at the Eskay Creek mine by Skeena Resources (“Skeena”). Skeena is the company currently exploring extensions of the historic deposit.
Over the last two field season the TV and Jeff targets received most attention having had two drill campaigns. Crux Investor has reviewed and analysed these drill results and concludes that only TV has potential merit. Note that drilling has been very inefficient at proving up the dimensions of the deposit. The illustrations provided by Eskay are messy and sometimes blatantly misleading, combining holes drilled along strike with holes supposedly drilling along dip direction. The strike extent of potential economic mineralisation is currently at best 150 m and the dip extent unclear. The width of the mineralisation is highly variable and Eskay still needs to show the outline of the potential economic mineralisation down-dip.
2022 drilling has targeted strike extensions of TV, and latest press releases make much of a new target, referred to as Scarlet Ridge. Eskay presents pictures of impressive gossanous outcrops, but Crux Investor cautions that such outcrops can be the result of sulphide rich deposit without much in terms of economic mineral content. Scarlet Ridge is still at an early stage of exploration and ongoing drilling at Scarlet Ridge South will give more definite information.
To place the current value of Eskay into context Crux Investor has compared its diluted Enterprise Value with that of Skeena. These are surprisingly similar: C$394 million for Eskay and C$475 million for Skeena. There is however a vast difference in project status. Eskay is still at grassroots level with drill sample assays at TV around 1.5 g/t Au and 90 g/t Ag over limited dimensions, whereas Skeena has completed a pre-feasibility study defining reserves of almost 4 million ounces (“Moz”) at an average grade of 3.4 g/t Au and 94 g/t Ag.
Should one want to have exposure to Eskay Creek-type mineralisation, there is no contest; Skeena is the superior choice by far.
If you are a Family Office investor, or an Institutional investor, and you would like the full report behind this article, please contact matthew@cruxinvestor.com
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