Seabridge Gold Inc 6-K, filed Aug 11, 2020
Seabridge Gold Inc (SA)
About this 6-K
Seabridge Gold Inc filed this 6-K on August 11, 2020.
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 2020
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 and 99.2 hereto are incorporated by reference (as exhibits) to the Company’s registration statements 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 11, 2020
2
EXHIBIT INDEX
3
Exhibit 99.1
SEABRIDGE GOLD INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
AS AT JUNE 30, 2020
Page 1
SEABRIDGE GOLD INC.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
(unaudited)
| June 30, | December 31, | |||||||||
| Note | 2020 | 2019 | ||||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | 4 | $ | 18,748 | $ | 8,793 | |||||
| Short-term deposits | 4 | 19,879 | 4,114 | |||||||
| Amounts receivable and prepaid expenses | 5 | 7,403 | 3,274 | |||||||
| Investment in marketable securities | 6 | 4,214 | 3,032 | |||||||
| 50,244 | 19,213 | |||||||||
| Non-current assets | ||||||||||
| Convertible notes receivable | 7 | 529 | 529 | |||||||
| Investment in associate | 6 | 2,705 | 2,361 | |||||||
| Mineral interests | 8 | 441,827 | 425,671 | |||||||
| Right of use asset | 9 | 253 | 271 | |||||||
| Reclamation deposits | 11 | 1,355 | 1,327 | |||||||
| 446,669 | 430,159 | |||||||||
| Total assets | $ | 496,913 | $ | 449,372 | ||||||
| Liabilities and shareholders’ equity | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable and accrued liabilities | 10 | $ | 4,139 | $ | 4,692 | |||||
| Flow-through share premium | 12 | 3,905 | 92 | |||||||
| Lease obligations | 9 | 43 | 46 | |||||||
| Provision for reclamation liabilities | 11 | 1,860 | 1,860 | |||||||
| 9,947 | 6,690 | |||||||||
| Non-current liabilities | ||||||||||
| Deferred income tax liabilities | 13 | 22,359 | 22,426 | |||||||
| Lease obligations | 9 | 218 | 228 | |||||||
| Provision for reclamation liabilities | 11 | 4,761 | 5,005 | |||||||
| 27,338 | 27,659 | |||||||||
| Total liabilities | 37,285 | 34,349 | ||||||||
| Shareholders’ equity | 12 | 459,628 | 415,023 | |||||||
| Total liabilities and shareholders’ equity | $ | 496,913 | $ | 449,372 | ||||||
Subsequent events (Notes 12)
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 Loss
(Expressed in thousands of Canadian dollars except common share and per common share amounts)
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
| Note | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Corporate and administrative expenses | 14 | $ | (3,385 | ) | $ | (2,510 | ) | $ | (7,252 | ) | $ | (6,992 | ) | |||||
| Other income - flow-through shares | 12 | 26 | 212 | 47 | 335 | |||||||||||||
| Equity loss of associate | 6 | (27 | ) | (40 | ) | (72 | ) | (90 | ) | |||||||||
| Interest income | 26 | 43 | 66 | 124 | ||||||||||||||
| Finance expense and other income | (32 | ) | (30 | ) | 229 | (97 | ) | |||||||||||
| Loss before income taxes | (3,392 | ) | (2,325 | ) | (6,982 | ) | (6,720 | ) | ||||||||||
| Income tax recovery (expense) | 16 | (676 | ) | 289 | (284 | ) | 594 | |||||||||||
| Loss for the period | $ | (4,068 | ) | $ | (2,036 | ) | $ | (7,266 | ) | $ | (6,126 | ) | ||||||
| Other comprehensive income, net of income taxes | ||||||||||||||||||
| Items that will not be reclassified to net income or loss | ||||||||||||||||||
| Change in fair value of marketable securities | 6 | $ | 775 | $ | 119 | $ | 1,182 | $ | 114 | |||||||||
| Other comprehensive income | 775 | 119 | 1,182 | 114 | ||||||||||||||
| Comprehensive loss for the period | $ | (3,293 | ) | $ | (1,917 | ) | $ | (6,084 | ) | $ | (6,012 | ) | ||||||
| Basic and diluted net loss per common share | 12 | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.11 | ) | $ | (0.10 | ) | |||||
| Basic and diluted weighted average number of common shares outstanding | 12 | 65,493,643 | 61,830,300 | 64,649,203 | 61,709,463 | |||||||||||||
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, 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 | |||||||||||||||
| As at December 31, 2018 | 61,232,572 | $ | 457,073 | $ | 3,275 | $ | 16,840 | $ | 36,040 | $ | (124,323 | ) | $ | (2,350 | ) | $ | 386,555 | |||||||||||||||
| Share issuance - other | 100,000 | 1,730 | - | - | - | - | - | 1,730 | ||||||||||||||||||||||||
| Share issuance - options exercised | 480,475 | 7,150 | - | (2,175 | ) | - | - | - | 4,975 | |||||||||||||||||||||||
| Share issuance – RSUs vested | 68,000 | 1,051 | - | (1,051 | ) | - | - | - | - | |||||||||||||||||||||||
| Share issuance costs | - | (220 | ) | - | - | - | - | - | (220 | ) | ||||||||||||||||||||||
| Deferred tax on share issuance costs | - | 99 | - | - | - | - | - | 99 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | 3,242 | - | - | - | 3,242 | ||||||||||||||||||||||||
| Expired options | - | - | - | (33 | ) | 33 | - | - | - | |||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | 114 | 114 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | (6,126 | ) | - | (6,126 | ) | ||||||||||||||||||||||
| As at June 30, 2019 | 61,881,047 | $ | 466,883 | $ | 3,275 | $ | 16,823 | $ | 36,073 | $ | (130,449 | ) | $ | (2,236 | ) | $ | 390,369 | |||||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
Page 4
SEABRIDGE GOLD INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
(Unaudited)
| Three
months ended June 30, | Six
months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Operating Activities | ||||||||||||||||
| Net loss | $ | (4,068 | ) | $ | (2,036 | ) | $ | (7,266 | ) | $(6,126 | ) | |||||
| Adjustment for non-cash items: | ||||||||||||||||
| Stock-based compensation | 1,630 | 772 | 3,672 | 3,242 | ||||||||||||
| Other income - flow-through shares | (26 | ) | (212 | ) | (47 | ) | (335 | ) | ||||||||
| Income tax (recovery) expense | 676 | (289 | ) | 284 | (594 | ) | ||||||||||
| Equity loss of associate | 27 | 40 | 72 | 90 | ||||||||||||
| Finance costs | 27 | 32 | 55 | 63 | ||||||||||||
| Depreciation charge of right-of-use assets | 9 | 9 | 18 | 18 | ||||||||||||
| Adjustment for cash items: | ||||||||||||||||
| Environmental rehabilitation disbursements | (183 | ) | (172 | ) | (299 | ) | (270 | ) | ||||||||
| Changes in working capital items: | ||||||||||||||||
| Amounts receivable and prepaid expenses | (2,923 | ) | (593 | ) | (4,129 | ) | (704 | ) | ||||||||
| Accounts payable and accrued liabilities | (280 | ) | 2 | (1,296 | ) | (749 | ) | |||||||||
| Net cash used in operating activities before income tax recovered | (5,111 | ) | (2,447 | ) | (8,936 | ) | (5,365 | ) | ||||||||
| Income tax recovered | - | - | - | 4 | ||||||||||||
| Net cash used in operating activities | (5,111 | ) | (2,447 | ) | (8,936 | ) | (5,361 | ) | ||||||||
| Investing Activities | ||||||||||||||||
| Mineral interests | (4,350 | ) | (4,258 | ) | (8,851 | ) | (7,490 | ) | ||||||||
| Investment in short-term deposits | (15,081 | ) | - | (19,790 | ) | - | ||||||||||
| Redemption of short-term deposits | - | 8,061 | 4,024 | 9,980 | ||||||||||||
| Investment in associate | (405 | ) | - | (416 | ) | (101 | ) | |||||||||
| Investment in reclamation deposits | 25 | - | (28 | ) | (2 | ) | ||||||||||
| Cash proceeds from sale of investments | - | - | - | 110 | ||||||||||||
| Net cash from (used in) investing activities | (19,811 | ) | 3,803 | (25,061 | ) | 2,497 | ||||||||||
| Financing Activities | ||||||||||||||||
| Share issuance net of costs | 36,106 | (64 | ) | 42,843 | (220 | ) | ||||||||||
| Exercise of options | 796 | 1,633 | 1,119 | 4,975 | ||||||||||||
| Payment of lease liabilities | (5 | ) | - | (10 | ) | - | ||||||||||
| Net cash from financing activities | 36,897 | 1,569 | 43,952 | 4,755 | ||||||||||||
| Net increase in cash and cash equivalents during the period | 11,975 | 2,925 | 9,955 | 1,891 | ||||||||||||
| Cash and cash equivalents, beginning of the period | 6,773 | 1,894 | 8,793 | 2,928 | ||||||||||||
| Cash and cash equivalents, end of the period | $ | 18,748 | $ | 4,819 | $ | 18,748 | $ | 4,819 | ||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
Page 5
SEABRIDGE GOLD INC.
