Seabridge Gold Inc 6-K, filed Aug 13, 2021
Seabridge Gold Inc (SA)
About this 6-K
Seabridge Gold Inc filed this 6-K on August 13, 2021.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 6-K
REPORT
OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2021
Commission File Number 1-32135
SEABRIDGE GOLD INC.
(Name of Registrant)
106 Front Street East, Suite 400, Toronto, Ontario, Canada M5A 1E1
(Address of Principal Executive Office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ☐ No ☒
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _______
SEABRIDGE GOLD INC.
(the “Company”)
See the Exhibit Index hereto for a list of the documents filed herewith and forming a part of this Form 6-K.
Exhibits 99.1, 99.2 and 99.3 hereto are incorporated by reference (as exhibits) to the Company’s registration statements on Form S-8 (File No. 333-211331) and Form F-10 (File No. 333- 229373), as may be amended and supplemented.
1
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Seabridge Gold Inc. | ||
| (Registrant) | ||
| By: | /s/ Chris Reynolds | |
| Name: | Chris Reynolds | |
| Title: | VP Finance and CFO | |
Date: August 13, 2021
2
EXHIBIT INDEX
3
Exhibit 99.1
SEABRIDGE GOLD INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
AS AT JUNE 30, 2021
Page 1
SEABRIDGE GOLD INC.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
(Unaudited)
| June 30, | December 31, | |||||||||
| Note | 2021 | 2020 | ||||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | 4 | $ | 53,219 | $ | 17,528 | |||||
| Short-term deposits | 4 | 19,928 | 19,905 | |||||||
| Amounts receivable and prepaid expenses | 5 | 4,322 | 4,970 | |||||||
| Investment in marketable securities | 6 | 3,190 | 3,826 | |||||||
| 80,659 | 46,229 | |||||||||
| Non-current assets | ||||||||||
| Investment in associate | 6 | 2,500 | 2,611 | |||||||
| Convertible notes receivable | 7 | 612 | 529 | |||||||
| Amounts receivable | 17 | 2,439 | - | |||||||
| Property, plant and equipment | 8 | 3,372 | 235 | |||||||
| Mineral interests | 9 | 612,509 | 591,446 | |||||||
| Reclamation deposits | 12 | 14,216 | 6,767 | |||||||
| 635,648 | 601,588 | |||||||||
| Total assets | $ | 716,307 | $ | 647,817 | ||||||
| Liabilities and shareholders’ equity | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable and accrued liabilities | 10 | $ | 10,722 | $ | 5,377 | |||||
| Flow-through share premium | 13 | 3,405 | 2,276 | |||||||
| Lease obligations | 11 | 89 | 41 | |||||||
| Provision for reclamation liabilities | 12 | 2,500 | 2,500 | |||||||
| 16,716 | 10,194 | |||||||||
| Non-current liabilities | ||||||||||
| Deferred income tax liabilities | 17 | 23,501 | 19,034 | |||||||
| Lease obligations | 11 | 222 | 207 | |||||||
| Provision for reclamation liabilities | 12 | 3,348 | 3,664 | |||||||
| 27,071 | 22,905 | |||||||||
| Total liabilities | 43,787 | 33,099 | ||||||||
| Shareholders’ equity | 13 | 672,520 | 614,718 | |||||||
| Total liabilities and shareholders’ equity | $ | 716,307 | $ | 647,817 | ||||||
Subsequent events (Notes 7, 13, 17)
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
Page 2
SEABRIDGE GOLD INC.
Consolidated Statements of Operations and Comprehensive Earnings (Loss)
(Expressed in thousands of Canadian dollars except per common share amounts)
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
| Note | 2021 | 2020 | 2021 | 2020 | ||||||||||||||
| Gain on disposition of mineral interests | 13 | $ | 21,943 | $ | - | $ | 21,943 | $ | - | |||||||||
| Corporate and administrative expenses | 15 | (2,031 | ) | (3,385 | ) | (6,788 | ) | (7,252 | ) | |||||||||
| Other income - flow-through shares | 13 | 188 | 26 | 334 | 47 | |||||||||||||
| Environmental rehabilitation expense | 12 | 60 | - | 43 | - | |||||||||||||
| Equity loss of associate | 6 | (54 | ) | (27 | ) | (131 | ) | (72 | ) | |||||||||
| Unrealized gain on convertible notes receivable | 7 | (7 | ) | - | 122 | - | ||||||||||||
| Interest income | 76 | 26 | 100 | 66 | ||||||||||||||
| Finance expense and other income | (446 | ) | (32 | ) | (544 | ) | 229 | |||||||||||
| Earnings (loss) before income taxes | 19,729 | (3,392 | ) | 15,079 | (6,982 | ) | ||||||||||||
| Income tax expense | 17 | (5,181 | ) | (676 | ) | (4,815 | ) | (284 | ) | |||||||||
| Net earnings (loss) for the period | $ | 14,548 | $ | (4,068 | ) | $ | 10,264 | $ | (7,266 | ) | ||||||||
| Other comprehensive income (loss), net of income taxes | ||||||||||||||||||
| Items that will not be reclassified to net income or loss | ||||||||||||||||||
| Change in fair value of marketable securities | 6 | $ | 2 | $ | 775 | $ | (552 | ) | $ | 1,182 | ||||||||
| Other comprehensive income (loss), net of income tax | 2 | 775 | (552 | ) | 1,182 | |||||||||||||
| Comprehensive income (loss) for the period | $ | 14,550 | $ | (3,293 | ) | $ | 9,712 | $ | (6,084 | ) | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||||
| Basic | 13 | 75,742,184 | 65,493,643 | 75,071,255 | 64,649,203 | |||||||||||||
| Diluted | 13 | 77,671,351 | 68,892,290 | 77,000,422 | 68,016,883 | |||||||||||||
| Earnings (loss) per common share | ||||||||||||||||||
| Basic | 13 | $ | 0.19 | $ | (0.06 | ) | $ | 0.14 | $ | (0.11 | ) | |||||||
| Diluted | 13 | $ | 0.19 | $ | (0.06 | ) | $ | 0.13 | $ | (0.11 | ) | |||||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
Page 3
SEABRIDGE GOLD INC.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars except number of shares)
(Unaudited)
| Number of Shares | Share Capital | Warrants | Stock-based Compensation | Contributed Surplus | Deficit | Accumulated Other Comprehensive Gain (Loss) | Total Equity | |||||||||||||||||||||||||
| As at December 31, 2020 | 74,162,286 | $ | 704,599 | $ | 3,275 | $ | 23,011 | $ | 36,089 | $ | (150,878 | ) | $ | (1,378 | ) | $ | 614,718 | |||||||||||||||
| Share issuance - private placement | 350,000 | 8,358 | - | - | - | - | - | 8,358 | ||||||||||||||||||||||||
| Share issuance - at-The-Market offering | 976,062 | 22,396 | - | - | - | - | - | 22,396 | ||||||||||||||||||||||||
| Share issuance - options exercised | 679,668 | 14,934 | - | (7,630 | ) | - | - | - | 7,304 | |||||||||||||||||||||||
| Share issuance - warrants exercised | 500,000 | 11,100 | (3,275 | ) | - | - | - | - | 7,825 | |||||||||||||||||||||||
| Share issuance - RSUs vested | 135,450 | 3,413 | - | (3,413 | ) | - | - | - | - | |||||||||||||||||||||||
| Share issuance costs | - | (990 | ) | - | - | - | - | - | (990 | ) | ||||||||||||||||||||||
| Deferred tax on share issuance costs | - | 264 | - | - | - | - | - | 264 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | 2,934 | - | - | - | 2,934 | ||||||||||||||||||||||||
| Expired options | - | - | - | (37 | ) | 37 | - | - | - | |||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | (552 | ) | (552 | ) | ||||||||||||||||||||||
| Net earnings for the period | - | - | - | - | - | 10,263 | - | 10,263 | ||||||||||||||||||||||||
| As at June 30, 2021 | 76,803,466 | $ | 764,074 | - | $ | 14,865 | $ | 36,126 | $ | (140,615 | ) | $ | (1,930 | ) | $ | 672,520 | ||||||||||||||||
| As at December 31, 2019 | 63,510,487 | $ | 494,857 | $ | 3,275 | $ | 18,820 | $ | 36,073 | $ | (135,936 | ) | $ | (2,066 | ) | $ | 415,023 | |||||||||||||||
| Share issuance – private placement | 1,785,000 | 24,424 | - | - | - | - | - | 24,424 | ||||||||||||||||||||||||
| Share issuance - at-the-market offering | 803,289 | 15,880 | - | - | - | - | - | 15,880 | ||||||||||||||||||||||||
| Share issuance – other | 300,000 | 6,564 | - | - | - | - | - | 6,564 | ||||||||||||||||||||||||
| Share issuance - options exercised | 103,194 | 1,729 | - | (610 | ) | - | - | - | 1,119 | |||||||||||||||||||||||
| Share issuance – RSUs vested | 139,600 | 2,351 | - | (2,351 | ) | - | - | - | - | |||||||||||||||||||||||
| Share issuance costs | - | (1,322 | ) | - | - | - | - | - | (1,322 | ) | ||||||||||||||||||||||
| Deferred tax on share issuance costs | - | 352 | - | - | - | - | - | 352 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | 3,672 | - | - | - | 3,672 | ||||||||||||||||||||||||
| Expired options | - | - | - | (16 | ) | 16 | - | - | - | |||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | 1,182 | 1,182 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | (7,266 | ) | - | (7,266 | ) | ||||||||||||||||||||||
| As at June 30, 2020 | 66,641,570 | $ | 544,835 | $ | 3,275 | $ | 19,515 | $ | 36,089 | $ | (143,202 | ) | $ | (884 | ) | $ | 459,628 | |||||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
Page 4
SEABRIDGE GOLD INC.
