Eskay Mining - Compelling Junior Explorecos [TSXV:ESK][OTC:ESKYF]

We are undoubtedly in the midst of a bull market in gold (over $1860USD), and in recent days, silver (over $22USD) has started to gain traction as well hitting multi-year highs. Governments around the world have started the printing presses and there is no sign of them cooling down anytime soon.

I've known about Eskay Mining for a couple of years now, but never really took a serious look at it until PDAC, where Dr. John DeDecker presented a re-interpretation of previous drilling - which he thought was wrong. Very interesting! I still wasn't sold though, not because of the geological explanation, but, at that time, COVID was hitting the markets hard any seemingly looked like the exploration season could be at risk, and pretty much tuned it off for a few months.

However, what caught my attention again last month, in June, is that the company closed a private placement (approx. $2.75m) to conduct a full geophysics program to identify/re-fine targets for drilling later on this season. That was good to hear - and told me that we would see exploration this season. As such, I decided to buy stock on the open market this month as the story seems to be unfolding and in my opinion, the company is taking steps to increase the chances of making a discovery, which I will outline.

Overview

Eskay Mining is a mineral exploration company in the heart of the golden triangle, located in northwest British Columbia. It has three flagship properties including: SIB, Corey and North Mitchell Block. The company holds a commanding land package in the Golden Triangle with 526 square kilometers of claims.

Several years ago, SSR Mining had optioned Eskay Mining's SIB property and spent almost $8 million dollars looking for Eskay Creek 2.0. By 2018, however, the company had given up and handed back the property to Mac Balkam, the CEO. Along with it came a a lot of data as well.

Mac spent the past few years trying to get things going again, and this year he seems to have breathed life back into the stock and brought the smartest folks in the industry to help potentially unlock the puzzle.

"Eskay Mining engaged a team lead by Dr Quinton Hennigh which would do a full analysis of all current data and calculate why previous operators have failed to locate this valuable deposit clone. Volcanic Massive Sulphide (VMS) deposits don’t occur in singular fashion, but rather in clusters along rift graben faults, suggesting there should be other deposits similar to the original Eskay Creek Mine."

The company's land package include:

SIB

- 33,000 hectares of land adjoining the previously mined rich VMS deposit known as Eskay Creek Mine - now owned by Skeena Resources (big exploration program this season as well)

- ESK owns 80% of the SIB and is the project operator in conjunction with Kirkland Lake Gold (20%) (KL-TSX).

Corey Prospects

- Eskay Mining controls several other gold and silver showings to the south and east of SIB, these include the TV and Jeff zones, Mitchel North, and a group of 14 prospects collectively grouped into the Corey property.

- Previous exploratory drilling at Corey suggests that the C-10, Cumberland, Red Lightning, and Tet prospects have the highest gold and/or silver grades; with several intercepts above 5 g/t gold.

- A surface sample collected from the Tet showing contained 37,366 g/t Ag, indicating a significant precious metal anomaly.

North Mitchell Block

- Land which hosts structure represents a compelling blind target at depth and along strike to the ENE of surface exposures of the altered rocks (Gold-Copper)

Focus for 2020 will be on SIB and Corey.

Map of Eskay Mining Claims & Prospects

The company currently has 152m fully diluted shares outstanding after the closing of it's most recent private placement, according to the company's website last checked July 20th, 2020. It currently has a market cap of approximately $60 million.

Rationale on why I purchased Eskay Mining shares:

1. Management & Geological Team

Hugh (Mac) Balkam - President & CEO:

- Mr. Balkam was with the Royal Canadian Mounted Police for 13 years, many of those involved in the investigation of stock market related fraud.
- In 1981, he resigned to become a financial consultant with a major brokerage firm, where he managed investments for retail clients.

- Since 2004, Mr. Balkam has been involved in raising venture capital and consulting for junior mining companies.

- Mr Balkam joined the Board of Directors and became CEO of Eskay Mining Corp during the fourth quarter of 2009

Dr. Quinton Henningh, Geologist, Board of Directors (Confirmation on AGM, Aug 11):

- Internationally known economic geologist, with over 25 years of exploration experience and expertise with major gold mining companies such as Homestake Mining Company, Newcrest Mining Limited, and Newmont Mining Corporation

Thomas Weis, Geophysicist, Board of Directors (Confirmation on AGM, Aug 11):

- A minerals exploration geophysicist with over 35 years of exploration experience working for both major and junior mining companies worldwide.