Notes to the unaudited condensed consolidated interim financial statements
For the three and six months ended June 30, 2020 and 2019
| 1. | Reporting entity |
Seabridge Gold Inc. is comprised of Seabridge Gold Inc. (“Seabridge” or the “Company”) and its subsidiaries (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, and should be read in conjunction with the Company’s last annual consolidated financial statements as at and for the year ended December 31, 2019. 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 10, 2020.
| 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, 2020 and 2019. 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.
In March 2020, the World Health Organization declared a global pandemic caused by the outbreak of the COVID-19 virus. The outbreak 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. The situation, however, did not have a material impact on the Company’s financial results for the six months ended June 30, 2020. 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. The duration and impact of COVID-19 outbreak is currently unknown, as is the efficacy of the government interventions.
Page 6
| 4. | Cash and cash equivalents and short-term deposits |
| ($000s) | June 30, 2020 | December 31, 2019 | ||||||
| Cash and cash equivalents | 18,748 | 8,793 | ||||||
| Short-term deposits | 19,879 | 4,114 | ||||||
| 38,627 | 12,907 |
All of the 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.
| 5. | Amounts receivable and prepaid expenses |
| ($000s) | June 30, 2020 | December 31, 2019 | ||||||
| HST | 2,347 | 2,212 | ||||||
| Prepaid expenses and other receivables | 5,056 | 1,062 | ||||||
| 7,403 | 3,274 |
Prepaid expenses and other receivables include $3.0 million advance payment to BC Hydro for facilities studies at KSM, and $1.7 million receivable for shares issued at the end of the current quarter, through the At-The-Market offering (see Note 12), the proceeds of which, were not received until July.
| 6. | Investments |
| ($000s) | January 1, 2020 | Disposition | Fair value through other comprehensive loss | Loss of associates | Additions |
June 30, 2020 | ||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Investment in marketable securities | 3,032 | - | 1,182 | - | - | 4,214 | ||||||||||||||||||
| Non-current assets: | ||||||||||||||||||||||||
| Investment in associate | 2,361 | - | - | (72 | ) | 416 | 2,705 |
| ($000s) | January 1, 2019 | Disposition | Fair value through other comprehensive loss | Loss of associates | Additions |
December 31, | ||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Investment in marketable securities | 2,858 | (110 | ) | 284 | - | - | 3,032 | |||||||||||||||||
| Non-current assets: | ||||||||||||||||||||||||
| Investment in associate | 2,460 | - | - | (200 | ) | 101 | 2,361 |
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 $4.2 million (December 31, 2019 - $3.0 million) in the consolidated statements of financial position. At June 30, 2020, the Company revalued its holdings in its investments and recorded a fair value increase of $1.2 million on the statement of comprehensive loss.
Investment in associate relates to Paramount Gold Nevada Corp (“Paramount”). As at June 30, 2020, the Company holds 7.84% (December 31, 2019 – 8.16%) 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, 2020, the Company recorded its proportionate share of Paramount’s net loss of $0.07 million (June 30, 2019 – $0.09 million) within equity loss of associate on the consolidated statements of operations and comprehensive loss. As at June 30, 2020, the carrying value of the Company’s investment in Paramount was $2.7 million (December 31, 2019 - $2.4 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 shares.
In 2017, the Company purchased 883,200 common shares and 51,600 warrants of Paramount for $1.6 million. Each warrant allowed the Company to purchase one common share of Paramount for US$2.00 per share until February 14, 2018 and allowed for the same purchase at US$2.25 per share within the period February 15, 2018 to February 13, 2019. On February 14, 2018, the option to purchase the common shares at US$2.00 per share lapsed. In the first quarter of 2019, the Company acquired 80,200 shares of Paramount for $0.1 million.
In 2018, the Company purchased 320,000 units of Paramount for US$1.25 per unit. Each unit consisted of one common share and one warrant to purchase one-half of a common share of Paramount. Each warrant has a two-year term and is exercisable at US$1.30 in the first twelve months and US$1.50 in the following twelve months. The warrants have expired unexercised as the market prices throughout the two-year period did not exceed the exercise price.
| 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 amount 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”).
In January 2020, the Company received 12,067 common shares of Paramount for payment of interest accrued and receivable on the secured convertible notes as at December 31, 2019.
Page 8
| 8. | 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, | Expenditures / 2020 | Balance June 30, | |||||||||
| KSM | 296,509 | 6,864 | 303,373 | |||||||||
| Courageous Lake | 75,721 | 573 | 76,294 | |||||||||
| Iskut | 32,215 | 784 | 32,999 | |||||||||
| Snowstorm | 20,455 | 1,034 | 21,489 | |||||||||
| 3 Aces | - | 6,901 | 6,901 | |||||||||
| Grassy Mountain | 771 | - | 771 | |||||||||
| 425,671 | 16,156 | 441,827 |
| ($000s) | Balance January 1, | Expenditures / 2019 | Balance December 31, | |||||||||
| KSM | 276,586 | 19,923 | 296,509 | |||||||||
| Courageous Lake | 73,647 | 2,074 | 75,721 | |||||||||
| Iskut | 29,031 | 3,184 | 32,215 | |||||||||
| Snowstorm | 15,269 | 5,186 | 20,455 | |||||||||
| Grassy Mountain | 771 | - | 771 | |||||||||
| 395,304 | 30,367 | 425,671 |
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 July 2009, the Company agreed to acquire various mineral claims immediately adjacent to the KSM property for further exploration and possible mine infrastructure use. The acquired claims were subject to a 4.5% net smelter royalty. In January 2019, the Company issued 100,000 common shares at $17.30 per common share, for total fair value of $1.7 million, to the holder of the net smelter return royalty on the claims and fully extinguished the royalties on those claims. The total fair value of the common shares was recorded to the mineral interest at KSM project.
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.