Consolidated Statement of Cash Flows
(Expressed in thousands of Canadian dollars)
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating Activities | ||||||||||||||||
| Net earnings (loss) | $ | 14,548 | $ | (4,068 | ) | $ | 10,264 | $ | (7,266 | ) | ||||||
| Adjustment for non-cash items: | ||||||||||||||||
| Gain on disposition of mineral interests | (21,943 | ) | - | (21,943 | ) | - | ||||||||||
| Stock-based compensation | 8 | 1,630 | 2,934 | 3,672 | ||||||||||||
| Environmental rehabilitation expense | (60 | ) | - | (43 | ) | - | ||||||||||
| Other income - flow-through shares | (188 | ) | (26 | ) | (334 | ) | (47 | ) | ||||||||
| Unrealized gain on convertible notes receivable | 14 | - | (82 | ) | - | |||||||||||
| Income tax expense | 5,181 | 676 | 4,815 | 284 | ||||||||||||
| Equity loss of associate | 54 | 27 | 131 | 72 | ||||||||||||
| Finance costs adjustments | 282 | 286 | 385 | 214 | ||||||||||||
| Depreciation charge of right-of-use assets | 22 | 9 | 43 | 18 | ||||||||||||
| Adjustment for cash items: | ||||||||||||||||
| Environmental rehabilitation disbursements | (410 | ) | (183 | ) | (481 | ) | (299 | ) | ||||||||
| Changes in working capital items: | ||||||||||||||||
| Amounts receivable and prepaid expenses | 2,234 | (2,923 | ) | 648 | (4,129 | ) | ||||||||||
| Accounts payable and accrued liabilities | 1,775 | (280 | ) | 1,124 | (1,296 | ) | ||||||||||
| Net cash from (used in) operating activities | 1,517 | (4,852 | ) | (2,539 | ) | (8,777 | ) | |||||||||
| Investing Activities | ||||||||||||||||
| Mineral interests | (9,594 | ) | (4,350 | ) | (16,705 | ) | (8,851 | ) | ||||||||
| Cash proceeds from disposition of mineral interests | 21,943 | - | 21,943 | - | ||||||||||||
| Investment in reclamation deposits | (7,446 | ) | 25 | (7,450 | ) | (28 | ) | |||||||||
| Investment in short-term deposits | (11 | ) | (15,081 | ) | (22 | ) | (19,790 | ) | ||||||||
| Redemption of short-term deposits | - | - | - | 4,024 | ||||||||||||
| Property, plant and equipment | (2,644 | ) | - | (3,080 | ) | - | ||||||||||
| Investment in associate | - | (405 | ) | (20 | ) | (416 | ) | |||||||||
| Amounts receivable | - | - | (2,439 | ) | - | |||||||||||
| Net cash from (used in) investing activities | 2,248 | (19,811 | ) | (7,773 | ) | (25,061 | ) | |||||||||
| Financing Activities | ||||||||||||||||
| Share issuance net of costs | 24,812 | 36,106 | 31,227 | 42,843 | ||||||||||||
| Exercise of options | 3,362 | 796 | 7,304 | 1,119 | ||||||||||||
| Exercise of warrants | 7,825 | - | 7,825 | - | ||||||||||||
| Payment of lease liabilities | (19 | ) | (5 | ) | (37 | ) | (10 | ) | ||||||||
| Net cash from financing activities | 35,980 | 36,897 | 46,319 | 43,952 | ||||||||||||
| Effects of exchange rate fluctuation on cash and cash equivalents | (250 | ) | (259 | ) | (316 | ) | (159 | ) | ||||||||
| Net increase in cash and cash equivalents during the period | 39,495 | 11,975 | 35,691 | 9,955 | ||||||||||||
| Cash and cash equivalents, beginning of the period | 13,724 | 6,773 | 17,528 | 8,793 | ||||||||||||
| Cash and cash equivalents, end of the period | $ | 53,219 | $ | 18,748 | $ | 53,219 | $ | 18,748 | ||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
Page 5
SEABRIDGE GOLD INC.
Notes to the condensed consolidated interim financial statements
For the three and six months ended June 30, 2021 and 2020
| 1. | Reporting entity |
Seabridge Gold Inc. is comprised of Seabridge Gold Inc. (“Seabridge” or the “Company”) and its subsidiaries, KSM Mining ULC, Seabridge Gold (NWT) Inc., Seabridge Gold Corp., SnipGold Corp., Seabridge Gold (Yukon) Inc. and Snowstorm Exploration (LLC) and is engaged in the acquisition and exploration of gold properties located in North America. The Company was incorporated under the laws of British Columbia, Canada on September 4, 1979 and continued under the laws of Canada on October 31, 2002. Its common shares are listed on the Toronto Stock Exchange trading under the symbol “SEA” and on the New York Stock Exchange under the symbol “SA”. The Company is domiciled in Canada, the address of its registered office is 10th Floor, 595 Howe Street, Vancouver, British Columbia, Canada V6C 2T5 and the address of its corporate office is 106 Front Street East, 4th Floor, Toronto, Ontario, Canada M5A 1E1.
| 2. | Basis of accounting |
These unaudited condensed consolidated interim financial statements ("consolidated interim financial statements") were prepared in accordance with IAS 34, Interim Financial Reporting, using accounting policies consistent with those used by the company in preparing the annual consolidated financial statements as at and for the year ended December 31, 2020 and should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year ended December 31, 2020. They do not include all of the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual financial statements. These interim financial statements were authorized for issue by the Company’s board of directors on August 13, 2021.
| 3. | Significant accounting judgments, estimates and assumptions |
The preparation of consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities as at the date of the consolidated interim financial statements and reported amounts of revenues and expenses during the three and six months ended June 30, 2021 and 2020. Estimates and assumptions used in preparation of these consolidated interim financial statements are consistent with those used by the Company in preparing the annual consolidated financial statements as at and for the year ended December 31, 2020. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events which are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
| 4. | Cash and cash equivalents and short-term deposits |
| ($000s) | June 30, 2021 | December 31, 2020 | ||||||
| Cash and cash equivalents | 53,219 | 17,528 | ||||||
| Short-term deposits | 19,928 | 19,905 | ||||||
| 73,147 | 37,433 | |||||||
All cash and cash equivalents are held in a Canadian Schedule I bank. Short-term deposits consist of Canadian Schedule I bank guaranteed deposits and are cashable in whole or in part with interest at any time to maturity.
Page 6
| 5. | Amounts receivable and prepaid expenses |
| ($000s) | June 30, 2021 | December 31, 2020 | ||||||
| HST (1) | 2,527 | 2,793 | ||||||
| Trade and other receivables due from related parties | 80 | - | ||||||
| Prepaid expenses and other receivables | 1,715 | 2,177 | ||||||
| 4,322 | 4,970 | |||||||
| 1) | During 2016, upon the completion of an audit of the application by tax authorities of the British Columbia Mineral Exploration Tax Credit (“BCMETC”) program, the Company was reassessed $3.6 million, including accrued interest, for expenditures that the tax authority has categorized as not qualifying for the BCMETC program. The Company recorded a $3.6 million provision within non-trade payables and accrued expenses on the consolidated statements of financial position as at December 31, 2016. In 2017 the Company filed an objection to the reassessment with the appeals division of the tax authorities and paid one-half of the accrued balance while the objection is reviewed. In early 2019, the Company received a decision from the appeals division that the Company’s objection was denied, and the Company filed a Notice of Appeal with the British Columbia Supreme Court. The Attorney General of Canada replied to the facts and arguments in the Company’s Notice of Appeal and stated its position that the Company’s expenditures did not qualify for the BCMETC program. As at June 30, 2021, the Company is in the discovery process with the Department of Justice and will continue to move the appeal process forward as expeditiously as possible. The Company intends to continue to fully defend its position. As at June 30, 2021, the Canada Revenue Agency (CRA) has withheld $2.0 million of HST credits due to the Company that would fully cover the residual balance, including interest, should the Company be unsuccessful in its challenge. |
| 6. | Investments |
| ($000s) | January 1, 2021 | Fair value through other comprehensive income (loss) | Loss of associates | Additions | June 30, 2021 | |||||||||||||||
| Current assets: | ||||||||||||||||||||
| Investment in marketable securities | 3,826 | (636 | ) | - | - | 3,190 | ||||||||||||||
| Non-current assets: | ||||||||||||||||||||
| Investment in associate | 2,611 | - | (131 | ) | 20 | 2,500 |
| ($000s) | January 1, 2020 | Fair value through other comprehensive income (loss) | Loss of associates | Additions | December 31, 2020 | |||||||||||||||
| Current assets: | ||||||||||||||||||||
| Investment in marketable securities | 3,032 | 794 | - | - | 3,826 | |||||||||||||||
| Non-current assets: | ||||||||||||||||||||
| Investment in associate | 2,361 | - | (187 | ) | 437 | 2,611 |
Page 7
The Company holds common shares of several mining companies that were received as consideration for optioned mineral properties and other short-term investments, including one gold exchange traded receipt. These financial assets are recorded at fair value of $3.2 million (December 31, 2020 - $3.8 million) in the consolidated statements of financial position. At June 30, 2021, the Company revalued its holdings in its investments and recorded a fair value decrease of $0.6 million on the statement of operations and comprehensive earnings (loss).
Investment in associate relates to Paramount Gold Nevada Corp (“Paramount”). As at June 30, 2021, the Company holds a 6.78% (December 31, 2020 – 7.42%) interest in Paramount for which it accounts using the equity method on the basis that the Company has the ability to exert significant influence through its representation on Paramount’s board of directors. During the six months ended June 30, 2021, the Company recorded its proportionate share of Paramount’s net loss of $0.13 million (June 30, 2020 – $0.07 million) within equity loss of associate on the consolidated statements of operations and comprehensive earnings (loss). As at June 30, 2021, the carrying value of the Company’s investment in Paramount was $2.5 million (December 31, 2020 - $2.6 million).
In June 2020, the Company participated in a non-brokered registered direct offering and purchased 288,460 common shares of Paramount at US$1.04 per common share for a total of $0.4 million.
| 7. | Convertible Notes Receivable |
In September 2019, the Company participated in a private placement to purchase US$410,000, at face value, of secured convertible notes issued by Paramount. Each convertible note had an issue price of US$975 per US$1,000 face value with a four-year maturity. The Company purchased 410 convertible notes for a total of $0.5 million (US$399,750). The convertible notes bear interest at a rate of 7.5% per annum, payable semi-annually. At any time after the issuance of the convertible notes, the Company can convert all or any portion of the outstanding amount into common shares of Paramount at a price of US$1.00 per common share. The convertible notes receivable are recorded at fair value through profit or loss (“FVTPL”).
As at June 30, 2021, the fair value of the convertible notes receivable was $0.6 million (December 31, 2020 - $0.5 million). The fair value was determined using the binomial option pricing model using the following assumptions: risk-free rate of 0.44%, 2.25 years expected remaining life of the convertible note, volatility of 51% based on Paramount stock price volatility, forfeiture rate of nil, and dividend yield of nil.
During the six months ended June 30, 2021, the Company received 14,236 common shares of Paramount (June 30, 2020 – 12,067) for payment of interest on the secured convertible notes accrued between July 1, 2020 and December 31, 2020. Subsequent to the quarter end, the Company received 15,850 common shares of Paramount for payment of interest on the secured convertible notes accrued between January 1, 2021 and June 30, 2021.
Page 8
| 8. | Property, plant and equipment |
| ($000s) | Property & Equipment | Right-of-use assets | Total | |||||||||
| Cost | ||||||||||||
| As at January 1, 2020 | - | 307 | 307 | |||||||||
| As at December 31, 2020 | - | 307 | 307 | |||||||||
| Additions | 3,080 | 100 | 3,180 | |||||||||
| As at June 30, 2021 | 3,080 | 407 | 3,487 | |||||||||
| Accumulated Depreciation | ||||||||||||
| As at January 1, 2020 | - | 36 | 36 | |||||||||
| Depreciation | - | 36 | 36 | |||||||||
| As at December 31, 2020 | - | 72 | 72 | |||||||||
| Depreciation | - | 43 | 43 | |||||||||
| As at June 30, 2021 | - | 115 | 115 | |||||||||
| Net Book Value | ||||||||||||
| As at December 31, 2020 | - | 235 | 235 | |||||||||
| As at June 30, 2021 | 3,080 | 292 | 3,372 |
| 9. | Mineral Interests |
Mineral interest expenditures on projects are considered as exploration and evaluation and their related costs consist of the following:
| ($000s) | Balance January 1, | Acquisitions 2021 | Expenditures 2021 | Balance June 30, | ||||||||||||
| KSM | 444,167 | - | 15,804 | 459,971 | ||||||||||||
| Courageous Lake | 76,522 | - | 312 | 76,834 | ||||||||||||
| Iskut | 37,949 | - | 1,251 | 39,200 | ||||||||||||
| Snowstorm | 24,924 | - | 2,875 | 27,799 | ||||||||||||
| 3 Aces | 7,113 | - | 821 | 7,934 | ||||||||||||
| Grassy Mountain | 771 | - | - | 771 | ||||||||||||
| 591,446 | - | 21,063 | 612,509 |
| ($000s) | Balance January 1, | Acquisitions 2020 | Expenditures 2020 | Balance December 31, 2020 | ||||||||||||
| KSM | 296,509 | 127,530 | 20,128 | 444,167 | ||||||||||||
| Courageous Lake | 75,721 | - | 801 | 76,522 | ||||||||||||
| Iskut | 32,215 | - | 5,734 | 37,949 | ||||||||||||
| Snowstorm | 20,455 | - | 4,469 | 24,924 | ||||||||||||
| 3 Aces | - | 6,564 | 549 | 7,113 | ||||||||||||
| Grassy Mountain | 771 | - | - | 771 | ||||||||||||
| 425,671 | 134,094 | 31,681 | 591,446 |
Page 9
Continued exploration of the Company’s mineral properties is subject to certain lease payments, project holding costs, rental fees and filing fees.
| a) | KSM (Kerr-Sulphurets-Mitchell) |
In 2001, the Company purchased a 100% interest in contiguous claim blocks in the Skeena Mining Division, British Columbia. The vendor maintains a 1% net smelter royalty interest on the project, subject to maximum aggregate royalty payments of $4.5 million. The Company is obligated to purchase the net smelter royalty interest for the price of $4.5 million in the event that a positive feasibility study demonstrates a 10% or higher internal rate of return after tax and financing costs.
