Seabridge Gold Inc 6-K, filed Nov 16, 2022
Seabridge Gold Inc (SA)
About this 6-K
Seabridge Gold Inc filed this 6-K on November 16, 2022.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F
O R M
REPORT
OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For
the month of
November
Commission
File Number
(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 on Form S-8 (File No. 333-211331) and Form F-10 (File No. 333-251081), 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: November 16, 2022
2
EXHIBIT INDEX
3
Exhibit 99.1
SEABRIDGE GOLD INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2022
SEABRIDGE GOLD INC.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
(Unaudited)
| September 30, | December 31, | |||||||||
| Note | 2022 | 2021 | ||||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | $ | ||||||||
| Short-term deposits | ||||||||||
| Amounts receivable and prepaid expenses | 5 | |||||||||
| Investment in marketable securities | 6 | |||||||||
| Non-current assets | ||||||||||
| Investment in associate | 6 | |||||||||
| Convertible notes receivable | 7 | |||||||||
| Long-term receivables and other assets | 8 | |||||||||
| Mineral interests, property and equipment | 9 | |||||||||
| Reclamation deposits | 11 | |||||||||
| Total assets | $ | $ | ||||||||
| Liabilities and shareholders’ equity | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable and accrued liabilities | 10 | $ | $ | |||||||
| Flow-through share premium | 13 | |||||||||
| Lease obligations | ||||||||||
| Provision for reclamation liabilities | 11 | |||||||||
| Non-current liabilities | ||||||||||
| Secured note | 12 | |||||||||
| Deferred income tax liabilities | 18 | |||||||||
| Lease obligations | ||||||||||
| Provision for reclamation liabilities | 11 | |||||||||
| Total liabilities | ||||||||||
| Shareholders’ equity | 13 | |||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||||
Subsequent events (Note 13), commitments and contingencies (Note 19)
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
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SEABRIDGE GOLD INC.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars except common share and per common share amounts)
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||
| Note | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Remeasurement of secured note | 12 | $ | $ | $ | $ | |||||||||||||
| Gain on disposition of mineral interests | 13 | |||||||||||||||||
| Corporate and administrative expenses | 16 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Impairment of investment in associate | 6 | ( | ) | |||||||||||||||
| Equity loss of associate | 6 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Other income - flow-through shares | 13 | |||||||||||||||||
| Environmental rehabilitation (expense) gain | 11 | ( | ) | ( | ) | |||||||||||||
| Unrealized gain (loss) on convertible notes receivable | 7 | ( | ) | ( | ) | |||||||||||||
| Foreign exchange gain (loss) | ( | ) | ( | ) | ||||||||||||||
| Finance costs, interest expense and other income | ( | ) | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||||
| Earnings (loss) before income taxes | ( | ) | ||||||||||||||||
| Income tax expense | 18 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Net earnings (loss) for the period | $ | $ | ( | ) | $ | $ | ||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||
| Items that will not be reclassified to net income or loss | ||||||||||||||||||
| Remeasurement of secured note | $ | $ | $ | $ | ||||||||||||||
| Change in fair value of marketable securities | ( | ) | ( | ) | ( | ) | ||||||||||||
| Tax impact | ( | ) | ( | ) | ( | ) | ||||||||||||
| Total other comprehensive income (loss) | ( | ) | ||||||||||||||||
| Comprehensive income (loss) for the period | $ | $ | ( | ) | $ | $ | ||||||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||||
| Basic | 13 | |||||||||||||||||
| Diluted | 13 | |||||||||||||||||
| Earnings per common share | ||||||||||||||||||
| Basic | 13 | $ | $ | ( | ) | $ | $ | |||||||||||
| Diluted | 13 | $ | $ | ( | ) | $ | $ | |||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
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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 Income (Loss) | Total Equity | |||||||||||||||||||||||||
| As at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
| Share issuance - At-The-Market offering | ||||||||||||||||||||||||||||||||
| Share issuance - options exercised | ( | ) | ||||||||||||||||||||||||||||||
| Share issuance - RSUs vested | ( | ) | ||||||||||||||||||||||||||||||
| Share issuance costs | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Deferred tax on share issuance costs | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | |||||||||||||||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||||||||||
| As at September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||
| As at December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
| Share issuance - Private placement | ||||||||||||||||||||||||||||||||
| Share issuance - At-The-Market offering | ||||||||||||||||||||||||||||||||
| Share issuance - options exercised | ( | ) | ||||||||||||||||||||||||||||||