Page 9
During 2019, as part of a cooperative and benefit agreement between the Company and the Tahltan Nation, the Company issued 50,000 common shares with a fair value of $18.63 per common share, for a total fair value of $0.9 million.
| 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 for US$2.5 million. 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. On the acquisition date, the Company issued 700,000 common shares, with a fair value of $14.39 per share and 500,000 common share purchase warrants with a fair value of $6.55 per common share purchase warrant for a combined fair value of $13.3 million. The common share purchase warrants are exercisable for four years from the date of acquisition, at $15.65 per share. In addition, 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. in exchange for 25,000 common shares of the Company. On the acquisition date, the Company issued the common shares at a fair value of $21.11 per common share for a total fair value of $0.5 million.
| e) | Grassy Mountain |
In 2013, the Company sold 100% of 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 a non-controlling interest of 10% or a $10 million cash payment, following the delivery of a National Instrument 43-101 feasibility study on the project, at the discretion of the company.
| f) | 3 Aces |
On March 30, 2020, the Company entered into an agreement to acquire a 100% interest in the 3 Aces gold project in the Yukon, Canada from Golden Predator Mining Corp. The Company paid $0.3 million during the first quarter and issued 300,000 common shares at closing of the transaction during the current quarter. Should the project attain certain milestones, the Company will potentially pay an additional $2.25 million.
Page 10
| 9. | Leases |
| ($000s) | Balance January 1, |
Additions | Depreciation | Balance June 30, 2020 | ||||||||||||
| Right of use assets | 271 | - | (18 | ) | 253 |
| ($000s) | Balance December 31, | Adoption of IFRS 16 on January 1, 2019 | Depreciation | Balance December 31, | ||||||||||||
| Right of use assets | - | 307 | (36 | ) | 271 |
| ($000s) | June 30, 2020 | December 31, 2019 | ||||||
| Current | 43 | 46 | ||||||
| Non-current | 218 | 228 | ||||||
| Total discounted lease liability | 261 | 274 |
| 10. | Accounts payable and accrued liabilities |
| ($000s) | June 30, 2020 | December 31, 2019 | ||||||
| Trade payables | 1,748 | 2,191 | ||||||
| Trade and other payables due to related parties | 103 | 61 | ||||||
| Non-trade payables and accrued expenses | 2,288 | 2,440 | ||||||
| 4,139 | 4,692 |
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, 2020, 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, 2020, 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.
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| 11. | Provision for reclamation liabilities |
| ($000s) | June 30, 2020 | December 31, 2019 | ||||||
| Beginning of the period | 6,865 | 8,069 | ||||||
| Disbursements | (299 | ) | (1,325 | ) | ||||
| Accretion | 55 | 121 | ||||||
| End of the period | 6,621 | 6,865 | ||||||
| Provision for reclamation liabilities - current | 1,860 | 1,860 | ||||||
| Provision for reclamation liabilities - long-term | 4,761 | 5,005 | ||||||
| 6,621 | 6,865 |
Although the ultimate costs to be incurred are uncertain, the Company’s estimates for the reclamation liabilities are based on independent studies or agreements with the respective government body for each project using current restoration standards and techniques.
In 2018, the Company filed an updated reclamation and closure plan for the Johnny Mountain mine site and charged $7.4 million of rehabilitation expenses to the consolidated statements of operations and comprehensive loss. The Johnny Mountain Mine site was acquired, along with the Iskut Project, during the Snip Gold acquisition in 2016. Expenditures are expected to be incurred between 2018 and 2022 and include the estimated costs for the closure of all adits and vent raises, removal of the mill and buildings, treatment of landfills and surface water management as well as ongoing logistics, freight and fuel costs.
The estimate of the provision for reclamation obligation, as at June 30, 2020, was calculated using the estimated discounted cash flows of future reclamation costs of $6.6 million (December 31, 2019 - $6.9 million) and the expected timing of cash flow payments required to settle the obligations between 2020 and 2026. As at June 30, 2020, the undiscounted future cash outflows are estimated at $6.6 million (December 31, 2019 – $7.0 million) primarily over the next three years. The discount rate used to calculate the present value of the reclamation obligations was 0.25% at June 30, 2020 (December 31, 2019 - 1.7%). Offsetting the increase in the present value of the liability, for the decreasing discount rate, is a comparable decrease in reported and anticipated inflation rates. For the three and six months ended June 30, 2020, reclamation disbursements amounted to $0.2 million and $0.3 million respectively (three and six months ended June 30, 2019 - $0.2 million and $0.3 million respectively). The Company has placed a total of $1.4 million (December 31, 2019 - $1.3 million) on deposit with financial institutions that are pledged as security against reclamation liabilities.
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| 12. | 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, 2020 or December 31, 2019.
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 2020. The Company considers its capital to be share capital, stock-based compensation, 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, enabling 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. This program can be in effect until the Company’s Base Shelf Prospectus expires in June 2021. During the fourth quarter of 2019, the Company issued 231,084 shares, at an average selling price of $17.58 per share, for net proceeds of $4.0 million under the offering.
During the three months ended June 30, 2020, the Company issued 420,482 shares, at an average selling price of $21.42 per share, for net proceeds of $8.8 million under Company’s At-The-Market offering. During the six months ended June 30, 2020, the Company issued 803,289 shares, at an average selling price of $19.77 per share, for net proceeds of $15.6 million under Company’s At-The-Market offering. Subsequent to quarter end, the Company issued 264,547 shares at an average price of $25.57 per share, for net proceeds of $6.6 million under Company’s At-The-Market offering.
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.
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 is December 31, 2020. 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.
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During the third quarter 2019, the Company issued 100,000 flow-through common shares at $24.64 per common share for aggregate gross proceeds of $2.5 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 is December 31, 2019. At the time of issuance of the flow-through shares, $0.5 million premium was recognized as a liability on the consolidated statements of financial position. During 2019, the Company incurred $2.0 million of qualifying exploration expenditures and $0.4 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, 2020, the Company incurred another $0.2 million of qualifying exploration expenditures and $0.05 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss.
In December 2018, the Company issued 250,000 flow-through common shares at $20.50 per share for aggregate gross proceeds of $5.1 million. Proceeds of this financing was used to fund the 2019 KSM and Iskut programs. 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, 2018. At the time of issuance of the flow-through shares, $0.8 million premium was recognized as a liability on the consolidated statements of financial position with the balance recorded as share capital. During the six months ended June 30, 2019, $2.1 million of qualifying exploration expenditures were incurred and $0.3 million premium was recognized through other income on the consolidated statement of operations and comprehensive loss. The remaining commitment balance was incurred by December 31, 2019.
| 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 $15.65 per share, which are still outstanding as at June 30, 2020.
| c) | Stock options and restricted share units |
The Company provides compensation to directors and employees in the form of stock options and Restricted Share Units (“RSU”s).
Pursuant to the Share Option Plan, the Board of Directors has the authority to grant options, and to establish the exercise price and life of the option at the time each option is granted, at a price not less than the closing price of the common shares on the Toronto Stock Exchange on the date of the grant of such option and for a period not exceeding five years. All exercised options are settled in equity.
Pursuant to the Company’s RSU Plan, the Board of Directors has the authority to grant RSUs, and to establish terms of the RSUs including the vesting criteria and the life of the RSU. The life of an RSU is not to exceed two years.