In 2011 and 2012, the Company completed agreements granting a third party an option to acquire a 2% net smelter royalty on all gold and silver production sales from KSM for a payment equal to the lesser of $160 million or US$200 million. The option is exercisable for a period of 60 days following the announcement of receipt of all material approvals and permits, full project financing and certain other conditions for the KSM Project.
In December 2020, the Company purchased the Snowfield property from Pretium Resources Inc. The Snowfield property, located in the same valley that hosts KSM's Mitchell deposit, was purchased for US$100 million ($127.5 million) in cash, a 1.5% net smelter royalty on Snowfield property production, and a conditional payment of US$20 million, payable following the earlier of (i) commencement of commercial production from Snowfield property, and (ii) announcement by the Company of a bankable feasibility study which includes production of reserves from the Snowfield property. US$15 million of the conditional payment can be credited against future royalty payments.
| b) | Courageous Lake |
In 2002, the Company purchased a 100% interest in the Courageous Lake gold project from Newmont Canada Limited and Total Resources (Canada) Limited. The Courageous Lake gold project consists of mining leases located in Northwest Territories of Canada.
| c) | Iskut |
On June 21, 2016, the Company purchased 100% of the common shares of SnipGold Corp. which owns the Iskut Project, located in northwestern British Columbia.
| d) | Snowstorm |
In 2017, the Company purchased 100% of the common shares of Snowstorm Exploration LLC which owns the Snowstorm Project, located in northern Nevada. In connection with the acquisition, the Company has agreed to make a conditional cash payment of US$2.5 million if exploration activities at the Snowstorm Project result in defining a minimum of five million ounces of gold resources compliant with National Instrument 43-101 and a further cash payment of US$5.0 million on the delineation of an additional five million ounces of gold resources.
In 2019, the Company purchased the Goldstorm Project in northern Nevada from Mountain View Gold Corp.
Page 10
| e) | 3 Aces |
In 2020, the Company acquired a 100% interest in the 3 Aces gold project in the Yukon, Canada from Golden Predator Mining Corp. through the issuance of 300,000 common shares valued at $6.6 million. Should the project attain certain milestones, including the confirmation of a National Instrument 43-101 compliant mineral resource of 2.5 million ounces of gold, the Company will pay an additional $1 million, and upon confirmation of an aggregate mineral resource of 5 million ounces of gold, the Company will potentially pay an additional $1.25 million.
| f) | Grassy Mountain |
In 2013, the Company sold 100% of its interest in the Grassy Mountain Project with a net book value of $771,000 retained within mineral properties, related to the option to either receive, at the discretion of the Company, a 10% net profits interest royalty or a $10 million cash payment. Settlement is due four months after the later of: the day that the Company receives a feasibility study on the project; and the day that the Company is notified that permitting and bonding for the mine is in place. The current owner of the Grassy Mountain Project is Paramount who completed a feasibility study in 2020 but they have not notified the Company that permitting and bonding for the mine is in place.
| g) | Red Mountain |
In April 2021, the Company disposed of its residual interests in its previously owned Red Mountain project located in northwestern British Columbia, for cash proceeds of US$18 million, to Sprott Resource Streaming and Royalty. Previous to 2021, the Company had recovered all capitalized costs associated with the Red Mountain Project and, as a result the full US$18 million has been recorded as gain on the statement of operations and comprehensive earnings (loss).
10. Accounts payable and accrued liabilities
| ($000s) | June 30, 2021 | December 31, 2020 | ||||||
| Trade payables | 3,492 | 2,466 | ||||||
| Trade and other payables due to related parties | 79 | 57 | ||||||
| Non-trade payables and accrued expenses (1) | 7,151 | 2,854 | ||||||
| 10,722 | 5,377 |
| 1) | Refer to Note 5 for the additional comment on the $2.0 million HST withheld by the CRA regarding the BCMETC program. |
11. Lease obligations
| ($000s) | June 30, 2021 | December 31, 2020 | ||||||
| Opening balance | 248 | 274 | ||||||
| Additions | 100 | - | ||||||
| Principle repayment for the period | (37 | ) | (26 | ) | ||||
| Total lease obligations | 311 | 248 | ||||||
| Current portion | 89 | 41 | ||||||
| Non-current portion | 222 | 207 |
Page 11
| 12. | Provision for reclamation liabilities |
| ($000s) | Six months ended June 30, 2021 | Year December 31, | ||||||
| Beginning of the period | 6,164 | 6,865 | ||||||
| Disbursements | (481 | ) | (811 | ) | ||||
| Environmental rehabilitation expense | 96 | - | ||||||
| Accretion | 69 | 110 | ||||||
| End of the period | 5,848 | 6,164 | ||||||
| Provision for reclamation liabilities - current | 2,500 | 2,500 | ||||||
| Provision for reclamation liabilities - long-term | 3,348 | 3,664 | ||||||
| 5,848 | 6,164 |
The estimate of the provision for reclamation obligations, as at June 30, 2021, was calculated using the estimated discounted cash flows of future reclamation costs of $5.8 million (December 31, 2020 - $6.2 million) and the expected timing of cash flow payments required to settle the obligations between 2021 and 2026. As at June 30, 2021, the undiscounted future cash outflows are estimated at $5.9 million (December 31, 2020 – $6.2 million) primarily over the next two years. The discount rate used to calculate the present value of the reclamation obligations was 0.4% at June 30, 2021 (0.2% - December 31, 2020). During the six months ended June 30, 2021, reclamation disbursements amounted to $0.5 million (six months ended June 30, 2020 - $0.3 million).
During the current quarter, the Company placed $7.4 million on deposit with a financial institution pledged as security for the Fish Habitat Offsetting Plan obligation at KSM. In 2020, the Company placed $5.2 million on deposit with a financial institution pledged as security for the Fish Habitat Offsetting Plan obligation at KSM. As at June 30, 2021, the Company has placed a total of $14.2 million (December 31, 2020 - $6.8 million) on deposit with financial institutions or with government regulators that are pledged as security against reclamation liabilities. The deposits are recorded on the consolidated statements of financial position as reclamation deposit.
| 13. | Shareholders’ equity |
The Company is authorized to issue an unlimited number of preferred shares and common shares with no par value. No preferred shares have been issued or were outstanding at June 30, 2021 or at December 31, 2020.
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.
The properties in which the Company currently has an interest are in the exploration stage, as such the Company is dependent on external financing to fund its activities. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company’s approach to capital management during 2021. The Company considers its capital to be share capital, stock-based compensation, warrants, contributed surplus and deficit. The Company is not subject to externally imposed capital requirements.
| a) | Equity financings |
During the fourth quarter of 2019, the Company entered into an agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$40 million in value of common shares of the Company. During 2020, the Company issued 1,327,046 shares, at an average selling price of $21.94 per share, for net proceeds of $28.5 million under Company’s At-The-Market offering.
During the first quarter of 2021, the Company entered into a new agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$75 million in value of common shares of the Company. This program can be in effect until the Company’s current US$775 million Shelf Registration Statement expires in January 2023. During the six months ended June 30, 2021, the Company issued 976,062 shares, at an average selling price of $22.95 per share, for net proceeds of $21.9 million under Company’s At-The-Market offering. Subsequent to the quarter end, the Company issued 213,930 shares, at an average selling price of $22.27 per share, for net proceeds of $4.7 million under Company’s At-The-Market offering.
Page 12
In June 2021, the Company issued 350,000 flow-through common shares at $28.06 per common share for aggregate gross proceeds of $9.8 million. The Company committed to renounce its ability to deduct qualifying exploration expenditures for the equivalent value of the gross proceeds of the flow-through financing and transfer the deductibility to the purchasers of the flow-through shares. The effective date of the renouncement was December 31, 2021. At the time of issuance of the flow-through shares, $1.5 million premium was recognized as a liability on the consolidated statements of financial position.
On December 4, 2020, the Company entered into an agreement to sell, on a bought deal basis, 6,100,000 common shares of the Company, at US$17.25 per common share, for gross proceeds of US$105.0 million. As part of the agreement, the Company granted an option to the underwriters to sell up to an additional 610,000 common shares of the Company, at a price of US$17.25 per common share, for gross proceeds of US$10.5 million. The financing closed on December 9, 2020, and the underwriters fully exercised their option to purchase the additional common shares. In aggregate, 6,710,000 common shares were issued, at a price of US$17.25 per common share, for gross proceeds of US$115.7 million.
In June 2020, the Company issued 345,000 flow-through common shares at $32.94 per common share for aggregate gross proceeds of $11.4 million. The Company committed to renounce its ability to deduct qualifying exploration expenditures for the equivalent value of the gross proceeds of the flow-through financing and transfer the deductibility to the purchasers of the flow-through shares. The effective date of the renouncement was December 31, 2020. In accordance with draft legislation released on December 16, 2020 in relation to the COVID-19 pandemic, a 12-month extension has been proposed to the normal timelines in which the qualifying exploration expenditures should be incurred. At the time of issuance of the flow-through shares, $3.9 million premium was recognized as a liability on the consolidated statements of financial position. In 2020, the Company incurred $4.7 million of qualifying exploration expenditures and $1.6 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive earnings (loss). During the six months ended June 30, 2021, the Company incurred $1.0 million of qualifying exploration expenditures and $0.3 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive earnings (loss).
In April 2020, the Company closed a non-brokered private placement of 1.2 million common shares, at a price of $11.75 per common share, for gross proceeds of $14.1 million. As part of the private placement agreement, the Company granted an option to increase the size of the private placement by an additional 240,000 common shares exercisable until May 15, 2020. The 240,000 options were fully exercised on May 6, 2020 at a price of $11.75 per share, for gross proceeds of $2.8 million.
| b) | Warrants |
As part of the acquisition agreement of Snowstorm Exploration LLC in June 2017, the Company issued 500,000 common share purchase warrants exercisable for four years at $15.65 per share. During the current quarter, all the warrants were exercised for net proceeds of $7.8 million and 500,000 common shares were issued.
| c) | Stock options and Restricted share units |
The Company provides compensation to directors and employees in the form of stock options and Restricted Share Units (“RSU”s).
Pursuant to the Share Option Plan, the Board of Directors has the authority to grant options, and to establish the exercise price and life of the option at the time each option is granted, at a price not less than the closing price of the common shares on the Toronto Stock Exchange on the date of the grant of such option and for a period not exceeding five years. All exercised options are settled in equity.
