Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) completed a financing for US$100 million ($100M), which it will spend on its KSM gold-copper-silver-molybdenum project in northwest British Columbia (B.C.), reported RBC Capital Markets Analyst Michael Siperco in a Feb. 19 research note.
"Funding is in place to continue early works, including items that could make the project increasingly attractive to a partner, the key catalyst for the stock," Siperco wrote.
153% Uplift Possible
RBC maintained its Outperform on Seabridge, noted Siperco. This rating assumes that the mining company will land a partner, that KSM's permits are extended, and that the upcoming feasibility study confirms the project's economic potential.
Also unchanged is RBC's target price on Seabridge of US$30 per share. The analyst explained that the target reflects a 50% discount to its modeled $5.4 billion net present value discounted at 8% on KSM, based on US$2,200 per ounce gold and US$4 per pound copper. Were spot metal prices used instead, RBC's net asset value and implied target price would be 75%-plus higher.
In comparison to the target, Seabridge is trading now at about US$11.85 per share. Thus, the target implies a potential return for investors of 153%.
"We see a potentially improving macro/investment environment (with a renewed global focus on resources) as supportive for the stock, with significant leverage to still higher prices ahead of further project advancement," the analyst wrote.
Plans for New Funds
Seabridge's recent US$100M financing consisted of an US$80M bought deal in which 6.5 million (6.5M) shares were sold and a US$20M private placement in which 1.6M shares were sold to a strategic investor. This new shareholder now owns 2% of the company.
The Canadian explorer intends to apply the US$100M toward the US$150M it plans to spend on KSM, on power supply, early project engineering required for the feasibility study, and ongoing project costs.
"This capital essentially brings forward future capex, which we model as a credit to Seabridge in potential partnership scenarios, offsetting the dilution in our valuation," explained Siperco, who noted the financing diluted Seabridge's shares by about 9%.
The planned additional spending on KSM is a continuation of the roughly US$400M expended between 2021 and 2023 so the project could earn a substantially started status, which it did last year. However, this designation, ensuring permits remain valid for the project's mine life, now is being disputed. Until the issue is resolved, KSM will maintain the status.
"Our view is that KSM qualifies under the government's criteria even if it needs to requalify, and [we] see potential positive momentum in terms of Canadian/B.C. government focus on infrastructure and resource development," Siperco commented.
Cashed Up For 2025
Seabridge has about US$175M in available cash, between the financing and cash on hand, plus another US$100M available to it under the at-the-market facility renewed in January.
This total is sufficient, purported Siperco, to fund the company's activities throughout the year.
Significance of Securing Power
The analyst pointed out that Seabridge securing power for KSM benefits it immensely. A switching station would ensure power via the northwest transmission line and would supply grid power to KSM before and during construction.
The budget for power supply to KSM, albeit in the 2022 prefeasibility study, is US$121M. Already Seabridge has paid BC Hydro US$107M as of Q3/24.
What To Watch For
Seabridge is seeking a partner that would provide funding through feasibility study and construction decision. Success in this regard would be "the key catalyst" for the company's stock, wrote Siperco.
Progress on work related to the feasibility study and on optimizing KSM, which is expected on an ongoing basis, could also boost Seabridge's share price. The same holds for exploration results from its Iskut and 3 Aces projects.
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- 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.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
- This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.
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Disclosures for RBC Capital Markets, Seabridge Gold Inc., February 19, 2025
Non-U.S. analyst disclosure One or more research analysts involved in the preparation of this report (i) may not be registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Conflicts disclosures The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates. With regard to the MAR investment recommendation requirements in relation to relevant securities, a member company of Royal Bank of Canada, together with its affiliates, may have a net long or short financial interest in excess of 0.5% of the total issued share capital of the entities mentioned in the investment recommendation. Information relating to this is available upon request from your RBC investment advisor or institutional salesperson. Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in, this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/ DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. A member company of RBC Capital Markets or one of its affiliates expects to receive or intends to seek compensation for investment banking services from Seabridge Gold Inc. in the next three months. RBC Capital Markets, LLC makes a market in the securities of Seabridge Gold Inc.. RBC Dominion Securities Inc. makes a market in the securities of Seabridge Gold Inc.. RBC Capital Markets is currently providing Seabridge Gold Inc. with investment banking services. Explanation of RBC Capital Markets Equity rating system An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst's sector average. Ratings Outperform (O): Expected to materially outperform sector average over 12 months. Sector Perform (SP): Returns expected to be in line with sector average over 12 months. Underperform (U): Returns expected to be materially below sector average over 12 months. Restricted (R): RBC policy precludes certain types of communications, including an investment recommendation, when RBC is acting as an advisor in certain merger or other strategic transactions and in certain other circumstances. Not Rated (NR): The rating, price targets and estimates have been removed due to applicable legal, regulatory or policy constraints which may include when RBC Capital Markets is acting in an advisory capacity involving the company. Risk Rating The Speculative risk rating reflects a security's lower level of financial or operating predictability, illiquid share trading volumes, high balance sheet leverage, or limited operating history that result in a higher expectation of financial and/or stock price volatility.
Distribution of ratings For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis.
References to a Recommended List in the recommendation history chart may include one or more recommended lists or model portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: ADR (RL 10), and the Guided Portfolio: All Cap Growth (RL 12). The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List. As of April 3, 2023, U.S. RBC Wealth Management's quarterly reports will serve as the primary communication for its models and will highlight any changes to the model made during the quarter. Equity valuation and risks For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please see the most recent company-specific research report at www.rbcinsightresearch.com or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. Seabridge Gold Inc. Valuation Our US$30.00 price target is based on an average 0.50x target multiple applied to our NAV8% estimate (RBC price deck, $2,200/ oz Au, $4.00/lb Cu LT), a discount to covered developer peers, reflecting the stage of the project, potential partnership, longerdated potential upside from unmodeled resources / projects and construction costs/complexity. Our price target supports our Outperform rating on the stock, and the Speculative Risk qualifier reflects the early-stage nature of the project and construction risk ahead. Risks to rating and price target • Partnership risk: Our target and recommendation largely depend on Seabridge finding first a partner to advance and fund a feasibility study, and then to assume operatorship of the project through construction and production. If a suitable partner is not found, or partnership terms differ from our assumptions, we see risk to our valuation and potential for material delays in advancement. • Gold price: The project is most sensitive to the prevailing price of gold (and to a lesser extent, copper), outperforming in rising markets and underperforming when falling. • Construction capex: Whether $6.4bn as outlined in the 2022 PFS, or our $7.3bn estimate on a smaller-scale initial project, KSM is highly sensitive to start-up capital. • Remoteness and climate: While the paved highway, port, and airstrip provide access to the project, KSM is still a relatively remote project. Weather conditions will present challenges during construction and mine operations. • Permitting: Environmental approvals are in place; however, significant additional permitting will need to take place prior to production. • Project financing: Funding options for Seabridge/KSM will ultimately depend on the potential partnership agreement, development plan, revised capex figures, and future market conditions (including metal prices). • Project opposition: KSM has seen past criticism from local groups and non-government organizations, primarily related to the impact on waters, rivers, and salmon spawning grounds. Conflicts policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC Capital Markets Research Publishing, P.O. 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