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Stock option and RSU transactions were as follows:
| Options | RSUs | Total | ||||||||||||||||||||||
| Number of Options | Weighted
Average Exercise Price ($) | Amortized Value of options ($000s) | Number of RSUs | Amortized Value of RSUs ($000s) | Stock-based Compensation ($000s) | |||||||||||||||||||
| Outstanding January 1, 2020 | 3,003,150 | 12.32 | 18,546 | 139,600 | 274 | 18,820 | ||||||||||||||||||
| Granted | - | - | - | - | - | - | ||||||||||||||||||
| Exercised option or vested RSU | (103,194 | ) | 10.91 | (610 | ) | (139,600 | ) | (2,351 | ) | (2,961 | ) | |||||||||||||
| Expired | (1,309 | ) | 6.30 | (16 | ) | - | - | (16 | ) | |||||||||||||||
| Amortized value of stock-based compensation | - | - | 1,595 | - | 2,077 | 3,672 | ||||||||||||||||||
| Outstanding at June 30, 2020 | 2,898,647 | 12.37 | 19,515 | - | - | 19,515 | ||||||||||||||||||
| Exercisable at June 30, 2020 | 807,313 | |||||||||||||||||||||||
| Options | RSUs | Total | ||||||||||||||||||||||
| Number of Options | Weighted Average Exercise Price ($) | Amortized Value of options ($000s) | Number of RSUs | Amortized Value of RSUs ($000s) | Stock-based Compensation ($000s) | |||||||||||||||||||
| Outstanding January 1, 2019 | 3,458,805 | 11.95 | 16,657 | 68,000 | 183 | 16,840 | ||||||||||||||||||
| Granted | 50,000 | 17.72 | 168 | 139,600 | 274 | 442 | ||||||||||||||||||
| Exercised option or vested RSU | (503,831 | ) | 10.38 | (2,333 | ) | (68,000 | ) | (1,051 | ) | (3,384 | ) | |||||||||||||
| Expired | (1,824 | ) | 6.30 | (33 | ) | - | - | (33 | ) | |||||||||||||||
| Amortized value of stock-based compensation | - | - | 4,087 | - | 868 | 4,955 | ||||||||||||||||||
| Outstanding at December 31, 2019 | 3,003,150 | 12.32 | 18,546 | 139,600 | 274 | 18,820 | ||||||||||||||||||
| Exercisable at December 31, 2019 | 911,816 | |||||||||||||||||||||||
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The outstanding share options at June 30, 2020 expire at various dates between December 2020 and June 2024. A summary of options outstanding, their remaining life and exercise prices as at June 30, 2020 is as follows:
| Options Outstanding | Options Exercisable | |||||||||
| Number | Remaining | Number | ||||||||
| Exercise price | outstanding | contractual life | Exercisable | |||||||
| $11.13 | 236,800 | 6 months | 236,800 | |||||||
| $13.52 | 100,000 | 9 months | 100,000 | |||||||
| $9.00 | 425,000 | 10 months | - | |||||||
| $17.16 | 50,000 | 11 months | - | |||||||
| $17.14 | 50,000 | 11 months | 50,000 | |||||||
| $10.45 | 775,833 | 1 year 6 months | 225,833 | |||||||
| $13.14 | 581,669 | 2 year 6 months | 180,002 | |||||||
| $16.94 | 50,000 | 3 years 4 months | - | |||||||
| $15.46 | 568,000 | 3 years 6 months | 3,333 | |||||||
| $17.72 | 50,000 | 4 years | - | |||||||
| $6.30 | 11,345 | 8 months | 11,345 | |||||||
| 2,898,647 | 807,313 | |||||||||
During the six months ended June 30, 2020, 103,194 options were exercised for proceeds of $1.1 million and 103,194 common shares were issued. Subsequent to the quarter end, 141,642 options were exercised for proceeds of $1.5 million.
During the current quarter, 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 vesting remains subject to the completion of a joint venture transaction on KSM or Courageous Lake, or other transformative transaction for the Company.
In December 2018, 568,000 five-year options with an exercise price of $15.46, to purchase common shares of the Company, with a grant-date fair value of $4.3 million, were granted. Of these, 408,000 options were granted to board members that were subject to shareholder approval. 150,000 options were granted to members of senior management. The remaining 10,000 options were granted to a member of management and vest over a three-year period. At the end of the second quarter of 2019, shareholders approved the 408,000 options granted to the board members, and the fair value was re-estimated, at the time, resulting in an additional $0.4 million fair value that will be recognized over the estimated service period. During the second quarter of 2019, the shareholders also approved the grant of 50,000 five-year options to a new board member, with an exercise price of $17.72 and fair value of $0.4 million. Vesting of the options to the board members and senior management is subject to the Company entering into a major transaction on one of the Company’s two core assets or other transformative transaction. The fair value of these new options, and the additional fair value, is being amortized over the estimated 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. Vesting of these options is subject to the Company entering into a major transaction on one of the Company’s two core exploration properties or other transformative transaction. The fair value of these options is being amortized over the service life of the options.
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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 current quarter, 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 remaining $2.1 million was amortized during the six months ended June 30, 2020.
In 2018, the Board granted 68,000 RSUs to members of management. The fair value of the grants, of $1.1 million, was estimated at the grant date and was amortized over the expected service period of the grants. The expected service period of three and a half months from the date of the grant was dependent on certain corporate objectives being met. As at March 31, 2019, the fair value of the grants was fully amortized and all 68,000 RSUs were vested and were exchanged for common shares of the Company.
| d) | Basic and diluted net loss per common share |
For the three and six months ended June 30, 2020 and 2019, basic and diluted net loss per common share are computed by dividing the net loss for the period by the weighted average number of common shares outstanding for the year. 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, 2020, there was a total of 2,898,647 stock options outstanding (June 30, 2019 - 3,026,506).
| 13. | 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, 2020 and December 31, 2019 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.
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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, and receivables included in amounts receivable and prepaid expenses. 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 to be remote.
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, 2020, the Company had a cash and cash equivalents of $18.7 million and short-term deposits of $19.9 million (June 30, 2019 - $4.8 million and $7.1 million, respectively) for settlement of current financial liabilities of $4.1 million (June 30, 2019 - $4.5 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 12 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 currency converted from its Canadian dollar bank accounts held in Canada. 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, 2020, the Company holds $6.3 million of cash and cash equivalents and $0.1 million of accounts payable and accrued liabilities 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. In addition, the Company holds $4.0 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 18
| 14. | Corporate and administrative expenses |
| Three
months ended June 30, | Six months ended June 30, | |||||||||||||||
| ($000s) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Employee compensation | 909 | 890 | 1,821 | 2,044 | ||||||||||||
| Stock-based compensation | 1,630 | 772 | 3,672 | 3,242 | ||||||||||||
| Professional fees | 296 | 285 | 568 | 450 | ||||||||||||
| Other general and administrative | 550 | 563 | 1,191 | 1,256 | ||||||||||||
| 3,385 | 2,510 | 7,252 | 6,992 | |||||||||||||
| 15. | Related party disclosures |
During the six months ended June 30, 2020 and 2019, there were no payments to related parties other than compensation paid to key management personnel.
| 16. | Income taxes |
During the 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.
During the comparative three and six months ended June 30, 2019, the Company recognized income tax recovery of $0.3 million and $0.6 million, respectively, primarily related to deferred tax recovery arising from the losses in the period, partially offset by deferred tax expense arising due to the renouncement of expenditures related to the December 2018 flow-through shares issued which were capitalized for accounting purposes.
As reported in the Company’s 2018 and 2019 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 current quarter, 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 $11.6 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.
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Exhibit 99.2
SEABRIDGE GOLD INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
SECOND QUARTER ENDED
JUNE 30, 2020
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 10, 2020, 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, 2020. 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, 2019, and the 2019 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.net. 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, 2020 and the comparative period 2019 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. During the period 1999 through 2002, when the price of gold was lower than it is today, Seabridge acquired 100% interests in eight advanced-stage gold projects situated in North America. Seabridge’s 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 the current quarter, the Company purchased 100% interest in the 3 Aces gold project in Yukon. 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 1
Results of Operations
During the second quarter of 2020, the Company incurred net loss of $4.1 million, or $0.06 per share, on both basic and diluted basis, compared to a net loss of $2.0 million, or $0.03 per share, on both basic and diluted basis in the comparative period in 2019.