2. Insider Ownership

The insiders of the company hold a large position in the company. Not only have they been participating past financings, they participated in the last one a big way. In the latest round of financing, it's noted that in the SEDI filings that Gordon (John) McMehen (ESK Director) took $417,000 of the approximately $2,500,000 available. I think that speaks volumes to insider confidence and support of the company.

The CEO has also loaned money to the company over the past 9 years to keep it afloat, and forego a salary when funds were short. On June 22nd, the company has filed a news release to pay back some debts/interest owed to the CEO with some shares.

Per the corporate presentation posted on the company's website; Management & Insiders own over 21.8 million shares or 18.4% of the company. With the latest financing, that number of shares increases and the overall percentage remains similar.

3. Exploration - Now

The team has taken decades worth of data, spent the winter re-interpreting it and are busy on numerous fronts collecting new data points and verifying historical core. From the company's news release on June 22nd:

"Although Eskay has seen multiple exploration campaigns, each focused on one limited target concept or area"..."The company's 2020 exploration program is designed to cover a much broader extent of the property"

To achieve this the company plans "a collection of fundamental geophysical, geochemical, and geological investigations that will help better assess known exploration targets and generate new, high quality drill targets."

And that they are currently doing - going all out with the best known exploration methods with the hope they generate high-quality targets which would then be drilled. This includes:

"An airborne Skytem electromagnetic survey using helicopter support and commencing approximately July 5"

"Ground based induced polarization (“IP”) and magnetotelluric (“MT”) surveys commencing approximately July 8"

"A property wide bulk leach extractable gold (“BLEG”) stream sediment survey beginning approximately July 15."

"A property wide light detection and ranging (“LIDAR”) and high-resolution imagery surveys commencing approximately the end of July"

"Geological and geochemical re-logging of historic drill core beginning approximately mid-July"

For more information on this news release including maps provided the company click the following link: June 22 Eskay News Release

Last week, the company put out another release updating shareholders of its exploration efforts: read the news release here.

Regarding recent core re-logging, Dr. Henningh states “Many of Eskay Mining’s prospects have not been explored for many years, and information on them is scant. Our team’s recent review of historic diamond drill core indicates these prospects are all VMS systems comprising the greater Eskay Creek VMS district. Given that all of these prospects display precious metal enrichment, we are very excited by our new interpretation. We are eager to see our geophysical programs completed and commence a review of data. By mid August, we hope to commence drilling our highest priority targets.”

The exciting part of it all - drilling - could begin by the middle of next month!

Mac Balkam shared a few photos from his recent visit to the his camp on the Eskay Creek. Camp is busy with exploration work in full swing.

Eskay Mining's current full camp along Eskay Creek Road - July 2020

Ground-level view of the exploration camp - July 2020

A map of the Golden Triangle and surrounding neighbours.
Eskay Mining's camp pictured above is at the KM 54 marker
(54 km from the start of Eskay Creek Road directly off
of Highway 37)

4. Geology

The company's presentations are an excellent source for deep-dive analysis of the geology and new interpretations -> [Company Presentations]. There are also videos to other interviews with Mac Balkam and John Kaiser from the Metals Investor Forum.

I recommend Dr. John DeDecker's presentation from PDAC or a recent interview from Dr. Quinton Henningh - who is able to put things in simpler terms for the average investor.

The high level summary is that previous exploration work focused in the right area, but was based on a wrong geological model. DeDecker mentions that even previous geolgoists knew there was something wrong with it!

Here's a more expanded explanation from Eskay Mining's website:

"The team have concluded that previous work based on an east-dipping Coulter Creek Thrust Fault (CCTF) with the prospective rocks of the Hazleton Group comprising the hanging wall and truncating against the CCTF was incorrect.

Multiple lines of evidence from the 2017-2018 drilling program show that the CCTF dips to the west, and that the prospective Hazleton Group constitutes the footwall to the CCTF and continues under the Bowser Lake Group hanging wall.

This new theory changes the search for Eskay Two and opens the possibility that the seafloor mudstone, which is the host for the Eskay Mine ore continues to the southwest under the Bowser Lake Group on the western side of the LULU zone, and may be continuous with the new discovery from 2018 of the Sweet Virginia Lakes area to the southwest."

