Gov't Renews Gold Co.'s License for Tunnels at Massive BC Project

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Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) has received a renewed License of Occupation (LoO) from the British Columbia government for the tunnels it plans to build to connect the east and west sides of its massive 100%-owned KSM Project in the province's Golden Triangle.

The renewed license for the Mitchell Treaty Tunnels (MTT) is good until September 27, 2044, and is "another de-risking event for Seabridge" and the project, Cantor Fitzgerald Analyst Mike Kozak wrote in an updated research note on Wednesday.

About 12.5 km of the 23-kilometer-long parallel tunnels pass through 11 mineral claims owned by a joint-venture between Tudor Gold, Teuton Resources, and American Creek Resources, for which Tudor Gold is the operator.

"The renewed LoO includes new language that limits these companies such that they may not 'obstruct, endanger or interfere with the construction, operation or maintenance of' the MTT," wrote Kozak, who kept is Buy Rating with a target of CA$45 per share. "This provides important clarity/security for KSM."

The tunnels will use automate rail to connect ore mined and crushed from the Mitchell, East Mitchell, and Sulphurets deposits to the main Ore Processing Complex, Kozak noted.

"Not only does the renewed MTT LoO now extend by 20 years to 09/27/44, but it also provides additional clarity and security of the MTT taking priority over other select mineral claims in the area," Kozak wrote.

The new LoO gives Seabridge no interest in the minerals in the tunnels but notes the joint venture may not "obstruct, endanger, or interfere with, or allow any other person to obstruct, endanger or interfere with, the construction, operation, or maintenance" of the tunnels.

According to a release by Seabridge, "The new LoO makes it clearer that KSMCo's use of the area of the LoO for the MTT takes priority over any use Tudor proposes to make in that area."

"We wish to acknowledge the significant support our KSM project has received from the B.C. government, not only for this License of Occupation but also for the Substantially Started designation granted in July," Seabridge Chairman and Chief Executive Officer Rudi Fronk said. "We are pleased the renewed LoO provides greater clarity on the priority rights of KSMCo's MTT across the Treaty Creek Project. Furthermore, the renewal is for a 20-year term, whereas the previous LoO was for 10 years."

Finding Buyer or Partner Still Focus

Seabridge's stock rose more than 11% over three weeks after July's announcement that it had received the "Substantially Started" designation from the British Columbia government for KSM, a major milestone for the company.

The company has worked toward fulfilling the requirements needed to earn the designation since acquiring the project in 2001 and spent more than CA$1 billion advancing KSM, including CA$800 million after its Environmental Assessment Certificate (EAC) was issued in 2014.

A major focus for Seabridge continues to be finding a joint venture partner for the project, which Red Cloud Securities Analyst Taylor Combaluzier has described as "one of the largest, undeveloped gold-copper projects in the world." RBC Capital Markets is running a formal search process.

"The company continues its pursuit of a joint venture agreement on the KSM Project with a suitable partner on terms advantageous to the company since it does not intend to build or operate the project alone," Seabridge said after receiving the designation. "The KSM Project includes multiple deposits and provides a joint venture partner ... flexibility in the design of the project."

The renewed license for the Mitchell Treaty Tunnels (MTT) is good until September 27, 2044, and is "another de-risking event for Seabridge" and the project, Cantor Fitzgerald Analyst Mike Kozak wrote in an updated research note on Wednesday.

RBC Capital Markets analyst Michael Siperco wrote the Substantially Started designation is based on three key criteria: Indigenous support for the project, the physical disturbance from permanent infrastructure, and the total expenditures on construction activities.

"The receipt of 'substantially started' status, in our view, is a significant permitting de-risking event for KSM, and a catalyst for the stock as management continues to seek a larger partner for the development of the +$7bn gold/copper project in BC," wrote Siperco, who rated the stock Outperform, Speculative Risk with a US$30 per share target price.

"A partner with the capability and balance sheet to advance the project to feasibility and a construction decision could, in our view, validate the project, the latest updated studies, and the work done to date at site, while providing a path for Seabridge investors to participate in future potential upside if a positive construction decision is made," the analyst wrote.

The company is also drilling this year at its 100%-owned Iskut Project, 30 kilometers away from KSM, and at its 3 Aces Project in Southeastern Yukon.

The Catalyst: Gold Bulls Continue to Run Faster

The outlook for gold continues to be bullish following the first interest rate cut in four years by the Federal Reserve last week. The yellow metal continues to set new record prices, including surging past US$2,680 this week. It was US$2,684.70 on Thursday. 

The Fed's half a percentage point cut could "increase the tailwind for gold and pull forward the timing for attainment of US$3,000," Peter A. Grant, vice president and senior metals strategist at Zaner Metals, said in a Reuters report by Anushree Ashish Mukherjee and Anjana Anil.

"Gold market bulls are locking in bullion prices surging to fresh records, with a milestone of US$3,000 per ounce coming into focus, fired up by monetary easing by major central banks and a tight U.S. presidential election race," Mukherjee and Anil wrote.

Further rate cuts are to be expected, based on the latest comments from Fed officials, Mining.com reported.

Ownership and Share Structure

Reuters provided a breakdown of the company's ownership and share structure, where management and insiders own approximately 3% of the company. According to Reuters, CEO and Chairman Rudi P. Fronk owns 1.4%.

Reuters reports that institutions own about 53% of the company. According to Reuters, Friedberg Mercantile Group Ltd. owns 13.08%, National Bank of Canada owns 5.05%, Van Eck Associates Corp. owns 4.16%, Kopernik Global Investors, L.L.C. owns 3.64%, and Paulson & Co. Inc. owns 2.32%.

According to Reuters, there are 88.75 million shares outstanding, while the company has a market cap of CA$2.12 billion and trades in a 52-week range of CA$12.62 and CA$25.82.