| Share issuance - Warrants exercised | ( | ) | ||||||||||||||||||||||||||||||
| Share issuance - RSUs vested | ( | ) | ||||||||||||||||||||||||||||||
| Share issuance costs | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Deferred tax on share issuance costs | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Expired options | - | ( | ) | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||||||||||
| As at September 30, 2021 | $ | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
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SEABRIDGE GOLD INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating Activities | ||||||||||||||||
| Net earnings | $ | $ | ( | ) | $ | $ | ||||||||||
| Adjustment for non-cash items: | ||||||||||||||||
| Remeasurement gain on secured note | ( | ) | ( | ) | ||||||||||||
| Gain on disposition of mineral interests | ( | ) | ||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Other income - flow-through shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Unrealized foreign exchange loss | ||||||||||||||||
| Other non-cash items | ( | ) | ( | ) | ( | ) | ||||||||||
| Adjustment for cash items: | ||||||||||||||||
| Environmental rehabilitation disbursements | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Changes in working capital items: | ||||||||||||||||
| Amounts receivable and prepaid expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Accounts payable and accrued liabilities | ||||||||||||||||
| Net cash from (used in) operating activities | ( | ) | ||||||||||||||
| Investing Activities | ||||||||||||||||
| Investment in short-term deposits | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Redemption of short-term deposits | ||||||||||||||||
| Mineral interests, property and equipment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest paid | ( | ) | - | ( | ) | - | ||||||||||
| Long-term receivables | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Investment in reclamation deposits | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cash proceeds from disposition of mineral interests | - | |||||||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Financing Activities | ||||||||||||||||
| Secured note | ||||||||||||||||
| Share issuance net of costs | ( | ) | ||||||||||||||
| Exercise of options | - | |||||||||||||||
| Exercise of warrants | - | |||||||||||||||
| Payment of lease liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net cash from (used in) financing activities | ( | ) | ||||||||||||||
| Effects of exchange rate fluctuation on cash and cash equivalents | ( | ) | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents during the period | ( | ) | ( | ) | ( | ) | ||||||||||
| Cash and cash equivalents, beginning of the period | ||||||||||||||||
| Cash and cash equivalents, end of the period | $ | $ | $ | $ | ||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
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SEABRIDGE GOLD INC.
Notes to the condensed consolidated interim financial statements
For the three and nine months ended September 30, 2022 and 2021
(Amounts in notes and in tables are in millions of Canadian dollars, except where otherwise indicated) (Unaudited)
| 1. | Reporting entity |
Seabridge Gold Inc. is comprised of Seabridge Gold Inc. (“Seabridge” or the “Company”) and its subsidiaries, KSM Mining ULC, Seabridge Gold (NWT) Inc., Seabridge Gold (Yukon) Inc., Seabridge Gold Corp., SnipGold Corp. and Snowstorm Exploration (LLC), and is a company engaged in the acquisition and exploration of gold properties located in North America. The Company was incorporated under the laws of British Columbia, Canada on September 4, 1979 and continued under the laws of Canada on October 31, 2002. Its common shares are listed on the Toronto Stock Exchange trading under the symbol “SEA” and on the New York Stock Exchange under the symbol “SA”. The Company is domiciled in Canada, the address of its registered office is 10th Floor, 595 Howe Street, Vancouver, British Columbia, Canada V6C 2T5 and the address of its corporate office is 106 Front Street East, 4th Floor, Toronto, Ontario, Canada M5A 1E1.
| 2. | Basis of accounting |
These unaudited condensed consolidated interim financial statements (“consolidated interim financial statements”) were prepared in accordance with IAS 34, Interim Financial Reporting, using accounting policies consistent with those used by the Company in preparing the annual consolidated financial statements as at and for the year ended December 31, 2021 and should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year ended December 31, 2021. 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 November 14, 2022.
| 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 expenses during the three and nine months ended September 30, 2022 and 2021. Estimates and assumptions used in the preparation of these consolidated interim financial statements are consistent with those used by the Company in preparing the annual consolidated financial statements as at and for the year ended December 31, 2021 (except for those related to valuation of secured note described below in Note 4). 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.