5. The Potential Upside

At SIB

At the end of the day, what's the kind of deposit type/prize we are looking for? Simply put; it would be Eskay Creek 2.0.

Are they close? Perhaps, the evidence is mounting - combined with the geological reinterpretation over the winter, and hopefully stacking up even more with the current extensive exploration program

There is high grade gold proven to be on the property - the question is where's the source?

December 7th 2018 - "EK18-160, intersected 61.9 g/t gold and 8.9 g/t silver over 1.0 m within a 109.25 m interval grading 0.24 g/t gold, 3.6 g/t silver, 0.15% lead and 0.18% zinc, excluding the above-mentioned high-grade zone. Another hole, EK18-158, located 2.5 km south of EK18-160, cut several zones of gold mineralization, including an 11.93 m interval of elevated precious and base metals that included a 1.0 m interval of 2.81 g/t gold, 2.7 g/t silver, 0.10% lead and 0.11% zinc, and a 73.4 m interval grading 0.34 g/t gold."

What would Eskay Creek 2.0 hold in terms of mineralization? Well that's for the drill bits to tell the story, but here's what Eskay Creek (the original discovery held) mined:

"Eskay Creek Mine produced approximately 3.3 million ounces of gold and 160 million ounces of silver at average grades of 45 g/t gold and 2,224 g/t silver"

What would that be discovery be worth today? High grade ounces are worth a lot more than low grade ounces. Let's say a buyer pays $500/oz for gold and $10/oz for the silver. That would be worth $3.2 bilion dollars today.  Taking today's fully diluted share count, that would translate to $20/share.

Given we're in a bullmarket, I could see those numbers being double that - meaning a buyer could pay even $1000/oz for gold and $20/oz for the silver (I have a very bullish view on precious metals!). In that case, the valuation would be doubled.

At Corey Prospects

I believe these targets are harder to quantify in terms of potential upside, except that there are a lots of quality targets & are vastly under explored.

A prime example is at the Tet showing had a sample collected with 37,366 g/t Ag. Very little else is known at this time - but if you pull out samples like that, and find the source for it - you bet it would be worth a lot more.

Interview with Mac Balkam, CEO & President, Eskay Mining

I had a chance to ask Mac a few questions earlier this week regarding the company's exploration efforts this year, and he sheds some light on the geological team that is now involved, what's different this year and what they're doing boots on the ground.

Interview Contents

0:00 - Eskay Mining; what's different this year?

2:00 - Industry experts: Quinton and Tom joining the board of directors

6:05 - Describing the current exploration work (geophysics, corelogging)

6:58 - Mac's comments for shareholders or potential investors

Conclusions

Eskay Mining is out there with a district scale land package of over 500 square kilometers, in the heart of the golden triangle, a part of the world where truly outsized deposits have been found and are continuing to be found. A serious geological work program has been done in the past year with the one of the best VMS geological teams that could be assembled, and new geological interpretations are expected to be tested this year. The company now believes it has 6-8 VMS targets which have already been drilled.

Quinton Henningh and Tom Weis are likely soon to be on the board of directors. Quinton has a large following (rightfully so) and would likely have the ear of Kirkland Lake (think about his involvement with Fosterville in Australia) and other major players who watch his moves.

The potential prize is large, and that's an understatement. The hunt for Eskay Creek 2.0 has been going on for decades, and this year, I think they have a solid chance at finding the treasure.

Other Remarks

And with that, the Compelling Junior Exploreco series which I started at the end of April, is now complete for the summer - and potentially for the rest 2020, as I wait for company's to start/ramp up their exploration efforts and to eventually release the results of these programs. The goal is outsized returns versus the general market.

I own all of the companies (and continue to hold them) that have been mentioned in this Compelling Junior Exploreco series.

As a reminder; junior exploration is very risky - I remind you to read the disclaimer.

Hope you enjoyed the article - please let me know if you have any feedback/comments.

My e-mail is below:

Disclaimer:

The author is not a registered investment advisor, currently has a long position in this stock. The author has not been paid by anyone to write this article. All facts are to be checked by the reader. For more information go to EskayMining.com and read the company’s profile and  official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.