During the six months ended June 30, 2020, the Company incurred net loss of $7.3 million, or $0.11 per share, on both basic and diluted basis, compared to a net loss of $6.1 million, or $0.10 per share, on both basic and diluted basis in the comparative period in 2019.
Corporate and administrative expenses, including stock-based compensation and income taxes were the most significant items contributing to losses for the three and six months ended June 30, 2020. These expenses and other items are discussed further below.
During the current quarter, corporate and administrative expenses increased by $0.9 million, from $2.5 million in the second quarter in 2019 to $3.4 million in the current quarter. The increase was mainly due to higher stock-based compensation expense incurred during the current quarter (discussed below). Cash compensation at $0.9 million remained unchanged.
During the six months ended June 30, 2020, corporate and administrative expenses increased by $0.2 million, from $7.0 million in the first half in 2019 to $7.2 million in the first half of 2020. The increase was mainly due to $0.4 million higher stock-based compensation partially offset by $0.2 million lower cash compensation. Higher cash compensation in 2019 related mainly to bonus compensation earned in the first quarter 2019 by certain senior management personnel that was based on the attainment of previously defined corporate objectives.
The Company has recently refocused the compensation practices away from issuing a combination of stock options and RSUs to only issuing RSUs with shorter service period. For the three and six months ended June 30, 2020 and 2019, the Company’s stock-based compensation expense, related to stock options and restricted share units, is illustrated in the following table:
| ($000s) | Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Options | 801 | 771 | 1,595 | 2,374 | ||||||||||||
| RSUs | 829 | - | 2,077 | 868 | ||||||||||||
| 1,630 | 771 | 3,672 | 3,242 | |||||||||||||
During the three and six months ended June 30, 2020, the stock-based compensation expense was higher than the comparative periods in 2019. During the current quarter, stock-based compensation expense increased by $0.8 million, from $0.8 million recognized in the second quarter 2019 to $1.6 million in the current quarter. Higher expense in the current quarter was mainly related to the amortization of RSUs granted in December 2019 and amortized during the current quarter.
For the six months ended June 30, 2020, total stock-based compensation expense increased by $0.5 million, from $3.2 million during the six months ended June 30, 2019 to $3.7 million in the comparative current period. The increase was mainly due to amortization of higher number of RSUs that were granted in December 2019 and amortized during the current period as compared to the number of RSUs granted in December 2018 and amortized during the comparative period in 2019. The effect of higher RSU amortization expense was partially offset by lower stock options amortization expense in the current period compared to the comparative period in 2019. This was mainly due to the fact to that the service period of stock options granted to the board members in December 2018 was re-estimated and extended in the second quarter 2019. As a result, the stock-based compensation expense related to those options in the first quarter of 2019 was higher than the subsequent quarters, including in the first and now the current quarter of 2020.
Page 2
The Company’s stock-based compensation expense and remaining fair value to be expensed, by series of grants, related to stock options and restricted share units is illustrated on the following tables:
| ($000s) | ||||||||||||||||||||||||||||||||
| Options granted | Exercise price ($) | Number of options | Grant date fair value | Cancelled prior to 2019 | Expensed prior to 2019 | Expensed in 2019 | Expensed in 2020 | Balance to be expensed | ||||||||||||||||||||||||
| December 19, 2016 | 10.45 | 890,833 | 6,254 | 94 | 5,974 | 185 | - | - | ||||||||||||||||||||||||
| December 14, 2017 | 13.14 | 605,000 | 4,303 | - | 3,529 | 556 | 113 | 105 | ||||||||||||||||||||||||
| October 11, 2018 | 16.94 | 50,000 | 421 | - | 96 | 238 | 87 | - | ||||||||||||||||||||||||
| December 12, 2018 | 15.46 | 568,000 | 4,719 | - | 276 | 3,107 | 1,231 | 105 | ||||||||||||||||||||||||
| June 26, 2019 | 17.72 | 50,000 | 416 | - | - | 168 | 165 | 83 | ||||||||||||||||||||||||
| 94 | 9,875 | 4,255 | 1,595 | 293 | ||||||||||||||||||||||||||||
| ($000s) | ||||||||||||||||||||||||
| RSUs granted | Number of RSUs | Grant date fair value | Expensed prior to 2019 | Expensed in 2019 | Expensed in 2020 | Balance to be expensed | ||||||||||||||||||
| December 12, 2018 | 68,000 | 1,051 | 183 | 868 | - | - | ||||||||||||||||||
| December 12, 2019 | 139,600 | 2,351 | - | 274 | 2,077 | - | ||||||||||||||||||
| 183 | 1,142 | 2,077 | - | |||||||||||||||||||||
During the current quarter, 139,600 RSUs vested, upon the issuance of the results of a NI 43-101 Technical Report for KSM, discussed within mineral interests activities below and 139,600 common shares were issued.
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. For the three and six months ended June 30, 2020, the Company recognized an increase in fair value of investments of $0.4 million and $0.8 million, respectively, compared to increase in fair value of investments of $0.1 million in both comparative three and six months periods in 2019. The change in the fair value of these investments was recorded within comprehensive income (loss) on the consolidated statements of operations and comprehensive loss. Also, during the six months ended June 30, 2019, the Company disposed of its holdings in one investment with a fair value of $0.1 million.
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, 2020, the Company recognized $0.03 million and $0.07 million loss in the associate, respectively. During the comparative three and six months ended June 30, 2019, the Company recognized $0.04 million and $0.09 million loss in the associate, respectively.
During the 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.
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During the comparative three and six months ended June 30, 2019, the Company recognized income tax recovery of $0.3 million and $0.6 million, respectively, related to deferred tax recovery arising from the losses in the period, partially offset by deferred tax expense arising due to the renouncement of expenditures related to the December 2018 flow-through shares issued which are capitalized for accounting purposes.
Quarterly Information
Selected financial information for the eight most recent quarters ending June 30, 2020 is as follows:
(unaudited)
| (in thousands of Canadian dollars, | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||
| exepct per share amounts) | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | ||||||||||||||||||||||||
| Revenue | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Loss for period | (4,068 | ) | (3,198 | ) | (2,963 | ) | (2,526 | ) | (2,036 | ) | (4,088 | ) | (4,030 | ) | (2,831 | ) | ||||||||||||||||
| Basic loss per share | (0.06 | ) | (0.05 | ) | (0.05 | ) | (0.04 | ) | (0.03 | ) | (0.07 | ) | (0.07 | ) | (0.05 | ) | ||||||||||||||||
| Diluted loss per share | (0.06 | ) | (0.05 | ) | (0.05 | ) | (0.04 | ) | (0.03 | ) | (0.07 | ) | (0.07 | ) | (0.05 | ) | ||||||||||||||||
The quarterly losses, comprised mainly of administrative expenses, were offset by varying income related to the flow through share premiums. In the fourth quarter 2018, the loss for the period included a charge related to the impairment of investment in associate. In the first quarter 2019, the loss for the period included higher stock-based compensation expense compared to other quarters as it included a $0.9 million charge related to amortization of RSUs granted in December 2018 and vested and fully expensed during the quarter. In the first and second quarter 2020, the loss for the period also included higher stock-based compensation expense compared to other quarters as it included a $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 2020.