Page 6
| 4. | Significant accounting policies |
Except as described below, the accounting policies applied in these interim financial statements are the same as the those applied in the Company’s consolidated financial statements as at and for the year ended December 31, 2021. Changes in accounting policies will also be reflected in the Company’s consolidated financial statements as at and for the year ending December 31, 2022.
Financial instruments
All financial liabilities (including liabilities designated at fair value through profit and loss “FVTPL”) are recognized initially at fair value on the date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss.
The Company has elected to account for its secured note liability and all embedded derivatives as a single financial liability. The change in fair value of the secured note liability is recognized in profit or loss. The change in the fair value related to the Company’s own credit risk is recorded through other comprehensive income (loss).
Significant estimates
The Company measures the fair value of its secured note liability using a Monte Carlo simulation model. Significant inputs and assumptions into this model include future silver prices, discount rates, forecasted silver production, and probabilities of Environmental Assessment Certificate (“EAC”) expiry, achieving commercial production and securing project financing. Changes to these inputs and assumptions could have a significant impact on the measurement of the secured note liability. Refer to Note 12 for further information.
Capitalization of borrowing costs
Borrowing costs are capitalized and allocated specifically to qualifying assets when funds have been borrowed, either to specifically finance a project or for general borrowings during the period of construction. Qualifying assets are defined as assets that require more than nine months to be brought to the location and condition intended by management. Capitalization of borrowing costs ceases when such assets are ready for their intended use.
| 5. | Amounts receivable and prepaid expenses |
| ($000s) | September 30, 2022 | December 31, 2021 | ||||||
| HST | ||||||||
| Trade and other receivables due from related parties | ||||||||
| Prepaid expenses and other receivables | ||||||||
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| 6. | Investments |
| ($000s) | January 1, 2022 | Fair value through other comprehensive income (loss) | Loss of associate | Impairment | Additions | September 30, 2022 | ||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Investments in marketable securities | ( | ) | ||||||||||||||||||||||
| Non-current assets: | ||||||||||||||||||||||||
| Investment in associate | ( | ) | ( | )(a) | (b) | |||||||||||||||||||
| ($000s) | January 1, 2021 | Fair value through other comprehensive income (loss) | Loss of associate | Impairment | Additions | December 31, 2021 | ||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Investments in marketable securities | ( | ) | ||||||||||||||||||||||
| Non-current assets: | ||||||||||||||||||||||||
| Investment in associate | ( | ) | (c) | |||||||||||||||||||||
| (a) |
| (b) |
| (c) |
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 $
Investment
in associate relates to Paramount Gold Nevada Corp (“Paramount”). As at September 30, 2022, the Company holds a
Page 8
| 7. | Convertible notes receivable |
In
September 2019, the Company participated in a private placement to purchase US$
As
at September 30, 2022 the fair value of the convertible notes receivable was $
| 8. | Long-term receivables and other assets |
| ($000s) | September 30, 2022 | December 31, 2021 | ||||||
| BC Hydro 1 | ||||||||
| Canadian Exploration Expenses (Note 18) | ||||||||
| British Columbia Mineral Exploration Tax Credit 2 | ||||||||
| 1) |
| 2) |
Page 9
| 9. | Mineral interests, property and equipment |
| ($000s) | Mineral interests | Construction in progress | Property & equipment 1 | Right-of-use assets 2 | Total | |||||||||||||||
| Cost | ||||||||||||||||||||
| As at January 1, 2021 | ||||||||||||||||||||
| Additions | ||||||||||||||||||||
| As at December 31, 2021 | ||||||||||||||||||||
| Additions | ||||||||||||||||||||
| As at September 30, 2022 | ||||||||||||||||||||
| Accumulated Depreciation | ||||||||||||||||||||
| As at January 1, 2021 | ||||||||||||||||||||
| Depreciation expense | ||||||||||||||||||||
| As at December 31, 2021 | ||||||||||||||||||||
| Depreciation expense 1, 2 | ||||||||||||||||||||
| As at September 30, 2022 | ||||||||||||||||||||
| Net Book Value | ||||||||||||||||||||
| As at December 31, 2021 | ||||||||||||||||||||
| As at September 30, 2022 | ||||||||||||||||||||
| 1) |
| 2) |
Page 10
Mineral interests, property and equipment additions by project are as follows.
| Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||
| ($000s) | January 1, 2022 | Mineral interests | Construction in progress | Property & equipment | Right-of-use assets | Total Additions | September 30, 2022 | |||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||
| KSM 1, 2 | ||||||||||||||||||||||||||||
| Courageous Lake | ||||||||||||||||||||||||||||
| Iskut | ||||||||||||||||||||||||||||
| Snowstorm | ||||||||||||||||||||||||||||
| 3 Aces | ||||||||||||||||||||||||||||
| Grassy Mountain | ||||||||||||||||||||||||||||
| Corporate | ||||||||||||||||||||||||||||
| Year ended December 31, 2021 | ||||||||||||||||||||||||||||
| ($000s) | January 1, 2021 | Mineral interests | Construction in progress | Property & equipment | Right-of-use assets | Total Additions | December 31, 2021 | |||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||
| KSM 3 | ||||||||||||||||||||||||||||
| Courageous Lake | ||||||||||||||||||||||||||||
| Iskut | ||||||||||||||||||||||||||||
| Snowstorm | ||||||||||||||||||||||||||||
| 3 Aces | ||||||||||||||||||||||||||||
| Grassy Mountain | ||||||||||||||||||||||||||||
| Corporate | ||||||||||||||||||||||||||||
| 1) |
| 2) |
| 3) |
Continued exploration of the Company’s mineral properties is subject to certain lease payments, project holding costs, rental fees and filing fees.
| a) | KSM |
In
2001,
Page 11
In
2011 and 2012,
In
December 2020,
| b) | Courageous Lake |
In
2002, the Company purchased a
| c) | Iskut |
On
June 21, 2016, the Company purchased
| d) | Snowstorm |
In
2017,
| e) | 3 Aces |
In
2020,
| f) | Grassy Mountain |
In
2013,
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| 10. | Accounts payable and accrued liabilities |
| ($000s) | September 30, 2022 | December 31, 2021 | ||||||
| Trade payables | ||||||||
| Trade and other payables due to related parties | ||||||||
| Non-trade payables and accrued expenses 1 | ||||||||
| 1) |
| 11. | Provision for reclamation liabilities |
| ($000s) | September 30, 2022 | December 31, 2021 | ||||||
| Beginning of the period | ||||||||
| Disbursements | ( | ) | ( | ) | ||||
| Environmental rehabilitation (recovery) expense | ||||||||
| Accretion | ||||||||
| End of the period | ||||||||
| Provision for reclamation liabilities - current | ||||||||
| Provision for reclamation liabilities - long-term | ||||||||
The
estimate of the provision for reclamation obligations, as at September 30, 2022, was calculated using the estimated discounted cash flows
of future reclamation costs of $
In
2021, the Company updated the closure plan for the Johnny Mountain mine site and charged an additional $
In
2022, the Company placed $
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| 12. | Secured note liability |
On
February 25, 2022, the Company, through its wholly-owned subsidiary, KSM Mining ULC (“KSMCo”) signed a definitive agreement
to sell a secured note (“secured note”) that is to be exchanged at maturity for a silver royalty on its
| a) | Commercial production being achieved at KSM; and |
| b) | Either the 10-year anniversary, or if the Environmental Assessment Certificate (“EAC”) expires and the Investors do not exercise their right to put the secured note to the Company, the 13-year anniversary of the issue date of the secured note. |
| ● | Prior to its maturity, the secured note bears interest at 6.5% per annum, payable quarterly in arrears. The Company can elect to satisfy interest payments in cash or by delivering common shares. |
| ● | The Company has the option to buyback 50% of the Silver Royalty, once exchanged on or before 3 years after commercial production has been achieved, for an amount that provides the Investors a minimum guaranteed annualized return. |