Pursuant to the Company’s RSU Plan, the Board of Directors has the authority to grant RSUs, and to establish terms of the RSUs including the vesting criteria and the life of the RSU. The life of the RSU is not to exceed two years.
Page 13
Stock option and RSU transactions were as follows:
Options | RSUs | Total | ||||||||||||||||||||||
| Number of Options | Weighted Average Exercise Price ($) | Amortized Value of options ($000s) | Number of RSUs | Amortized Value of RSUs ($000s) | Stock-based Compensation ($000s) | |||||||||||||||||||
| Outstanding January 1, 2021 | 2,611,691 | 12.51 | 22,524 | 135,450 | 487 | 23,011 | ||||||||||||||||||
| Granted | - | - | - | - | - | - | ||||||||||||||||||
| Exercised option or vested RSU | (679,668 | ) | 10.75 | (7,630 | ) | (135,450 | ) | (3,413 | ) | (11,043 | ) | |||||||||||||
| Expired | (2,856 | ) | 6.30 | (37 | ) | - | - | (37 | ) | |||||||||||||||
| Amortized value of stock-based compensation | - | - | 8 | - | 2,926 | 2,934 | ||||||||||||||||||
| Outstanding at June 30, 2021 | 1,929,167 | 13.15 | 14,865 | - | - | 14,865 | ||||||||||||||||||
| Exercisable at June 30, 2021 | 1,925,833 | |||||||||||||||||||||||
| Options | RSUs | Total | ||||||||||||||||||||||
| Number of Options | Weighted Average Exercise Price ($) | Amortized Value of options ($000s) | Number of RSUs | Amortized Value of RSUs ($000s) | Stock-based Compensation ($000s) | |||||||||||||||||||
| Outstanding January 1, 2020 | 3,003,153 | 12.32 | 18,546 | 139,600 | 274 | 18,820 | ||||||||||||||||||
| Granted | - | - | - | 135,450 | 487 | 487 | ||||||||||||||||||
| Exercised option or vested RSU | (390,153 | ) | 11.03 | (2,246 | ) | (139,600 | ) | (2,351 | ) | (4,597 | ) | |||||||||||||
| Expired | (1,309 | ) | 6.30 | (16 | ) | - | - | (16 | ) | |||||||||||||||
| Amortized value of stock-based compensation | - | - | 6,240 | - | 2,077 | 8,317 | ||||||||||||||||||
| Outstanding at December 31, 2020 | 2,611,691 | 12.51 | 22,524 | 135,450 | 487 | 23,011 | ||||||||||||||||||
| Exercisable at December 31, 2020 | 2,608,357 | |||||||||||||||||||||||
Page 14
The outstanding share options at June 30, 2021 expire at various dates between August 2021 and June 2024. A summary of options outstanding, their remaining life and exercise prices as at June 30, 2021 is as follows:
| Options Outstanding | Options Exercisable | ||||||||||
| Number | Remaining | Number | |||||||||
| Exercise price | outstanding | contractual life | Exercisable | ||||||||
| $ | 17.14 | 50,000 | 1 months | 50,000 | |||||||
| $ | 10.45 | 700,833 | 6 months | 700,833 | |||||||
| $ | 13.14 | 528,334 | 1 year 6 months | 528,334 | |||||||
| $ | 16.94 | 50,000 | 2 years 4 months | 50,000 | |||||||
| $ | 15.46 | 550,000 | 2 years 6 months | 546,666 | |||||||
| $ | 17.72 | 50,000 | 3 years | 50,000 | |||||||
| 1,929,167 | 1,925,833 | ||||||||||
During the six months ended June 30, 2021, 679,668 options were exercised for proceeds of $7.3 million and 679,668 common shares were issued. The weighted average share price at the date of exercise of options exercised during the period was $22.15.
On June 25, 2020, shareholders resolved to approve that 425,000 options that were granted to the directors of the Company in 2015 and due to expire in April 2020, be extended for one year. These options vested in December 2020 upon the acquisition of the Snowfield property. The $4.4 million fair value of the extension was charged to the statement of operations and comprehensive earnings (loss) at that time, matching the revised estimated service period.
608,000 options granted to board members and senior management in December 2018 and June 2019 vested in December 2020 upon the acquisition of the Snowfield property and $1.6 million of the fair value of these options, not previously expensed, was charged to the statement of operations and comprehensive earnings (loss) on an accelerated basis to match the change in the estimate of the service period.
In October 2018, 50,000 five-year options with an exercise price of $16.94, to purchase common shares of the Company, with a grant-date fair value of $0.4 million, were granted to a new Board member. These options also vested in December 2020 upon the acquisition of the Snowfield property and $0.1 million of the fair value of these options, not previously expensed, was charged to the statement of operations and comprehensive earnings (loss) on an accelerated basis, to match the change in the estimated service period.
The Company has, since 2019, refocused the compensation practices away from issuing a combination of stock options and RSUs to only issuing RSUs with shorter terms and service periods.
In December 2020, the Board granted 135,450 RSUs. Of these, 28,000 RSUs were granted to the board members, 80,300 RSUs were granted to members of senior management, and the remaining 27,150 RSUs were granted to other employees of the Company. The fair value of the grants, of $3.4 million, was estimated as at the grant date to be amortized over the expected service period of the grants. The expected service period of approximately four months from the date of the grant was dependent on certain corporate objectives being met. Of the $3.4 million fair value of the grants, $0.5 million was amortized during the fourth quarter 2020, and the remaining $2.9 million was amortized during the first quarter 2021. During the current quarter 135,450 RSUs were vested and were exchanged for common shares of the Company.
Page 15
In December 2019, the Board granted 139,600 RSUs. Of these, 32,500 RSUs were granted to the board members, 74,200 RSUs were granted to members of senior management, and the remaining 32,900 RSUs were granted to other employees of the Company. The fair value of the grants, of $2.4 million, was estimated as at the grant date to be amortized over the expected service period of the grants. The expected service period of approximately six months from the date of the grant was dependent on certain corporate objectives being met. During the second quarter 2020, all 139,600 RSUs were vested. Of the $2.4 million total fair value of the RSUs, $0.3 million was amortized in December 2019, and the remaining $2.1 million was amortized during first half of 2020.
Subsequent to the quarter end, 37,500 options were exercised for proceeds of $0.6 million.
| d) | Basic and diluted net loss per common share |
For the periods ended June 30, 2021 and 2020, basic and diluted net earnings or loss per common share are computed by dividing the net earnings or loss for the period by the weighted average number of common shares outstanding for the period. The potential effect of stock options, RSUs and warrants has been excluded from the calculation of diluted loss per common share as the effect would be anti-dilutive. At June 30, 2021, there was a total of 1,929,167 dilutive stock options and nil RSUs outstanding (December 31, 2020 – 2,611,691 stock options, 135,450 RSUs, and 500,000 warrants).
| 14. | Fair value of financial assets and liabilities |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value.
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts, volatility measurements used to value option contracts and observable credit default swap spreads to adjust for credit risk where appropriate), or inputs that are derived principally from or corroborated by observable market data or other means.
Level 3: Inputs are unobservable (supported by little or no market activity).
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
The Company’s financial assets and liabilities as at June 30, 2021 and December 31, 2020 are cash and cash equivalents, short-term deposits, accounts receivable, marketable securities, convertible notes receivable and accounts payable. Other than investments and convertible notes receivable, the carrying values approximate their fair values due to the immediate or short-term maturity of these financial instruments and are classified as a Level 1 measurement. The Company’s equity investments are measured at fair value based on quoted market prices and are classified as a level 1 measurement. The convertible notes receivable are measured at fair value and are classified as a level 3 measurement.
Page 16
The Company’s financial risk exposures and the impact on the Company’s financial instruments are summarized below:
Credit Risk
The Company’s credit risk is primarily attributable to short-term deposits, convertible notes receivable, receivables included in amounts receivable and prepaid expenses, and non-current amounts receivable. The Company has no significant concentration of credit risk arising from operations. The short-term deposits consist of Canadian Schedule I bank guaranteed notes, with terms up to one year but are cashable in whole or in part with interest at any time to maturity, for which management believes the risk of loss to be remote. Management believes that the risk of loss with respect to financial instruments included in amounts receivable and prepaid expenses, and non-current amounts receivable to be remote or inconsequential.
Liquidity Risk
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at June 30, 2021, the Company had cash and cash equivalents of $53.2 million and short-term deposits of $19.9 million (December 31, 2020 - $17.5 million and $19.9 million, respectively) for settlement of current financial liabilities of $10.7 million (December 31, 2020 - $5.4 million). The short-term deposits consist of Canadian Schedule I bank guaranteed deposits and are cashable in whole or in part with interest at any time to maturity. The Company’s financial liabilities primarily have contractual maturities of 30 days and are subject to normal trade terms. The Company’s ability to fund its operations and capital expenditures and other obligations as they become due is dependent upon market conditions.
As the Company does not generate cash inflows from operations, the Company is dependent upon external sources of financing to fund its exploration projects and on-going activities. If required, the Company will seek additional sources of cash to cover its proposed exploration and development programs at its key projects, in the form of equity financings and from the sale of non-core assets. Refer to note 13 for details on equity financings.
Market Risk
| (a) | Interest Rate Risk |
The Company has no interest-bearing debt. The Company’s current policy is to invest excess cash in Canadian bank guaranteed notes (short-term deposits). The short-term deposits can be cashed in at any time and can be reinvested if interest rates rise.
| (b) | Foreign Currency Risk |
The Company’s functional currency is the Canadian dollar and major purchases are transacted in Canadian and US dollars. The Company funds certain operations, exploration and administrative expenses in the United States on a cash call basis using US dollar cash on hand or converted from its Canadian dollar cash. Management believes the foreign exchange risk derived from currency conversions is not significant to its operations and therefore does not hedge its foreign exchange risk. As at June 30, 2021, $17.3 million of cash and cash equivalents and $0.1 million of accounts payable and accrued liabilities are denominated in US dollars.
| (c) | Investment Risk |
The Company has investments in other publicly listed exploration companies which are included in investments. These shares were received as option payments on certain exploration properties the Company owns or has sold. In addition, the Company holds $3.0 million in a gold exchange traded receipt that is recorded on the consolidated statements of financial position in investments. The risk on these investments is significant due to the nature of the investment but the amounts are not significant to the Company.
Page 17
| 15. | Corporate and administrative expenses |
| Three months ended June 30, | Six
months ended | |||||||||||||||
| ($000s) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Employee compensation | 1,066 | 909 | 2,034 | 1,821 | ||||||||||||
| Stock-based compensation | 8 | 1,630 | 2,934 | 3,672 | ||||||||||||
| Professional fees | 394 | 296 | 559 | 568 | ||||||||||||
| Other general and administrative | 563 | 550 | 1,261 | 1,191 | ||||||||||||
| 2,031 | 3,385 | 6,788 | 7,252 | |||||||||||||
| 16. | Related party disclosures |
During the six months ended June 30, 2021 and 2020, there were no payments to related parties other than compensation paid to key management personnel.
| 17. | Income taxes |
During the three and six months ended June 30, 2021, the Company recognized income tax expense of $5.2 million and $4.8 million, respectively, primarily due to the deferred tax liability arising from the gain recognized on disposition of the Company’s residual interests in its previously owned Red Mountain project, and from the renouncement of expenditures related to the June 2020 flow-through shares issued which are capitalized for accounting purposes. The income tax expense was partially offset by income tax recovery arising from the losses in the period.