Mineral Interest Activities
During the first six months of 2020, the Company added an aggregate of $16.2 million of expenditures that were attributed to mineral interests. Cash expenditures of $8.9 million were made at KSM (71%), Iskut (9%), Snowstorm (12%), Courageous Lake (5%) and 4% of preliminary acquisition costs on the new 3 Aces project.
In the current quarter, at KSM, the Company filed a NI 43-101 Technical Report that contained an updated Preliminary Economic Assessment (the “2020 PEA”). The report confirmed the potential for an improvement in the project economics by incorporating the recently expanded, higher grade Iron Cap deposit into mine plans. The alternate scenario did not impact the 2016 Preliminary Feasibility Study (the “2016 PFS”) which remains current and in effect and will be included with the 2020 PEA in the NI 43-101 Technical Report.
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The 2020 PEA was prepared to assess an alternate approach to developing KSM by incorporating a much larger Iron Cap block cave mine into the production schedule accompanied by smaller open pits compared to prior studies and developing this opportunity much earlier in the project’s mine life. The benefits of incorporating Iron Cap into mine plans at an early stage not only has the potential for improvement in projected economics but also for the reduction in environmental impact.
The 2020 PEA demonstrates an after tax NPV at a 5% discount rate of US$6.0 billion using Base Case three-year average price assumptions of US$1,340/oz gold, US$2.80/lb copper and foreign exchange rate of US$0.76 per C$1.00, a 44 year mine production plan capturing 19.6 million ounces of gold and 5.4 billion pounds of copper from the measured and indicated categories plus an additional 20.8 million ounces of gold and 13.8 billion pounds of copper from the inferred category. The PEA also points to a 4-year payback period with initial capital of US$5.2 billion and a total cost per ounce of gold, on a life of mine basis of US$4.00 net of copper and silver by-product revenues.
The results of the 2016 PFS remain valid and represent a viable option for developing the KSM project while the 2020 PEA assesses an alternative development option at a scoping level. The 2020 PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves, and there is no certainty that the results of the 2020 PEA will be realized. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
Also within the current quarter, the Company commenced a geotechnical and exploration drilling program at the project. The program will run through the third fiscal quarter.
In the current quarter at Iskut, the Company commenced its 2020 exploration program. The program was designed based on the results of the exploration work conducted in 2019. The 2019 program entailed the use of deep penetrating geophysical techniques to define potential drill targets. Evaluation of the results of these studies culminated in the Company planning an initial drill test for a gold/copper porphyry deposit below the Quartz Rise lithocap. In addition to this exploration work at Iskut, the Company planned and commenced a minimal program to continue the reclamation and closure activities at the Johnny Mountain mine site. In the current and the comparative quarter in 2019, reclamation disbursements amounted to $0.2 million that were charged to the provision for reclamation liabilities.
At Snowstorm, the Company commenced its 2020 exploration program that was planned based on the results of the first drill program and ground geophysical studies completed in 2019. The results of that program further refined drill targets that will be tested in 2020.
The Company has been evaluating 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. Current period work has focused on a high-level study of a smaller project and footprint than envisaged in the 2012 PFS.
On March 30, 2020, the Company entered into an agreement to acquire a 100% interest in the 3 Aces gold project in the Yukon, Canada from Golden Predator Mining Corp. The Company paid $0.3 million and, after completion of the due diligence process and closing of the transaction on May 26, 2020, issued 300,000 common shares valued, on the issue date, at $6.6 million. Should the project attain certain milestones, the Company will potentially pay an additional $2.25 million. During the current quarter, management commenced planning next steps of evaluation and exploration.
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Liquidity and Capital Resources
The Company’s working capital position at June 30, 2020, was $40.3 million, up from $12.5 million at December 31, 2019. Included in current liabilities at June 30, 2020 is $3.9 million for flow-through premium liability which is a non-cash item (December 31, 2019 - $0.1 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) and exercise of options, partially offset by cash used in acquisitions, environmental and exploration projects, and corporate and administrative costs. During the six months period June 30, 2020, the Company received $1.1 million upon exercise of 103,194 stock options. Subsequent to the quarter end, the Company received $1.5 million upon exercise of 141,642 stock options.
During the current quarter, the Company closed a non-brokered private placement of 1,440,000 common shares at a price of $11.75 per common share for net proceeds of $16.9 million. No commissions were paid on the financing.
During the current quarter, the Company also 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 is December 31, 2020. 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 2019, the Company filed a short form base shelf prospectus with securities commissions in Canada and a corresponding registration statement on Form F-10 with the United States Securities and Exchange Commission. The shelf prospectus filings will allow the Company to make offerings of common shares up to an aggregate total of C$100 million until June 2021 and provides flexibility should additional funding be required for general corporate purposes or future exploration and evaluation work on the Company’s projects. Common shares may be offered in amounts, at prices and on terms to be determined based on market conditions at the time of sale and set forth in one or more shelf prospectus supplements and, subject to applicable regulations, may include AT-The-Market offerings (“ATM”) (discussed below), public offerings or strategic investments.
During the fourth quarter of 2019, the Company entered into an agreement with two securities dealers, for an ATM 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 directly on the New York Stock Exchange. This program can be in effect until the Company’s current C$100 million Shelf Registration Statement expires in June 2021. Net proceeds from the ATM Facility can be used to advance exploration and development of the Company’s projects, potential future acquisitions, and for working capital and general corporate purposes. During six months period ended June 30, 2020, the Company issued 803,289 shares, at an average selling price of $19.77 per share, for net proceeds of $15.6 million under the Company’s ATM offering and subsequent to the quarter end, issued 264,547 shares at an average selling price of $25.57 per share for net proceeds of $6.6 million. During the fourth quarter of 2019, the Company issued 231,084 shares, at an average selling price of $17.58 per share, for net proceeds of $4.0 million under the ATM.
Page 6
During the third quarter 2019, the Company issued 100,000 flow-through common shares at $24.64 per common share for aggregate gross proceeds of $2.5 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 is December 31, 2019. At the time of issuance of the flow-through shares, $0.5 million premium was recognized as a liability on the consolidated statements of financial position. During 2019, the Company incurred $2.0 million of qualifying exploration expenditures and $0.4 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, 2020, the Company incurred another $0.2 million of qualifying exploration expenditures and $0.05 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss.
In December 2018, the Company issued 250,000 flow-through common shares at $20.50 per share for aggregate gross proceeds of $5.1 million. Proceeds of this financing were used to fund the 2019 KSM and Iskut programs. 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, 2018. A $0.8 million premium was recognized as a liability on the consolidated statements of financial position with the balance recorded as share capital. During the six months ended June 30, 2019, $2.2 million of qualifying exploration expenditures were incurred and $0.3 million premium was recognized through other income on the consolidated statement of operations and comprehensive loss.
During the current quarter, operating activities, including working capital adjustments, used $5.1 million cash compared to $2.4 million cash used by operating activities in comparative quarter in 2019. Higher operating cash used in the current quarter was mainly related to the working capital movement that included a $3.0 million advance payment to BC Hydro for facilities studies at KSM.
As reported in the Company’s 2018 and 2019 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 current quarter, 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 $11.6 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 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.
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The Company will continue its objective of advancing its major gold projects, KSM and Courageous Lake, and to further explore the Iskut and Snowstorm Projects to either sell or enter into joint venture arrangements with major mining companies.
Outlook
In March 2020, the World Health Organization declared a global pandemic caused by the outbreak of the COVID-19 virus. The outbreak 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. The situation, however, did not have a material impact on the Company’s financial results for the six months ended June 30, 2020. 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. The duration and impact of COVID-19 outbreak is currently unknown, as is the efficacy of the government interventions.