| ● | If project financing to develop, construct and place KSM into commercial production is not in place by the fifth anniversary from closing, the Investors can put the secured note back to the Company for US$232.5 million, with the Company able to satisfy such amount in cash or by delivering common shares at its option. This right expires once such project financing is in place. If the Investors exercise this put right, the Investors’ right to purchase the Silver Royalty terminates. |
| ● | If KSM’s EAC expires at anytime while the secured note is outstanding, the Investors can put the secured note back to the Company for US$247.5 million at any time over the following nine months, with the Company able to satisfy such amount in cash or by delivering common shares at its option. If the Investors exercise this put right, the Investors’ right to purchase the Silver Royalty terminates. |
| ● | If commercial production is not achieved at KSM prior to the tenth anniversary from closing, the Silver Royalty payable to the Investors will increase to a 75% gross silver royalty (if the EAC expires during the term of the secured note and the corresponding put right is not exercised by the Investors, this uplift will occur at the thirteenth anniversary from closing). |
| ● | No amount payable shall be paid in common shares if, after the payment, any of the Investors would own more than 9.9% of the Company’s outstanding shares. |
| ● | The Company’s obligations under the secured note are secured by a charge over all of the assets of KSMCo and a limited recourse guarantee from the Company secured by a pledge of the shares of KSMCo. |
A number of the above noted options within the agreement represent embedded derivatives. Management has elected to not separate these embedded derivatives from the underlying host secured note, and instead account for the entire secured note as a financial liability at fair value through profit or loss.
The
Company entered into the loan commitment within the scope of IFRS 9 ‘Financial Instruments’ on February 25, 2022 related
to the secured note, as at that date, the Company and the Investors were committed under pre-specified terms and conditions to complete
the transaction. The loan commitment was initially recognized at a fair value of US $
Page 14
The
secured note was recognized at its estimated fair value at initial recognition of $
Significant inputs and assumptions into this model are summarized in the following table.
| Inputs and Assumption | March 24, 2022 | September 30, 2022 | ||||||
| Weighted Average Life 1 | ||||||||
| Risk-free rate | % | % | ||||||
| Credit spread | % | % | ||||||
| Volatility | % | % | ||||||
| Silver royalty discount factor | % | % |
| 1) |
The carrying amount for the secured note is as follows:
| ($000s) | Secured Note | |||
| Fair value at inception | ||||
| Add (deduct): | ||||
| Unrealized change in fair value | ( | ) | ||
| Foreign currency translation loss | ||||
| Carrying value and fair value on September 30, 2022 | ||||
Sensitivity Analysis:
For the fair value of the secured note, reasonably possible changes at the reporting date to one of the significant inputs, holding other inputs constant, would have the following effects:
| Key Inputs | Inter-relationship between significant inputs and fair value measurement | Increase (decrease) (millions) | ||||
| Key observable inputs | The estimated fair value would increase (decrease) if: | |||||
| $ | ||||||
| $ | ( | ) | ||||
| $ | ( | ) | ||||
| $ | ||||||
| Key unobservable inputs | ||||||
| $ | ||||||
| $ | ( | ) | ||||
The fair value of the secured note has been calculated using a Monte Carlo simulation model.
Page 15
| 13. | Shareholders’ equity |
The Company is authorized to issue an unlimited number of preferred shares and common shares with no par value. No preferred shares have been issued or were outstanding at September 30, 2022 or December 31, 2021.
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 2022. The Company considers its capital to be share capital, stock-based compensation, warrants, contributed surplus and deficit. The Company is not subject to externally imposed capital requirements.