During the comparative three and six months ended June 30, 2020, the Company recognized income tax expense of $0.7 million and $0.3 million, respectively, primarily due to deferred tax liability arising from the effect of difference in tax rates applied to the assets transferred from Seabridge Gold Inc. to KSM Mining ULC. The tax expense was partially offset by the tax recovery resulting from the losses in the period.
As reported in the Company’s prior year financial statements, in 2019 the Company received a notice from the CRA that it proposed to reduce the amount of expenditures reported, as Canadian Exploration Expenses (CEE) for the three-year period ended December 31, 2016. The Company has funded certain of its exploration expenditures, from time-to-time, with the proceeds from the issuance of flow-through shares and renounced, to subscribers, the expenditures which it determined to be CEE. The notice disputes the eligibility of certain types of expenditures previously audited and approved as CEE by the CRA. The Company strongly disagrees with the notice and responded to the CRA auditors with additional information for their consideration. In 2020, the CRA auditors responded to the Company’s submission and, although accepting additional expenditures as CEE, reiterated that their position remains largely unchanged and subsequently issued reassessments to the Company reflecting the additional CEE expenditures accepted and $2.3 million of Part Xll.6 tax owing. The Company has been made aware that the CRA has reassessed certain investors who subscribed for flow-through shares in 2013 and will reassess other investors with reduced CEE deductions. The Company’s and investors’ reassessments will be appealed to the courts. The Company has indemnified the investors that subscribed for the flow-through shares. The potential tax indemnification to the investors is estimated to be $11.0 million, plus $2.2 million potential interest. No provision has been recorded related to the tax, potential interest, nor the potential indemnity as the Company and its advisors do not consider it probable that there will ultimately be an amount payable.
During the six-months ended June 30, 2021, and subsequent to the period end, the Company deposited $2.4 million and $1.2 million, respectively, into the accounts of certain investors with the Receiver General, in return for their agreement to object to their respective assessments and agreement to repay the Company the full amount deposited on their behalf upon resolution of the Company’s appeal.
Page 18
Exhibit 99.2
SEABRIDGE GOLD INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
SECOND QUARTER ENDED
JUNE 30, 2021
SEABRIDGE GOLD INC.
Management’s Discussion and Analysis
This management’s discussion and analysis (“MD&A”) of Seabridge Gold Inc. (“Seabridge” or the “Company”) and its subsidiary companies, dated August 13, 2021, is intended to supplement and complement the unaudited condensed consolidated interim financial statements and related notes (“consolidated interim financial statements”) as at and for the three and six months ended June 30, 2021. It should be read in conjunction with the Company’s audited annual consolidated financial statements and annual management’s discussion and analysis for the year ended December 31, 2020, and the 2020 Annual Information Form filed on SEDAR at www.sedar.com. Other corporate documents are also available on SEDAR and EDGAR as well as the Company’s website www.seabridgegold.com. As the Company has no operating projects at this time, its ability to carry out its business plan rests with its ability to sell projects or to secure equity and other financings. All amounts contained in this document are stated in Canadian dollars unless otherwise stated.
The consolidated interim financial statements for the three and six months ended June 30, 2021 and the comparative period 2020 have been prepared by the Company in accordance with IAS 34, Interim Financial Reporting.
Company Overview
Seabridge Gold Inc. is a company engaged in the acquisition and exploration of gold properties located in North America. The Company’s objective is to provide its shareholders with exceptional leverage to a rising gold price. The Company’s business plan is to increase its gold ounces in the ground but not to go into production on its own. The Company will either sell projects or participate in joint ventures towards production with major mining companies. Since inception in 1999, Seabridge has acquired interests in numerous advanced-stage gold projects situated in North America and its principal projects include the KSM property located in British Columbia and the Courageous Lake property located in the Northwest Territories. In 2016, the Company acquired 100% of the common shares of SnipGold Corp. (“SnipGold”) and its 100% owned Iskut Project in British Columbia. In 2017, the Company purchased 100% of Snowstorm Exploration LLC and its Snowstorm Project in Nevada. In 2020, the Company purchased its 100% interest in the 3 Aces gold project in Yukon and acquired the Snowfield property, adjacent to the KSM project, in British Columbia. Seabridge’s common shares trade in Canada on the Toronto Stock Exchange under the symbol “SEA” and in the United States on the New York Stock Exchange under the symbol “SA”.
Page 2
Results of Operations
During the current quarter, the Company recorded net earnings of $14.5 million, or $0.19 per share, on both basic and diluted basis, compared to a net loss of $4.1 million, or $0.06 per share, on both basic and diluted basis in the comparative period in 2020.
During the six months ended June 30, 2021, the Company recorded net earnings of $10.3 million, or $0.14 and $0.13 per share on basic and diluted basis, respectively. During the comparative period in 2020, the Company incurred a net loss of $7.3 million, or $0.11 per share, on both basic and diluted basis.
Gain on disposition of mineral interests, partially offset by corporate and administrative expenses, stock-based compensation, and income taxes were the most significant items contributing to net earnings for the three and six months ended June 30, 2021. These items are discussed further below.
During the current quarter, the Company disposed of its residual interests in its previously owned Red Mountain project located in northwestern British Columbia, for cash proceeds of US$18 million and recorded a gain of $21.9 million through the statement of operations and comprehensive earnings (loss). The capitalized costs incurred and accumulated while the Company held the project had previously been recovered through option and acquisition payments and the residual interest in the project had no carrying value.
During the current quarter, corporate and administrative expenses decreased by $1.4 million, from $3.4 million in the second quarter in 2020 to $2.0 million in the current quarter. The decrease was mainly due to lower stock-based compensation expense incurred during the current quarter (discussed below). Cash compensation increased by $0.2 million, from $0.9 million in the second quarter in 2020 to $1.1 million in the current quarter. The increase in cash compensation was mainly due to higher government burden associated with stock-based compensation as well as elimination of temporary COVID-19 pandemic health tax relief that was in place during the comparative prior period.
During the six months ended June 30, 2021, corporate and administrative expenses decreased by $0.5 million, from $7.3 million in the first half in 2020 to $6.8 million in the first half of 2021. The decrease was mainly due to $0.7 million lower stock-based compensation, partially offset by $0.2 million higher cash compensation.
The Company has recently refocused the compensation practices away from issuing a combination of stock options and RSUs to only issuing RSUs with a shorter service period. For the three and six months ended June 30, 2021 and 2020, the Company’s stock-based compensation expense, related to stock options and restricted share units, is illustrated in the following table:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| ($000s) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Options | 8 | 801 | 8 | 1,595 | ||||||||||||
| RSUs | - | 829 | 2,926 | 2,077 | ||||||||||||
| 8 | 1,630 | 2,934 | 3,672 | |||||||||||||
During the three and six months ended June 30, 2021, total stock-based compensation expense was lower than the comparative periods in 2020. The shift to issuing mainly RSUs reflects the negligible stock options expense in 2021 and the marginally higher stock-based compensation expense related to the RSUs. RSUs granted in December 2020 and expensed during the first quarter 2021, had a higher grant date fair value and shorter service period when compared to the RSUs granted in December 2019 and expensed during the first and second quarter of 2020.
The stock-based compensation expense related to stock options was negligible in the current quarter and six-month period versus $1.6 million during the first half in 2020. Virtually all of the fair value of stock options granted in prior periods was amortized by the end of 2020.
Page 3
The Company’s stock-based compensation expense related to stock options and restricted share units are illustrated on the following tables:
| ($000s) | ||||||||||||||||||||||||||||||||
| Options granted | Exercise price ($) | Number of options | Grant date fair value | Cancelled prior to 2020 | Expensed prior to 2020 | Expensed
in 2020 | Expensed
in 2021 | Balance
to be expensed | ||||||||||||||||||||||||
| June 24, 2015 | 9.00 | 475,000 | 5,774 | 149 | 1,266 | 4,359 | - | - | ||||||||||||||||||||||||
| December 14, 2017 | 13.14 | 605,000 | 4,303 | - | 4,085 | 218 | - | - | ||||||||||||||||||||||||
| October 11, 2018 | 16.94 | 50,000 | 421 | - | 334 | 87 | - | - | ||||||||||||||||||||||||
| December 12, 2018 | 15.46 | 568,000 | 4,719 | - | 3,383 | 1,328 | 8 | - | ||||||||||||||||||||||||
| June 26, 2019 | 17.72 | 50,000 | 416 | - | 168 | 248 | - | - | ||||||||||||||||||||||||
| 149 | 9,236 | 6,240 | 8 | - | ||||||||||||||||||||||||||||
| ($000s) | ||||||||||||||||||||||||
| RSUs granted | Number of RSUs | Grant date fair value | Expensed prior to 2020 | Expensed in 2020 | Expensed in 2021 | Balance to be expensed | ||||||||||||||||||
| December 12, 2019 | 139,600 | 2,351 | 274 | 2,077 | - | - | ||||||||||||||||||
| December 16, 2020 | 135,450 | 3,413 | - | 487 | 2,926 | - | ||||||||||||||||||
| 274 | 2,564 | 2,926 | - | |||||||||||||||||||||
During the three and six months ended June 30, 2021, the Company recognized $0.2 million and $0.3 million, respectively, of other income related to the flow-through share premium recorded on the financing completed in June 2020 (discussed below).
During the current quarter, 135,450 RSUs granted in mid-December 2020 vested upon the Company completing the 2020 exploration program at Snowstorm and were exchanged for common shares of the Company. In December 2020, $0.5 million of the full fair value of $3.4 million was charged to the statement of operations and comprehensive loss and the remaining fair value of the grant of $2.9 million was charged to the statement of operations and comprehensive loss in the first quarter in 2021.
In 2020, 139,600 RSUs fully vested to the holders of RSUs granted at the end of 2019 upon the Company attaining pre-established vesting conditions and $2.1 million of fair value was expensed through the statement of operations and comprehensive loss.
In June 2020, shareholders resolved to approve that 425,000 options that were granted to the directors of the Company in 2015 and due to expire in April 2020, be extended for one year. The fair value of the extension was determined to be $4.4 million. In December 2020, upon acquisition of the Snowfield property (discussed below) the performance condition for these options, amongst other grants made between 2016 and 2019, was met and management adjusted the estimated vesting period to that date and a total of $6.0 million of fair value was expensed through the statement of operations and comprehensive loss.
Page 4
The Company holds common shares of several mining companies that were received as consideration for optioned mineral properties and other short-term investments, including one gold exchange traded receipt. During the current quarter, the fair value of investments remained virtually unchanged. During the six months ended June 30, 2021, the Company recognized a decrease in the fair value of investments, net of income taxes, of $0.6 million. For the three and six months ended June 30, 2020, the Company recognized an increase in fair value of investments of $0.8 million and $1.2 million, respectively.
The Company holds one investment in an associate that is accounted for on the equity basis. During the three and six months ended June 30, 2021, the Company recognized $0.05 million and $0.13 million loss in associate, respectively. During the comparative three and six months ended June 30, 2020, the Company recognized $0.03 million and $0.07 million loss in the associate, respectively.
During the three and six months ended June 30, 2021, the Company recognized income tax expense of $5.2 million and $4.8 million, respectively, primarily due to the deferred tax liability arising from the gain recognized on disposition of the Company’s residual interests in its previously owned Red Mountain project, and from the renouncement of expenditures related to the June 2020 flow-through shares issued which are capitalized for accounting purposes. The income tax expense was partially offset by income tax recovery arising from the losses in the period.
