Seabridge Gold Inc.'s (SEA:TSX; SA:NYSE.MKT) work to get a permanent environmental certification for its massive KSM project in British Columbia’s Golden Triangle could help it attract a large-tier partner, Cantor Fitzgerald analyst Mike Kozak said.
In total, the project could produce millions of ounces of gold and billions of pounds of copper over 72 years.
Kozak, along with other analysts, attended a site visit held by the company last month. Afterward, he reiterated his Buy rating and his CA$43.50 target on the stock.
Seabridge is working toward getting “substantially started." Doing so would enable it to get its environmental assessment certificate extended indefinitely, a move that could be a catalyst to attract bigger companies.
“KSM is in a class of its own as the world’s only standalone development-stage mining project capable of producing +1 MMoz Au annually for decades from open-pit operations only,” Kozak wrote on August 29, 2022. “Combining the open-pit PFS (preliminary feasibility study) with the underground block cave PEA (preliminary economic assessment) released earlier this month, the consolidated KSM operation will produce, on average, 670 Koz Au and 280 MMlb Cu per year over a mine-life of 72 years at bottom quartile all-in sustaining costs (net by-products).”
Matt Badiali, the founder and chief executive officer of Mangrove Investor Media, an independent investment research publisher, told Streetwise Reports that he agreed with the buy price.
“There is a lot of pent-up value in Seabridge,” Badiali said.
The Catalyst
Seabridge is working toward getting “substantially started” status for the project from the province’s Environmental Assessment Office (EAO). Doing so would enable it to get its environmental assessment certificate extended indefinitely, a move that could be a catalyst to attract bigger companies, he said.
To get the designation, the company must establish a permanent infrastructure at KSM, including fish habitat offset ponds, site access roads, worker camps, and a power transmission line. To reach those goals, Seabridge is spending CA$150 million in both 2022 and 2023. The soonest it hopes to get the designation is Q4 2024.
Seabridge in June released the PFS that predicted a 33-year mine life with an annual production of 1 Moz gold (Au), 178 million pounds copper (Cu), and 3 Moz silver (Ag) from an open pit for KSM’s Mitchell, East Mitchell, and Sulphurets deposits. It released a PEA in August for a separate, underground block cave mine with a small open pit at the Iron Cap and Kerr deposits. That mine is expected to produce 14.3 billion pounds Cu, 14.3 Moz Au, 68.2 Moz silver, and 13.8 million pounds of molybdenum over 39 years.
According to management, Seabridge has had discussions with over half a dozen potential large-tier joint venture partners.
The PFS for the mine at Mitchell, East Mitchell, and Sulphurets has an initial capex of $6.4 billion and a post-tax net present value at a 5% discount rate of $7.9 billion. The PEA for Iron Cap and Kerr adds $1.5 billion in capex and has a post-tax net present value at a 5% discount rate of $5.8 billion.
The company is using funds raised through a CA$285 million secured note (6.5% coupon) with Sprott Resource Streaming and Royalty and Ontario Teachers’ Pension Plan exchangeable for a 60% gross silver royalty once KSM is in commercial production, Kozak noted.
The PEA describes a block cave mine at Iron Cap with a small open pit mine at Kerr and assumes that the PFS plan for the other deposits has been completed. Open pit equipment would be relocated to the Kerr deposit to begin pre-stripping while the Iron Cap block cave is developed. KSM has the permits it needs to start construction.
The project’s resource has grown from when it was bought in 2000 from about 3.4 Moz gold and 2.7 billion pounds copper to 88.4 Moz gold and 19.4 billion pounds copper in the measured and indicated category.
Is Takeover Inevitable?
To comply with the environmental regulations, the company has begun the construction of three fish habitat ponds and plans to build three access roads and worker camps, including one for 99 people. Seabridge also has signed an agreement with BC Hydro to access a transmission line 30 kilometers away.
Kozak noted one “limiting factor” of KSM is its permitted tailings storage capacity, which is set at 2.3 billion tonnes.
Cantor Fitzgerald’s valuation methodology for the company assumes KSM advances on a “50/50 joint-venture basis with a larger-tier partner.”
“The KSM project is located in a top-tier jurisdiction, will have access to low-cost ‘green’ hydropower to site, and is fully permitted to start construction,” Kozak wrote. “We also note that Seabridge’s ‘cleaner’ and far simpler open-pit only mine plan (at its outset), in our view, makes the KSM project far more attractive to potential large-tier partners. According to management, Seabridge has had discussions with over half a dozen potential large-tier joint venture partners.”
Badiali said he believed such a takeover is inevitable.
“The keys to me are: 1. The sheer volume of metal – gold, silver, copper, and (molybdenum) is enormous. 2. The jurisdiction is excellent. 3. The baseline stuff like permitting, environmental, and social aspects are taken care of,” Badiali said. “This will be a takeover. The questions are: By whom and when.”
Share Structure & Analyst Coverage
About 34% of the company is held by institutional investors, including Pan Atlantic Bank and Trust with 7.7%, FCMI Financial Corp. with 5.1%, and Van Eck Associates with 4.6%.
Seabridge is covered by a myriad of analysts. Click the See More Live Data tab in the data box to the top right for more information.
Seabridge has a market cap of CA$1.21 billion and has about 81.2 million shares outstanding, with 67.4 million free-floating. It trades in a 52-week range of CA$28 and CA$14.28.
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