Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) is raising US$150 million from Sprott Resource Streaming and Royalty Corp. in exchange for a 1.2% net smelter return (NSR) royalty on production at its KSM project in British Columbia.
The money will be used to complete work at the site to meet the criteria for "substantially started" status to get its environmental assessment certificate (EAC) there extended indefinitely.
It also will enable the company to complete a switching station and work needed to connect to BC Hydro's electricity lines for the construction and operation of the mine.
David Talbot and Taylor Combaluzier for Red Cloud Securities maintained Red Cloud's Buy rating of the stock with a target price of CA$45.25 per share.
"We view this royalty agreement positively as it avoids shareholder dilution in the near term and, along with the US$225M (Seabridge) secured from Sprott and Ontario Teacher's Pension Plan in 2022 (read more), should allow the company to reach the substantially started designation ahead of 2026 deadline for the current EAC," wrote analysts David Talbot and Taylor Combaluzier for Red Cloud Securities on Friday.
The analysts maintained Red Cloud's Buy rating of the stock with a target price of CA$45.25 per share.
KSM's current deadline for the EAC is July 29, 2026. In deciding whether a project has been "substantially started," the province decides whether sufficient on-site physical improvements have been made. Work Seabridge has completed includes the building of roads, camps, bridges, and special fish habitats.
"Since our original investment last year, we continue to be impressed by the significant progress the Seabridge team is making at KSM," Sprott Resource Managing Partner Michael Harrison said."The quality of the engineering and early works is excellent, and their strong relationships with the local indigenous peoples is truly best-in-class."
The electrical connection to BC Hydro is also important, Seabridge Chairman and Chief Executive Officer Rudi Fronk said.
"Access to this green energy will substantially enhance KSM's sustainability and carbon profile," Fronk said.
The Catalyst: Co. 'Ripe' for JV
Jim Rickards, editor of the Strategic Intelligence Newsletter, has called KSM "one of the most attractive gold-copper acquisition targets in the world."
Proven and probable reserves at KSM's initial mine total 47.3 million ounces gold (Moz Au), 7.3 billion pounds copper (Cu), and 385 million pounds of molybdenum (Mo), with average production over a 33-year mine life of 1.03 Moz Au, 178 million pounds Cu, 3 Moz silver (Ag), and 4.2 million pounds Mo, a preliminary feasibility study (PFS) found.
The company also released a preliminary economic assessment (PEA) for a separate, underground block cave mine with a small open pit. That mine is expected to produce 14.3 billion pounds Cu, 14.3 Moz Au, 68.2 Moz silver, and 13.8 million pounds Mo over 39 years.
Jim Rickards, editor of the Strategic Intelligence Newsletter, has called KSM "one of the most attractive gold-copper acquisition targets in the world."
The company said it has engaged a leading mining industry bank to assist in joint venture discussions with larger companies.
Analyst Lucas N. Pipes of B. Riley Securities noted in an April 20 research update that KSM is the world's largest undeveloped gold project by reserves and resources.
Pipes said the company has "a clear vision for a potential partnership agreement" and maintained his Buy rating on the stock with a target price of CA$60 per share.
"The market is currently short on development projects, and market interest/M&A is heating up," Pipes wrote. "While the lack of partnership at KSM has been an overhang for the stock, we believe the asset is now ripe for third-party validation."
Terms of the Agreement
The funding should also help Seabridge shorten the construction period when a construction decision is made, Talbot and Combaluzier pointed out.
"Along with securing the EAC for the life of the project, we believe this work would further de-risk KSM and should help the company with its ongoing efforts to secure a major JV partner," they wrote.
Under the terms of the agreement, Seabridge can repurchase 0.2% of the royalty for US$21.5 million in the first 30 months.
Beginning in the third year, Seabridge will make US$2.4 million payments quarterly until March 2032, or KSM achieves commercial production.
The NSR would increase to 1.5% (or 1.25% if SEA has bought down the royalty) if commercial production isn't achieved by March 2032.
Analyst Mike Kozak of Cantor Fitzgerald on Friday also reiterated his Buy rating on Seabridge with a CA$42 per share target price.
The NSR can be bought down even further to 0.5% (or 0.625% if the royalty rate increase occurs) on or before three years after KSM achieves commercial production for an amount that provides Sprott a minimum guaranteed annualized return.
And if project financing isn't in place by March 2027, Sprott can return the NSR back to the company for its initial investment plus a premium.
Analyst Mike Kozak of Cantor Fitzgerald on Friday also reiterated his Buy rating on Seabridge with a CA$42 per share target price.
"We have a favorable view of this transaction as it removes a significant financing overhang in a way that is not equity dilutive to shareholders," Kozak wrote.
Co. Holds Other Projects in Canada, US
Seabridge holds a 100% interest in several other North American gold projects, including the Iskut project, which is also in British Columbia; the Courageous Lake project in the Northwest Territories; the Snowstorm project in the Getchell Gold Belt of Northern Nevada; and the 3 Aces project in the Yukon Territory.
Streetwise Ownership Overview*
Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT)
Because of time constraints, only four holes were sunk in 2022 at 3 Aces. But the company has high hopes for that project, as well.
"Our expectation is that over time, we will be able to deliver a high-grade gold resource with grades significantly higher than our existing gold resources at our other projects" at 3 Aces, Fronk has said.
Ownership and Share Structure
About 36% of the company is held by institutional investors, according to Reuters, including Pan Atlantic Bank and Trust with 7.69% or 6.25 million shares, National Bank of Canada with 5.68% or 4.62 million shares, and FCMI Financial Corp. with 5.11% or 4.16 million shares.
Management, board members, and company insiders own approximately 30%, the company said. Fronk owns 1.49% or 1.21 million shares, according to Reuters. The rest is retail.
It has a market cap of CA$1.67 billion and has about 81.3 million shares outstanding, with 67.8 million free-floating. It trades in a 52-week range of CA$21.78 and CA$13.83.
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