During the comparative three and six months ended June 30, 2020, the Company recognized income tax expense of $0.7 million and $0.3 million, respectively, primarily due to deferred tax liability arising from the effect of difference in tax rates applied to the assets transferred from Seabridge Gold Inc. to KSM Mining ULC. The tax expense was partially offset by the tax recovery resulting from the losses in the period.
Quarterly Information
Selected financial information for the last eight quarters ending June 30, 2021 is as follows:
| (in thousands of Canadian dollars, | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||
| except per share amounts) | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | ||||||||||||||||||||||||
| Revenue | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Earnings (loss) for the period | 14,548 | (4,285 | ) | (12,653 | ) | 4,977 | (4,068 | ) | (3,198 | ) | (2,963 | ) | (2,526 | ) | ||||||||||||||||||
| Basic earnings (loss) per share | 0.19 | (0.06 | ) | (0.18 | ) | 0.07 | (0.06 | ) | (0.05 | ) | (0.05 | ) | (0.04 | ) | ||||||||||||||||||
| Diluted earnings (loss) per share | 0.19 | (0.06 | ) | (0.18 | ) | 0.07 | (0.06 | ) | (0.05 | ) | (0.05 | ) | (0.04 | ) | ||||||||||||||||||
In the current quarter, net income included $21.9 million gain on disposition of interest in the Red Mountain project. In the first quarter 2021, the loss for the period included $2.9 million of stock-based compensation expense related to amortization of RSUs granted in December 2020 that were vested during the second quarter 2021.
In the third quarter 2020, net income included a $4.9 million reversal of stock-based compensation expense, related to non-market condition, performance vesting stock options granted in the years 2015 to 2019, that was previously recognized through the statement of operations and comprehensive loss. The reversal reflected a revised estimated vesting period of those options. In the fourth quarter 2020, that vesting period was re-estimated to reflect the purchase of the Snowfield property from Pretium Resources Inc. for $127.5 million. The purchase, discussed below, added 25.9 million ounces of gold and 3.0 billion pounds of copper in the measured and indicated categories of resources and alone increased the measured and indicated gold ounces at KSM by 51% and by 28% for copper. The estimated service period for these stock options, including those whose fair value was reversed in the previous quarter, was reset to the Snowfield property acquisition date, and $8.6 million stock-based compensation expense was recognized through the statement of operations and comprehensive loss in the fourth quarter 2020.
Page 5
In the first and second quarters of 2020, the loss for the period included higher stock-based compensation expense compared to earlier quarters in 2019 as it included $1.2 million and $0.8 million, respectively, of charges related to amortization of RSUs granted in December 2019 that were vested during the second quarter of 2020.
Mineral Interest Activities
During the six months ended June 30, 2021, the Company added an aggregate of $21.1 million of expenditures that were attributed to mineral interests. Of these expenditures, 75% related to KSM, 14% to Snowstorm, 6% to Iskut, 4% to 3 Aces and 1% to Courageous Lake.
In the current quarter at KSM, the Company completed planning for and commenced site capture activities that are designed to ensure that KSM’s Environmental Assessment Certificate remains in good standing as well as collecting additional data that will be required for a final feasibility study. The Company is also conducting drilling programs for metallurgical testing at the Snowfields (see below) and Mitchell deposits and geotechnical drilling at Snowfields and at various sites that will be utilized in engineering studies. Work continues on various, significant, components of the eventual design, including connection to BC Hydro’s transmission line. Planning work was also carried out on infrastructure projects, including the commencement of the construction of the first section of the Coulter Creek access road as well as new camp installations. The commencement of these projects also entailed the purchase of $3 million of earth moving and other equipment that was delivered within the current quarter.
In the current quarter, the Company also deposited $7.4 million in the form of security for reclamation activities related to the infrastructure programs mentioned above.
Also in the current quarter, the Company continued to evaluate the geotechnical and exploration drilling programs conducted in 2020. The objective of the geotechnical drilling program was to test the condition of the rocks along the proposed route of the Mitchell Treaty Tunnels, a proposed key infrastructure component of the project. The exploration program included drilling in an area previously untested. Results of the evaluation of the programs are being followed up in 2021 with a small drilling and exploration program.
In December 2020, the Company closed the transaction acquiring a 100% interest in the Snowfield property immediately adjacent to KSM and its addition significantly transforms the KSM project, increasing measured and indicated gold ounces of KSM by 51% and 28% for copper and enables new development opportunities for KSM which could have a positive impact on the overall project economics. Management has been studying the integration of Snowfield into a new KSM mine plan. It is expected that a large portion of the Snowfield mineral resource could be exploited in a combined operation, which could potentially improve KSM’s internal rate of return and net present value projections as well as shortening the payback period of initial capital. Programs mentioned above should enable management to generate sufficient additional data necessary to complete a new preliminary feasibility study (PFS) for the project which includes the Snowfield property.
Page 6
In the current quarter at Iskut, the Company continued to evaluate the results of the exploration program conducted in 2020 that was designed to drill test for a gold/copper porphyry deposit below the Quartz Rise lithocap. The drill results are being analyzed for potential follow-up drilling in the current year. In addition to exploration work at Iskut, the Company commenced the 2021 reclamation and closure activities at the Johnny Mountain mine site.
In the current quarter, the Company evaluated the results of the Snowstorm drill program it commenced in 2020 and continued into the first and current quarters of 2021. The program was planned and executed based on the results of the first drill program and ground geophysical studies completed in 2019. The drilling program was completed in April 2021 and the results will be evaluated and analyzed prior to the commencement of a 2021 exploration campaign expected to commence in the third quarter of this year.
In June 2020, the Company acquired a 100% interest in the 3 Aces gold project in the Yukon, Canada and in the current quarter, management conducted field activities with line cutting to support a 42 line kilometer geophysical survey. The program is designed to build a 3-D earth image to integrate with historical drilling, to expand high-grade gold targets previously identified, and to detect new targets for initial drill testing expected to commence in the third quarter of this year.
In the current quarter, the Company continued to evaluate the best path forward at Courageous Lake. Options include securing a joint venture partner, the sale of all or a portion of the project, updating the 2012 PFS with a smaller initial project or conducting additional exploration outside the area of known reserves and resources.
In response to the pandemic, the Company has implemented measures to safeguard the health and well-being of its employees, contractors, consultants, and community members. Many of the Company’s employees worked remotely prior to the pandemic, and through most of 2020 and in the current quarter, all employees have been working remotely during ongoing periods of lockdowns in various jurisdictions. The Company reduced the scope of some of the work programs at its projects that it had originally planned for the prior year and has planned its current programs around social distancing protocols and that will repeat the safety and preventative actions at exploration camps. The Company is planning to execute its exploration and development work at KSM, Iskut, Snowstorm and 3 Aces projects under the same successful protocols it implemented in 2020. The Company’s engagement with potential joint venture partners, or potential acquirors of KSM or Courageous Lake was diminished in 2020 as major mining companies focused on addressing the needs of their existing operations as a result of the pandemic.
The Company continues to have full access to its properties in Canada and the United States and has managed to adequately staff its camps for planned programs. The Company has not experienced problems obtaining the supplies and services needed for its work programs. The Company has instituted and will continue to implement operational and monitoring protocols to ensure the health and safety of its employees and stakeholders, which follow the advice of local governments and health authorities where it operates. The Company plans work programs on an annual basis and adjusts its plans to the conditions it faces for funding and executing programs as it plans and operates its work programs. It fully expects to be able to continue operating its planned programs on this basis going forward, as required, and anticipates that the pandemic will continue to have minimal impact on its exploration activities.
Page 7
Liquidity and Capital Resources
The Company’s working capital position at June 30, 2021, was $63.9 million, up from $36.0 million on December 31, 2020. Included in current liabilities at June 30, 2021, is $3.4 million of flow-through premium liability which is a non-cash item (December 31, 2020 - $2.3 million) and will be reduced as flow-through expenditures are incurred. Increase in cash resources, including cash and cash equivalents and short-term deposits, was the net result of cash raised through financings (discussed below), disposition of mineral interests and exercise of stock options and warrants, partially offset by cash used in environmental and exploration projects, corporate and administrative costs and early infrastructure development and corresponding equipment and reclamation bonding deposits at KSM.
During the current quarter, the Company disposed of its residual interests in its previously owned Red Mountain project located in northwestern British Columbia, for net cash proceeds of $21.9 million.
As part of the acquisition agreement of Snowstorm Exploration LLC in June 2017, the Company issued 500,000 common share purchase warrants exercisable for four years at $15.65 per share. During the current quarter, all the warrants were exercised for net proceeds of $7.8 million and 500,000 common shares were issued.
During the six months ended June 30, 2021, the Company received $7.3 million upon the exercise of 679,668 stock options. Subsequent to the quarter end, the Company received $0.6 million upon exercise of 37,500 stock options.
In June 2021, the Company issued 350,000 flow-through common shares at $28.06 per common share for aggregate gross proceeds of $9.8 million. The Company committed to renounce its ability to deduct qualifying exploration expenditures for the equivalent value of the gross proceeds of the flow-through financing and transfer the deductibility to the purchasers of the flow-through shares. The effective date of the renouncement was December 31, 2021. At the time of issuance of the flow-through shares, $1.5 million premium was recognized as a liability on the consolidated statements of financial position. The intended use of the gross proceeds of this financing is to incur exploration costs in British Columbia and Yukon and as at the quarter end, had not yet been utilized.
During the first quarter of 2021, the Company entered into a revised agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$75 million in value of common shares of the Company. This program can be in effect until the Company’s current US$775 million Shelf Registration Statement expires in January 2023. During the six months ended June 30, 2021, the Company issued 976,062 shares, at an average selling price of $22.95 per share, for net proceeds of $21.9 million under Company’s At-The-Market offering. Subsequent to the quarter end, the Company issued 213,930 shares, at an average selling price of $22.27 per share, for net proceeds of $4.7 million under Company’s At-The-Market offering.
In December 2020, the Company entered into an agreement to sell, on a bought deal basis, 6,710,000 common shares of the Company, at US$17.25 per common share, for gross proceeds of US$115.7 million. In excess of 90% of the intended use of the net proceeds of this financing was to purchase the Snowfield property which it in fact completed in December of 2020 and the balance of the net proceeds has and will be utilized in operations and for general working capital purposes.
Page 8
In June 2020, the Company issued 345,000 flow-through common shares at $32.94 per common share for aggregate gross proceeds of $11.4 million. The Company committed to renounce its ability to deduct qualifying exploration expenditures for the equivalent value of the gross proceeds of the flow-through financing and transfer the deductibility to the purchasers of the flow-through shares. The effective date of the renouncement was December 31, 2020. In accordance with draft legislation released on December 16, 2020 in relation to the COVID-19 pandemic, a 12-month extension was proposed to the normal timelines in which the qualifying exploration expenditures should be incurred. At the time of issuance of the flow-through shares, $3.9 million premium was recognized as a liability on the consolidated statements of financial position. In 2020, the Company incurred $4.7 million of qualifying exploration expenditures and $1.6 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss. During the six months ended June 30, 2021, the Company incurred further $1.0 million of qualifying exploration expenditures and $0.3 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss. The intended use of the gross proceeds of this financing was to incur exploration costs in British Columbia. Of the $11.4 million raised, $5.7 million remains to be spent and management intends to use the funds for exploration purposes at either or both of its KSM and Iskut projects in 2021.
