Is This Project Poised To Be a Top-5 Gold Producer?

As it searches for a partner for its Golden Triangle flagship project, KSM, Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) is picking up even more interest from analysts and newsletter writers recommending the stock, including one who noted the mine would be a "top-five annual gold producer" at full production.

The company earned a net profit of CA$9 million in the second quarter, or CA$0.11 per share, and officials said they have been getting multiple looks from larger companies.

"Though Seabridge shares have suffered with the rest of the pack, smart money along the way has regularly taken stakes — when it comes to equity, often at above the current market — realizing the kind of an anchor project KSM will one day become in the global copper/gold mining mix," wrote Chris Temple, editor of The National Investor, in his Friday issue.

Proven and probable reserves at KSM's initial mine total 47.3 million ounces gold (Moz Au), 7.3 billion pounds copper (Cu), 160 Moz silver (Ag), 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 Ag, and 4.2 million pounds Mo, a preliminary feasibility study (PFS) found.

KSM "would be a top-five annual gold producer" at full production "with resources that could support a mine life of +100 years," analyst Michael Siperco wrote about SEA while initiating coverage of the company for RBC Capital Markets.

Chairman and Chief Executive Officer Rudi Fronk said the company has engaged RBC Capital Markets to lead a formal partner search. Several companies have put boots on the ground at the project, he said.

"It's about to happen, people," Fronk said on a webinar for Amvest Capital. "Our expectation is that we will have deal terms negotiated with one of these companies within the next six to nine months."

Fronk said one of the reasons SEA trades at a discount to peers is because the company has talked about a deal for years and has yet to find a partner.

"I'm willing to take the other side of that bet," said Fronk, who owns 1.49% or 1.21 million shares of the company. "Which I have, being a major shareholder in Seabridge."

The goal of the company is to secure a joint-venture project for KSM, which is in one of the world's best mining jurisdictions in British Columbia, with good government infrastructure and green hydroelectric power.

The Catalyst: Potential Partners

Temple also made predictions in another note on Monday about the gold market. The surprise attack by Hamas on Israel over the weekend seemed to have driven investors into safe-haven territory for the precious metal, as spot gold increased 1% Monday morning to US$1,850.70 an ounce after it sank to US$1,821.35 last Thursday.

"The odds that the Fed is nearing (or at?) the conclusion of its rate hikes just went up a lot," Temple wrote. "Especially if the relative calm in markets this morning is proven incorrect and the Middle East becomes a bigger mess, the Fed will really be inclined to take itself out of the equation even if inflation stays high . . .  I think it's time to start piecemeal, adding some trading/trend exposure back in the gold space."

Analyst Lucas N. Pipes of B. Riley Securities noted in a research note that KSM is the world's largest undeveloped gold project by reserves and resources.

KSM "would be a top-five annual gold producer" at full production "with resources that could support a mine life of +100 years," analyst Michael Siperco wrote about SEA while initiating coverage of the company for RBC Capital Markets on September 18.

Siperco gave the stock an Outperform — Speculative Risk rating with a per-share target price of US$25.

"The key catalyst for the stock is finding a senior partner to bring KSM to a construction decision, with a process underway," the analyst wrote. "We think generational gold/copper assets in good mining jurisdictions are hard to find and harder to advance, making KSM a potentially attractive option for producers looking for long-term, consistent production potential."

Such a partner should have the balance sheet and to advance the project to feasibility and a construction decision.

"Potential partners, in our view, would be senior gold, copper, or diversified miners with experience building large-scale open pit (or potentially block cave) operations," the analyst wrote.

Analyst: Co. Has 'Clear Vision'

Seabridge recently closed on the sale of a US$150 million secured note to Sprott Resource Streaming and Royalty Corp. to complete the "substantially started" work at the project.

When the note matures, Sprott Streaming will use the principal amount repaid to purchase a 1% net smelter royalty (NSR) on all metals produced at the project, the company said.

"Significant site capture activities" started at KSM in 2022 and are continuing this year, including road, bridge, and camp construction, hydro installations, fish habitat programs, and the acquisition of transport vehicles and construction equipment, the company said.

"The company anticipates submitting its Substantial Start application to the BC government in early 2024," Seabridge said.

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.

Analyst Lucas N. Pipes of B. Riley Securities noted in a research note 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," rating the stock a Buy with a target price of US$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."

Ownership and Share Structure

About 36% of the company is held by institutional investors. Management, board members, and company insiders own approximately 25%, 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$1.17 billion and has about 82.4 million shares outstanding, with 79.95 million free-floating. It trades in a 52-week range of CA$21.78 and CA$13.34.

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1. Seabridge Gold Inc. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
2. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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