Subject to the above, 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. The Company also hopes to fully execute the second drill program at Snowstorm in search of a Getchell/Twin Creeks style deposit and complete the initial drill test for a gold/copper porphyry deposit below the Quartz Rise lithocap at Iskut. Also, at Iskut, the Company will continue with a marginal reclamation and closure program for the Johnny Mountain Mine in cooperation with the Tahltan Nation and B.C. regulators. At 3 Aces, the Company intends to assemble all of the historic data generated at 3 Aces into a 3-D model and identify targets to potentially drill in 2021. At Courageous Lake, the Company will continue to evaluate the best path forward including the potential of 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.
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).
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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, 2020 and ended on June 30, 2020, 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, 2020, that they are appropriately designed and effective and that since the December 31, 2019 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 10, 2020, the issued and outstanding common shares of the Company totaled 67,047,759. In addition, there were 2,757,005 stock options, and 500,000 warrants outstanding. Assuming the conversion of all of these instruments outstanding, there would be 70,304,764 common shares issued and outstanding.
Related Party Transactions
During the six months ended June 30, 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.
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.
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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.
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Exhibit 99.3
Report to Shareholders
Quarter Ended June 30, 2020
Recent Highlights
The 2nd quarter of 2020 will always be remembered as the “COVID-19” quarter. Exiting Q1, there were significant risks and uncertainties relating to what the Company could safely achieve in 2020. Although our planned work programs had to be cut back to accommodate safety concerns, we are pleased to report that the outstanding efforts of our employees and consultants, complemented by the ongoing support of our Treaty and First Nations , local communities and government regulators, have accomplished the following:
| ● | Filed new NI-43-101 Technical Report confirming dramatic improvement in KSM’s economic potential |
| ● | Completed the acquisition of the 3 Aces exploration project in Yukon, Canada |
| ● | Initiated geotechnical drill program along KSM’s tunnel route; drilling now in progress |
| ● | Initiated an exploration program at our Iskut gold-copper porphyry target; drilling now in progress |
| ● | Began mobilizing for 3rd Quarter Snowstorm drill campaign; drilling to begin in late August |
| ● | Closed $37.1 million in equity financings during the 2nd Quarter |
Rigorous procedures are being followed for all of this year’s programs to minimize the risks associated with COVID-19. Our team has worked closely with our Treaty and First Nation partners, government health organizations, suppliers and other exploration companies in each of our areas of focus to develop effective procedures for operating in the current global health crisis. Crews have new, clearly defined obligations to protect each other against infection and the spread of the virus, all of which have been embraced by our team.
Report confirms significant improvement in KSM’s economic potential while reducing environmental footprint
In May, the Company filed a new NI-43-101 Technical Report at www.sedar.com for its 100%-owned KSM project located in northern British Columbia, Canada. The new Technical Report confirmed the potential for a dramatic improvement in KSM’s economics by incorporating the recently expanded, higher grade Iron Cap deposit into a new Preliminary Economic Assessment (“2020 PEA”) mine plan. The Technical Report also includes the current Preliminary Feasibility Study which remains in effect. Highlights of the 2020 PEA include:
| ● | After Tax NPV at a 5% discount rate of US$6.0 billion using Base Case three-year average price assumptions of US$1,340/oz gold, US$2.80/lb copper and foreign exchange rate of US$0.76 per C$1.00; |
| ● | 44-year mine production plan capturing 19.6 million ounces of gold and 5.4 billion pounds of copper from the measured and indicated categories plus an additional 20.8 million ounces of gold and 13.8 billion pounds of copper from the inferred category; |
| ● | Life of mine recovered production of 27.6 million ounces of gold and 17.0 billion pounds of copper; |
| ● | 170,000 tonne per day processing rate capturing 2.4 billion tonnes of mill feed, or only 30% of KSM’s total mineral resource; |
| ● | 4.0-year payback on US$5.2 billion initial capital; |
| ● | At US$1,340 gold and US$2.80 copper, average annual pre-tax Free Cash Flow of US$1.45 billion from 1.3 million ounces of gold and 265 million pounds of copper produced per year during the initial 5 years of production; |
| ● | Life of mine average operating cost of negative US$472 per ounce of gold produced, net of copper and silver by-product revenues; |
| ● | Life of mine total cost of US$4 per ounce of gold produced, inclusive of all project initial, sustaining and closure/reclamation capital and net of copper and silver by-product revenues; |
| ● | 57% reduction in mine waste rock compared to the approved Environmental Assessment (“EA”); and |
| ● | 33% reduction in greenhouse gas emissions from mine operations compared to the approved EA. |
The 2020 PEA was undertaken to assess an alternate approach to developing KSM by incorporating a much larger Iron Cap block cave mine earlier into the production schedule. The benefits of incorporating Iron Cap into mine plans at an early stage exceeded the upper end of our expectations, not only for the improvements in projected economics but also for the reduction in environmental impact. The new Technical Report provides investors a compelling view of the project's potential, which if achieved, would rank KSM among the best large-scale producing mines in the world.
106 Front Street East, Suite 400, Toronto, OntarioM5A 1E1, Canada
Telephone: (416) 367-9292 www.seabridgegold.net
3 Aces: a high-grade, near surface gold exploration opportunity in a mining-friendly jurisdiction
In May, we completed the acquisition of a 100% interest in the 3 Aces gold project in Yukon, Canada from Golden Predator Mining Corp. for 300,000 Seabridge common shares, potential future cash payments totaling $2.25 million, and continuing royalty participation in the project by Golden Predator.
3 Aces is a district scale, orogenic-gold project consisting of 1,536 claims covering approximately 350 km² located in a readily accessible part of southeastern Yukon. The target concept for this project is consistent with some of the biggest and richest gold deposits in the world, including the California Mother Lode Belt, Juneau Gold Belt, Muruntau in Uzbekistan and Obuasi in Ghana. Historical work has identified a broad area of gold-in-soil extending more than 20 kilometers (12.4 miles) along strike and recent drilling in the Central Core Area has progressed to a point where, with additional exploration drilling, the property could potentially advance to an initial resource with exceptional grade.
Past drilling has encounted a significant number of gold rich zones on the stratigraphic/structural contacts at 3 Aces. By early 2019 the project had completed about 300 holes; 37% of these encountered +5.0 g/t gold intersections and 27% have returned +8.0g/t gold. Many of these holes were close-space off-sets on high-grade veins that crop out, but all veins identified in the Central Core Area have encountered high grade intersections. Significant effort was expended by Golden Predator to ensure that sampling of these high grade, nuggety intervals produced reliable and repeatable assay results. A sampling protocol was put in place to achieve reliable results. The following table summarizes selected intervals from previous drilling.