In April 2020, the Company closed a non-brokered private placement of 1.2 million common shares, at a price of $11.75 per common share, for gross proceeds of $14.1 million. As part of the private placement agreement, the Company granted an option to increase the size of the private placement by an additional 240,000 common shares exercisable until May 15, 2020. The 240,000 options were fully exercised on May 6, 2020 at a price of $11.75 per share, for gross proceeds of $2.8 million. The intended use of the net proceeds of this financing was for operations including working capital, and if required, to deposit funds with the Receiver General on behalf of flow-through investors that have been or will be reassessed based on the audit of flow-through expenditures incurred in 2014 to 2016, discussed below. During the first quarter 2021, deposits of $2.4 million was made. Subsequent to the quarter end, an additional $1.2 million was deposited with the Receiver General, on behalf of certain investors. It is anticipated that additional deposits will be made in the coming quarters in 2021 but the timing is uncertain.
During the current quarter, operating activities, including working capital adjustments, generated $1.5 million cash compared to $4.9 million cash used by the operating activities in comparative period in 2020. The change was mainly related to the working capital movement that was partially offset by foreign exchange losses, and higher cash compensation and higher reclamation costs in the current quarter. Operating activities in the near-term are not expected to deviate significantly from the current quarter.
As reported in the Company’s 2018, 2019 and 2020 annual financial statements, in early 2019 the Company received a notice from the CRA that it proposed to reduce the amount of expenditures reported, as Canadian Exploration Expenses (CEE) for the three-year period ended December 31, 2016. The Company has funded certain of its exploration expenditures, from time-to-time, with the proceeds from the issuance of flow-through shares and renounced, to subscribers, the expenditures which it determined to be CEE. The notice disputes the eligibility of certain types of expenditures previously audited and approved as CEE by the CRA. The Company strongly disagrees with the notice and responded to the CRA auditors with additional information for their consideration. In January 2020, the CRA auditors responded to the Company’s submission and, although accepting additional expenditures as CEE, reiterated that their position remains largely unchanged and subsequently issued reassessments to the Company reflecting the additional CEE expenditures accepted and $2.3 million of Part Xll.6 tax owing. During the second quarter in 2020, the Company filed an objection to the Part Xll.6 tax owing and is awaiting a response. Based on these reassessments, the Company anticipates that the CRA will reassess investors with reduced CEE deductions. The Company’s and investors’ reassessments can be appealed to the courts. The Company has indemnified the investors that subscribed for the flow-through shares. The potential tax indemnification to the investors is estimated to be $11.0 million. Accrued interest on the potential estimated tax is estimated at $2.2 million. No provision has been recorded related to the tax nor the potential indemnity as the Company and its advisors do not consider it probable that there will ultimately be an amount payable. During the first quarter 2021, $2.4 million was deposited with the Receiver General, on behalf of certain investors in return for their agreement to object to their respective assessments and agreement to repay the Company with any and all recoveries upon the successful resolution of the Company’s successful appeal. Subsequent to the quarter end, further $1.2 million was deposited with the Receiver General, on behalf of certain investors.
Page 9
During 2016, upon the completion of an audit of the application by tax authorities of the British Columbia Mineral Exploration Tax Credit (“BCMETC”) program, the Company was reassessed $3.6 million, including accrued interest, for expenditures that the tax authority has categorized as not qualifying for the BCMETC program. The Company recorded a $3.6 million provision within non-trade payables and accrued expenses on the consolidated statements of financial position as at December 31, 2016, with a corresponding increase to mineral interests. In 2017 the Company filed an objection to the reassessment with the appeals division of the tax authorities and paid one-half of the accrued balance while the objection is reviewed. In early 2019, the Company received a decision from the appeals division that the Company’s objection was denied, and the Company filed a notice of appeal with the British Columbia Supreme Court. The Attorney General of Canada replied to the facts and arguments in the Company’s Notice of Appeal and stated its position that the Company’s expenditures did not qualify for the BCMETC program. The Company is now in the discovery process with the Department of Justice and will continue to move the appeal process forward as expeditiously as possible. The Company intends to continue to fully defend its position. The Canada Revenue Agency (CRA) has withheld HST refunds due to the Company that would fully cover the residual balance, including interest, should the Company be unsuccessful in its challenge.
The Company will continue its objective of advancing its major gold projects, KSM and Courageous Lake, and to further explore the Iskut, Snowstorm and 3 Aces projects to either sell or enter into joint venture arrangements with major mining companies. The market for metals streams and royalty interests seems to be growing and the Company will determine the merits of disposing of options it holds on non-core net profits interests and net smelter returns or entering into new streaming and royalty arrangements as a method to finance further exploration and development of its projects.
Outlook
As mentioned above, the COVID-19 pandemic has not materially impacted the Company’s operations, financial condition or financial performance, but it has caused it to reduce the scale of certain programs and has hindered, and may continue to hinder, the pace of advancement at the affected projects. The Company was able to carry out the 2020 exploration and monitoring programs at its projects safely and within the constraints and measures implemented and the pandemic had no material impact to the results of operations. Based on its experience in 2020, the Company expects that the pandemic will again not have a material impact on its ability to conduct its field programs or the results of operations in 2021. Although the capital markets are relatively volatile, the Company does not foresee limitations to access capital on acceptable terms. No disruptions to supply chains are anticipated nor are any delays to project activity.
The pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to business globally resulting in an economic slowdown. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. Working closely with the health authorities and with its business partners, the Company developed effective procedures for operating safely in the current global health crisis.
With the increase in the price of gold since the start of the pandemic, the Company has enjoyed favourable capital markets and has continued to raise funds under its ATM offering of common shares and other financings mentioned above and its financial condition has not been adversely impacted by the pandemic. As a company without revenue from operations, its financial performance has not been impacted by the pandemic. The Company will continue to monitor developments of the pandemic and continuously assess the pandemic’s potential further impact on the Company’s operations and business.
In 2021 at KSM, the Company’s objective is to integrate Snowfield into KSM’s development plans and conduct metallurgical and geotechnical drilling at Snowfield to complete the work required to advance a new PFS that integrates Snowfield into the overall KSM project. The Company has commenced work on a new PFS which is expected to be finalized in 2022.
Page 10
The Company will also be completing substantial work ensuring that KSM’s Environmental Assessment Certificate remains in good standing as well as collecting additional data that will be required for a final feasibility study.
Engineering study work will also be conducted on various, significant, components of the eventual design, including the Treaty Creek Terminal connection to BC Hydro’s Northern Transmission Line. As well, work will continue on early infrastructure projects including the construction of the first section of the Coulter Creek access road and new camp installations.
In the current quarter, the Company also deposited $7.4 million in the form of security for reclamation activities related to the infrastructure programs mentioned above. Additional bonding will be required in the next 12 months.
The Company intends to continue 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. The KSM project includes multiple deposits and provides a joint venture partner, or purchaser, flexibility in the design of the project. In accordance with its priorities and risk tolerance, the Company believes that it does not make sense for it to start preparing a feasibility study on the KSM project on its own. The current KSM PFS includes recommendations on additional work that could be completed to advance the project, including budget estimates. The work that a joint venture partner might choose to complete might include some or all of this recommended work and might include significantly more work, and so the timing and cost for a joint venture partner to conclude the recommended work or a feasibility study is impossible to predict. The Company plans its work to advance the KSM project on an annual basis, when the results of one year’s work have been received and analyzed, planning for the next year begins. When planning its programs, the Company will consider the recommended work in the PFS, but the Company will decide work based on its priorities, the results of its advancement work and the items it believes are best left for a joint venture partner to decide. Plans for each year are typically announced in the second quarter of the year and budgets are established at the beginning of the year.
At Iskut, the Company will continue exploration activities focusing on a potential porphyry deposit below the Quartz Rise lithocap. The 2020 drill campaign confirmed the presence of a favourable mineralized intrusion with the presence of gold and copper. Additional geophysical surveys and two deeper drill holes have been designed to evaluate the potential source of the 2020 findings and should determine whether the porphyry related systems on the property have potential for drill targeting. Environmental work will also continue on the reclamation and closure plan for the Johnny Mountain mine. Work will entail water quality and quantity sampling and analysis, tailings management facility monitoring, relocation of waste rock and general cleanup of certain areas surrounding the mill.
At Snowstorm, the Company will utilize the results of the 2020 drill program, that was completed in April 2021, to undertake a follow-up drill program based on those results. The drill program is expected to commence in the third quarter.
At the Company’s new project, 3 Aces, an exploration program that included geophysics and mapping was conducted in the current quarter and it is anticipated that an initial drill program focused on high grade mineralized targets will commence in the third quarter.
The Company formalized its commitment to sustainability within management and the Board of Directors and to advance the integration of sustainability principles into all of our activities and planning by adopting a sustainability policy. The Company recognizes that sustainability involves protecting environmental values in the area of our projects, contributing to the health and the economic and social well-being of our employees and the local communities, and taking action on national and global priorities. A sustainable human environment requires us to consider issues such as cultural respect, inclusiveness, diversity, and broad participation in the opportunities and benefits which derive from our efforts. The sustainability policy therefore rests upon three critical pillars: the economy, society, and the environment and can be found on the Company’s website www.seabridgegold.com.
Page 11
Internal Controls Over Financial Reporting
The Company’s management under the supervision of the Chief Executive Officer and Chief Financial Officer are responsible for designing adequate internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Management is responsible for establishing and maintaining adequate internal controls over financial reporting. The control framework used is Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Changes to Internal Controls Over Financial Reporting
There was no change in the Company’s internal controls over financial reporting that occurred during the period beginning on April 1, 2021 and ended on June 30, 2021, that has materially affected or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
Disclosure Controls and Procedures
Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods specified in the rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company is accumulated and communicated to management as appropriate, to allow timely decisions regarding required disclosure. The Company’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation of the design of the disclosure controls and procedures as of June 30, 2021, that they are appropriately designed and effective and that since the December 31, 2020 evaluation, there have been no material changes to the Company’s disclosure controls and procedures.
Limitations of Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe that any internal controls over financial reporting and disclosure controls and procedures, no matter how well designed, can have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance that the objectives of the control system are met.
Shares Issued and Outstanding
At August 13, 2021, the issued and outstanding common shares of the Company totaled 77,054,396. In addition, there were 1,891,667 stock options outstanding. Assuming the conversion of all stock options outstanding, there would be 78,946,563 common shares issued and outstanding.
Related Party Transactions
During the six months ended June 30, 2021, and the comparative period in 2020, there were no payments to related parties other than compensation paid to key management personnel.
Critical Accounting Estimates
Critical accounting estimates used in the preparation of the consolidated financial statements include the Company’s estimate of recoverable value of its mineral properties and related deferred exploration expenditures, the value of stock-based compensation, asset retirement obligations, deferred income tax, and potential tax contingencies. All of these estimates involve considerable judgment and are, or could be, affected by significant factors that are out of the Company’s control.
Page 12
The factors affecting stock-based compensation include estimates of when stock options and warrants might be exercised and the stock price volatility. The timing for exercise of options is out of the Company’s control and will depend upon a variety of factors, including the market value of the Company’s shares and financial objectives of the stock-based instrument holders. The Company used historical data to determine volatility. However, the future volatility is uncertain.
The recoverability of the carrying value of mineral properties and associated deferred exploration expenses is based on market conditions for minerals, underlying mineral resources associated with the properties and future costs that may be required for ultimate realization through mining operations or by sale. The Company is in an industry that is dependent on a number of factors including environmental, legal and political risks, the existence of economically recoverable reserves, the ability of the Company and its subsidiaries to obtain necessary financing to complete the development, and future profitable production or the proceeds of disposition thereof.
The provision for asset retirement obligations is the best estimate of the present value of the future costs of reclaiming the environment that has been subject to disturbance through exploration activities or historical mining activities. The Company uses assumptions and evaluates technical conditions for each project that have inherent uncertainties, including changes to laws and practices and to changes in the status of the site from time-to-time. The timing and cost of the rehabilitation is also subject to uncertainty. These changes, if any, are recorded on the consolidated statements of operations and comprehensive loss as incurred.
The Company has net assets in Canada and the United States and files corporate tax returns in each. Deferred tax liabilities are estimated for tax that may become payable in the future. Future payments could be materially different from our estimated deferred tax liabilities. We have deferred tax assets related to non-capital losses and other deductible temporary differences. Deferred tax assets are only recognized to the degree that it shelters tax liabilities or when it is probable that we will have enough taxable income in the future to recover them.
Risks and Uncertainties
The risks and uncertainties are discussed within the Company’s most recent Annual Information Form filed on SEDAR at www.sedar.com, and the Annual Report on Form 40-F filed on EDGAR at www.sec.gov/edgar.shtml.
Forward Looking Statements
The consolidated financial statements and management’s discussion and analysis and any other materials included with them, contain certain forward-looking statements relating but not limited to the Company’s expectations, intentions, plans and beliefs. Forward-looking information can often be identified by forward-looking words such as “anticipate”, “believe”, “expect”, “goal”, “plan”, “intend”, “estimate”, “may” and “will” or similar words suggesting future outcomes, or other expectations, beliefs, estimates, plans, objectives, assumptions, intentions or statements about future events or performance. Forward-looking information may include reserve and resource estimates and expected changes to them, estimates of future production and related financial analysis, unit costs, costs of capital projects and timing of commencement of operations, and is based on current expectations that involve a number of business risks and uncertainties. Factors that could cause actual results to differ materially from any forward-looking statement include, but are not limited to, failure to establish estimated resources and reserves, the grade and recovery of ore which is mined varying from estimates, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results.
Potential shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Shareholders are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.
Page 13
Exhibit 99.3
Report to Shareholders
Quarter Ended June 30, 2021
Recent Highlights
| ● | Residual interest in Red Mountain sold for US$18 million in cash |
| ● | Field activities at KSM underway to incorporate Snowfield deposit into new 2022 PFS |
| ● | Cost sharing agreement executed on Coulter Creek Access Road for KSM |
| ● | 2021 exploration program commences at Snowstorm, Nevada |
| ● | New geophysical evidence supports the potential for large gold-copper porphyry system at Iskut |
| ● | Sustainability Mandate approved by Board |
| ● | Record $63.9 million in working capital at June 30 |
US$18 million Red Mountain sale brings total non-core asset sales to over $75 million
In April, Seabridge sold its residual interests in its previously owned Red Mountain project located in northwestern British Columbia for US$18 million in cash to Sprott Resource Streaming and Royalty. As background, in May 2017 IDM Mining Ltd. completed the exercise of its option to acquire a 100% interest in Red Mountain from Seabridge. Under the terms of the option agreement, IDM was further obligated to make a $1.5-million cash payment to Seabridge upon the commencement of commercial production at Red Mountain, and Seabridge retained the right either to receive a further $4.0 million cash payment or to keep a gold stream to acquire 10 per cent of the annual gold production from the Project at a cost of $1,000 (U.S.) per ounce up to a maximum of 50,000 ounces produced (50,000 ounces to Seabridge). In March 2019, IDM was acquired by Ascot Resources who now owns 100% of the Red Mountain Project, subject to these residual interests under the option agreement.
The sale of the residual interests in Red Mountain is consistent with Seabridge’s 21+ year business plan of selling non-core assets at opportunistic times to fund activities at our core projects. To date, we have generated over $75 million in profitable non-core asset sales with the proceeds being redeployed into our core assets where we believe we can drive greater shareholder value.
Metallurgical and geotechnical drilling advancing at KSM to incorporate Snowfield into new PFS
Field activities have commenced at KSM to collect the necessary data to incorporate the recently acquired Snowfield deposit into an updated KSM Preliminary Feasibility Study (“PFS”) scheduled for completion in 2022. 4,300 meters of metallurgical core holes is planned for the Snowfield and Mitchell deposits that will provide information for final milling and processing flowsheet designs. Previous work supports the concept that ore from Mitchell and Snowfield can be successfully blended as feed to the mill. In addition, 1,350 meters of geotechnical core drilling is planned for the Snowfield deposit for pit slope stability studies that are required for the 2022 PFS. Drill core from previous operators at Snowfield is being relogged by our geologists to incorporate into a new single, consistent geologic model for both deposits. To date, we have completed roughly half of the combined Mitchell and Snowfield drilling for the year.
Other work at KSM includes continuing the geotechnical drilling along the Mithcell-Treaty-Tunnel (“MTT”). Field mapping and hazard assessments are also being conducted by ground crews along the MTT route. Geotechnical drilling and testing is also being conducted for other early-stage site infrastructure such as portals, muck pads and water treatment ponds at various locations on the project site.
KSM site capture now underway with advancement of access roads and camps
Seabridge and Eskay Mining Corp., our neighbor at KSM, have agreed to share the costs equally on construction of the first 9 kilometers of the Coulter Creek Access Road (“CCAR”), estimated to cost $12.0 million. As background, the CCAR is one of two main access roads planned and permitted for Seabridge’s 100% owned KSM project. The road is designed to connect the KSM project with the existing Eskay mine road to the northwest. This initial segment of the CCAR will provide Seabridge with a lower elevation staging site closer to the KSM camp, thereby reducing Seabridge’s helicopter costs and improving both safety and certainty of access to KSM, while at the same time providing cost-saving logistical benefits for Eskay Mining’s planned exploration activities. More important for Seabridge, constructing this segment will shorten the time needed to establish early site access to the KSM deposits, enabling more rapid development of the project once we have consummated our anticipated joint venture. To fund Eskay Mining’s share of costs under the Cost Sharing Agreement, Seabridge has agreed to purchase a $6.0 million convertible debenture from them. For further details please see news release.
106 Front Street East, Suite 400, Toronto, ON M5A 1E1, Canada
416-367-9292 www.seabridgegold.com
In addition to the CCAR, site capture work at KSM includes transport of equipment to the Mitchell Valley where it is now clearing and grubbing topsoil and excavating fill to stockpile for the Camp 9 platform, our first permanent camp at the project site. We have also installed a camp at Hodder Creek just south of the Bell II lodge that will be ready for occupancy later this summer. Camp 3 at the start of the CCAR is now under construction and is expected to be commissioned shortly in order to house the CCAR construction crews. Later in the year, after receipt of regulatory permits, we expect to start construction of the Glacier Creek fish habitat offset ponds near the intersection of Highway 37 and the proposed Treaty Creek access road that will ultimately provide access to the process plant area.
2021 exploration program at Snowstorm designed to follow-up successful 2020 results
Drilling has started at Seabridge’s 100%-owned Snowstorm Project in Nevada. Snowstorm is located 15 km north of Turquoise Ridge on a blind extension of the prolific Getchell Trend. The 2021 drill program is designed to follow-up on results from last year that found discrete gold-bearing intervals hosted within a similar structural setting and rocks as the Turquoise Ridge Mine. The program is designed to re-enter existing drill holes and use directional drilling tools to continue the drill hole from known gold-bearing intersections toward prospective higher-grade feeder structures. An initial program of about 2,500 meters of exploration drilling is planned for this program.
Results from the four drill holes completed in 2020 provided positive outcomes in our search for gold-bearing fluid pathways. Two of the holes encountered intensely altered intermediate intrusive rocks sited at stratigraphic breaks. These intrusive rocks and wall rocks footwall to the intrusions are sheared and contain abundant silica introduction. Shearing and alteration in these rocks represent a low angle or thrust fault within the Paleozoic stratigraphy which provided a fluid pathway, associated with the sheared and altered zones are gold, arsenic, and silver concentrations one to two orders of magnitude above background intensities.
The 2021 program is designed to off-set these previous intersections toward a structure with a topographic expression which is projected into the Paleozoic section using magnetotelluric geophysical readings. The surface expression of this structure has produced a significant arsenic in soil anomaly. These initial off-sets will provide additional pierce points on the gold-bearing features and could refine the vectoring toward a Getchell Trend gold occurrence.
Drilling at Iskut to focus on gold-copper porphyry target underneath the Quartz Rise lithocap
Exploration activities are underway at Seabridge’s 100%-owned Iskut project in British Columbia to continue testing below the Quartz Rise Lithocap for a gold-copper porphyry mineral system similar to those on Seabridge’s nearby KSM Project. The Iskut target has been developed over the past four years, making extensive use of geophysical surveys including IP, magnetic, hyperspectral and magnetotelluric (MT) evaluations. Surface mapping, geochemical sampling, preliminary drilling and 3-dimentional modeling have augmented the geophysical exploration and continue to indicate potential for a large gold-copper porphyry system.
In 2020, Seabridge drilling intersected a corridor of porphyritic intrusive rock endowed with gold and copper. These intercepts project upward to a diatreme situated directly below the Quartz Rise Lithocap. The intrusive rocks encountered have been age dated to be within the timeframe of the KSM mineral system. The 2021 program was initiated in June with an MT survey and now continues with planned drilling of approximately 3,200 meters.
Seabridge acquired the large land package at Iskut because of its many characteristics similar to our KSM project. Since the acquisition, we have refined our target ideas with additional data and experience from KSM. The structural complexity of this terrain made us proceed methodically and we now have multiple lines of evidence that point to a coherent target for the gold-copper porphyry source.
We continue to believe the extensive surface expression of gold and copper geochemistry and alteration at and below the Quartz Rise Lithocap was formed by a significant, undiscovered gold-copper porphyry system at depth. Drilling to date reports results that are consistent with the upper explosive manifestation of such a system. Multiple data sets have independently identified a potential location for the undiscovered porphyry host intrusion. Drilling will be directed at this feature.
- 2 -
ESG documentation advances with adoption of formal Sustainability Policy
The Seabridge Board of Directors has approved a formal Sustainability Policy following employee, First Nation partners, and external stakeholder participation in discussions to examine the implications and opportunities of work on the environment and society. These sessions reviewed years of accomplishments, internal memos, and past decisions which have shaped our thinking and practices to date. The Policy can be found HERE.
Seabridge has also engaged SOOP Strategies Inc., a leading ESG consultant to the mining industry, to undertake a formal, independent review
of our record on sustainability measured against the new Policy. The results from this review will be released to the public and filed
with various ESG websites for evaluation by investors.
Financial Results
During the three-month period ended June 30, 2021 Seabridge posted a net profit of $14.5 million ($0.19 per share) compared to a net loss of $4.1 million ($0.06 per share) for the same period in 2020. During the 2nd quarter, Seabridge invested $9.6 million in mineral interests project spending compared to $4.4 million in the second quarter of 2020. At June 30, 2021, net working capital was $63.9 million compared to $36.0 million at December 31, 2020.
In June, the Company issued 350,000 flow-through common shares at $28.06 per common share for aggregate gross proceeds of $9.8 million. No commissions were paid on the financing. During the three months ended June 30, 2021, the Company issued 685,352 shares, at an average selling price of $22.59 per share, for net proceeds of $15.2 million under the Company’s ATM offering.
On Behalf of the Board of Directors,
Rudi P. Fronk
Chairman and Chief Executive Officer
Toronto, Canada
August 13, 2021
- 3 -