| Hole ID | DH Type | From (meters) |
To (meters) |
Intercept (meters) | Gold Grade (g/T) | |||||
| Spades High Grade Zone | ||||||||||
| 3A16-032 | RC | 16.76 | 27.43 | 10.67 | 32.86 | |||||
| 3A16-042 | RC | 17.53 | 24.38 | 6.85 | 25.61 | |||||
| 3A16-044 | RC | 17.53 | 35.05 | 17.52 | 3.65 | |||||
| 3A17-100 | RC | 19.05 | 25.91 | 6.86 | 20.15 | |||||
| 3A17-124 | RC | 6.10 | 10.67 | 4.57 | 58.75 | |||||
| 3A17-132 | DD | 20.00 | 33.30 | 13.30 | 6.69 | |||||
| 3A17-127 | RC | 12.95 | 19.05 | 6.10 | 22.30 | |||||
| 3A17-133 |
DD and |
23.80 57.50 |
40.00 65.00 |
16.80 7.50 |
20.50 13.92 | |||||
| 3A17-138 | DD | 7.50 | 15.50 | 8.00 | 50.40 | |||||
| 3A17-157 | DD | 19.00 | 23.20 | 4.20 | 20.04 | |||||
| 3A17-208 | RC | 0.76 | 5.33 | 4.57 | 81.35 | |||||
| 3A17-209 | RC | 2.29 | 23.62 | 21.33 | 18.33 | |||||
| 3A17-211 | RC | 1.52 | 9.91 | 8.39 | 14.05 | |||||
| 3A17-218 | RC | 5.33 | 18.29 | 12.96 | 14.19 | |||||
| 3A17-220 | RC | 1.52 | 15.24 | 13.72 | 43.02 | |||||
| 3A17-224 | RC | 1.52 | 11.43 | 9.91 | 21.81 | |||||
| 3A17-238 | RC | 0.76 | 9.91 | 9.15 | 41.03 | |||||
| Hearts Zone | ||||||||||
| 3A16-048 | RC | 96.01 | 104.39 | 8.38 | 6.39 | |||||
| 3A16-054 | RC | 38.86 | 58.67 | 19.81 | 4.76 | |||||
| 3A16-055 | RC | 51.05 | 60.20 | 9.15 | 9.37 | |||||
| 3A16-082 | DD | 42.67 | 60.96 | 18.29 | 16.75 | |||||
| 3A16-084 | DD | 103.98 | 115.82 | 11.84 | 1.72 | |||||
| 3A16-085 | RC | 86.87 | 96.01 | 9.14 | 8.65 | |||||
| 3A17-203 | RC | 10.67 | 30.48 | 19.81 | 3.32 | |||||
| Other Occurrences | ||||||||||
| 3A17-143 | DD | 12.70 | 32.00 | 19.30 | 16.15 | |||||
| 3A17-144 | RC | 5.33 | 52.58 | 47.25 | 1.11 | |||||
| 3A17-147 |
DD and |
13.00 18.50 |
15.50 22.00 |
2.50 3.50 |
15.51 21.44 | |||||
| 3A17-275 | RC | 40.39 | 48.77 | 8.38 | 5.24 | |||||
| 3A18-335 | DD | 16.20 | 33.06 | 16.86 | 1.35 | |||||
| 3A17-175 | RC | 32.00 | 33.53 | 1.53 | 36.33 | |||||
Our current plan at 3 Aces is to assemble and evaluate the wealth of data developed by Golden Predator for the targets in the Central Core Area with a view to initiating an aggressive drill program next year.
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KSM geotechnical drill program to test Mitchell Treaty Tunnels (“MTT”) route
Geotechnical drilling has begun along the proposed route of the MTT, a key infrastructure component of KSM. The permit for the drill program was obtained from the BC government on June 30, 2020. The size of this year’s geotechnical drill program has been scaled back from original plans due to the impact of the COVID-19 pandemic. The permit allows Seabridge to drill 40 holes, but we have limited this summer’s program to only one drill rig and 10 holes to reduce the load on our camp facilities and protect our employees and contractors.
The MTT is designed to connect the mine and mill, enabling the efficient transfer of ore to the mill from the mine site and the supply of electricity and transportation of fuel and other consumables in the opposite direction to the mine. The location of the mill and tailings management facility at some distance from the mines reflects the need for a site with suitable geotechnical characteristics where responsible tailings management can occur. Tunnels are more cost effective and less environmentally impactful than overland transport for the approved multi-decade mine life.
This year’s drilling will consist of about 4,000 meters in 10 holes to obtain information on the condition of the rocks through which the tunnels will be driven. This data will help in the selection of the best excavation technology for tunnel construction. Instrumentation will also be installed for ongoing data collection that will further assist tunnel design. Later this summer Seabridge plans to undertake a geophysics and short borehole drill program to determine foundation properties for construction of one of the MTT''s key portals.
Iskut drill program to test strong geophysical anomalies under the Quartz Rise lithocap
Core drilling has commenced at our 100%-0wned Iskut project in British Columbia to test 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 three years by making intensive use of geophysical tools, surface mapping and sampling and preliminary drilling. Rigorous procedures are being followed in this year’s program to minimize the risks associated with COVID-19.
Two shallow drill campaigns conducted by Seabridge discovered a promising diatreme below the Quartz Rise Lithocap located southeast of the old high-grade Johnny Mountain Mine. Elevated surface gold and copper concentrations situated within a large, intense induced polarization anomaly found in close association with magnetic anomalies have helped to define the target location below and west of the well-developed lithocap. Up to 8,000 meters of core will be drilled to evaluate about 750 meters of strike and more than 800 meters of vertical projection evident in the geophysical data.
The 2020 program plan will follow the successful formula used at KSM which led directly to the discovery of the Deep Kerr zone (cave-constrained Inferred Resource of 1.9 billion tonnes grading 0.31g/T Au and 0.41% Cu). Drill holes are designed to cut across the IP anomaly and a distinct magnetic feature which encloses the diatreme encountered in previous drilling. A hydrothermal breccia (diatreme) discovered in 2018 was found to contain clasts of porphyry-style vein fragments that confirmed an underlying porphyry source for the lithocap. Holes are planned to penetrate the geophysical anomalies at various elevations along the strike of the features, targeting the likely cradle of the porphyry system. The geophysical footprint of this target trends into an area where glacial erosion has exposed the system vertically over at least 800 meters, making the target amenable to drilling from surface.
2020 drilling at Snowstorm to follow-up on confirmed host stratigraphy and new structures
Plans have been finalized for a follow-up drill program at its 100%-owned Snowstorm Project in Northern Nevada to commence later this month. Prior work has determined that the project, located 6 kilometers north of Twin Creeks and 15 kilometers northwest of Turquoise Ridge, has the permissive stratigraphic host rocks and structures found at these two successful gold mines. An initial four drill hole program, anticipated to be about 5,700 meters, will evaluate several newly defined structural features in the favorable Ordovician carbonate stratigraphy.
Snowstorm was acquired because we thought it was an excellent opportunity for the discovery of a Getchell-style high grade gold deposit. These occurrences are challenging to find because the targets are hidden under younger volcanic cover. Last year we confirmed that Snowstorm has the right stratigraphy and a continuation of the Getchell structural setting. This year we will follow the permissive stratigraphy into areas where it is intersected by structures which we think may have transported gold-bearing solutions.
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Financial Results
During the three-month period ended June 30, 2020 Seabridge posted a net loss of $4.1 million ($0.06 per share) compared to a loss of $2.0 million ($0.03 per share) for the same period in 2019. During the 2nd quarter, Seabridge invested $4.4 million in mineral interests project spending compared to $4.3 million in the second quarter of 2019. At June 30, 2020, net working capital was $40.3 million compared to $12.5 million at December 31, 2019.
In April, the Company closed a non-brokered private placement of 1.44 million common shares at a price of $11.75 per common share for net proceeds of $16.9 million. No commissions were paid on the financing. In June, the Company also issued 345,000 flow-through common shares at $32.94 per common share for aggregate gross proceeds of $11.4 million. During the three months ended June 30, 2020, the Company issued 420,482 shares, at an average selling price of $24.42 per share, for net proceeds of $8.8 million under the Company’s ATM offering.
On Behalf of the Board of Directors,
| /s/ Rudi P. Fronk | |
| Rudi P. Fronk | |
| Chairman and Chief Executive Officer | |
| Toronto, Canada | |
| August 10, 2020 |
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