| a) | Equity financing |
In
2019, the Company entered into an agreement with two securities dealers, for an At-The-Market offering program, entitling the Company,
at its discretion, and from time to time, to sell up to US$
During
the first quarter of 2021,
In
June 2021, the Company issued
Page 16
In
June 2020, the Company issued
| b) | 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
Page 17
Stock options 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 ($000s) | |||||||||||||||||||
| Outstanding January 1, 2022 | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Exercised option or vested RSU | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Expired | ||||||||||||||||||||||||
| Amortized value of stock-based compensation | ||||||||||||||||||||||||
| Outstanding at September 30, 2022 | ||||||||||||||||||||||||
| Exercisable at September 30, 2022 | ||||||||||||||||||||||||
| Options | RSUs | Total | ||||||||||||||||||||||
| Number of Options | Weighted Average Exercise Price ($) | Amortized Value of options ($000s) | Number of RSUs | Amortized Value of RSUs ($000s) | Stock-based Compensation ($000s) | |||||||||||||||||||
| Outstanding at January 1, 2021 | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Exercised option or vested RSU | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Expired | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Amortized value of stock-based compensation | ||||||||||||||||||||||||
| Outstanding at December 31, 2021 | ||||||||||||||||||||||||
| Exercisable at December 31, 2021 | ||||||||||||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||
| Number | Remaining | Number | ||||||||||
| Exercise price | outstanding | contractual life | Exercisable | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
Page 18
During the nine months ended September
30, 2022,
In December 2021,
During the second quarter of
2021,
During the third and fourth quarter of
2021,
| c) | Basic and diluted net loss per common share |
Basic
and diluted net income attributable to common shareholders of the Company for the nine months period ended September 30, 2022 was $
Earnings per share has been calculated using the weighted average number of common shares and common share equivalents issued and outstanding during the period. Stock options are reflected in diluted earnings per share by application of the treasury method. The following table details the weighted average number of outstanding common shares for the purpose of computing basic and diluted earnings per common share for the following periods:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Dilutive effect of options 1 | ||||||||||||||||
| Dilutive effect of RSUs 1 | - | - | ||||||||||||||
| 1) | As
at September 30, 2022, there was a total of |
Page 19
| 14. | Cash flow items |
Adjustment for other non-cash items within operating activities:
| Three
months ended September 30, | Nine
months ended September 30, | |||||||||||||||||
| ($000s) | Notes | 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Impairment of investment in associate | 6 | - | - | - | ||||||||||||||
| Equity loss of associate | 6 | |||||||||||||||||
| Environmental rehabilitation expense | 11 | ( | ) | |||||||||||||||
| Unrealized gain on convertible notes receivable | 7 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Accrued interest income on convertible notes receivable | 7 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Depreciation | 9 | |||||||||||||||||
| Finance costs, net | ||||||||||||||||||
| Effects of exchange rate fluctuation on cash and cash equivalents | ( | ) | ( | ) | ( | ) | ||||||||||||
| ( | ) | ( | ) | ( | ) | |||||||||||||
| 15. | Fair value of financial assets and liabilities |
The Company’s fair values of financial assets and liabilities were as follows:
| September 30, 2022 | ||||||||||||||||||||
| ($000s) | Carrying Amount | Level 1 | Level 2 | Level 3 | Total Fair Value | |||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||
| Amounts receivable | ||||||||||||||||||||
| Investment in marketable securities | ||||||||||||||||||||
| Convertible notes receivable | ||||||||||||||||||||
| Long-term receivables | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||||||||
| Secured note | ||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| ($000s) | Carrying Amount | Level 1 | Level 2 | Level 3 | Total Fair Value | |||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||
| Short-term deposits | ||||||||||||||||||||
| Amounts receivable and prepaid expenses | ||||||||||||||||||||
| Investment in marketable securities | ||||||||||||||||||||
| Convertible notes receivable | ||||||||||||||||||||
| Long-term receivables | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||||||||
Page 20
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
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
September 30, 2022, the Company had cash and cash equivalents of $
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 financing and from the sale of non-core assets. Refer to note 13 for details on equity financing.
Market Risk
(a) Interest Rate Risk
Interest
rate risk is the risk that the future cash flows of a financial instrument or its fair value will fluctuate because of changes in market
interest rates. The secured note liability (Note 12) bears interest at a fixed rate of
(b) Foreign Currency Risk
The Company’s functional currency is the Canadian dollar and major purchases are transacted in Canadian and US dollars. The secure note liability and the related interest payments are denominated in US dollars. The Company has the option to pay the interest either in cash or in shares. The Company also funds certain operations, exploration and administrative expenses in the United States on a cash call basis using US dollar cash on hand or converted from its Canadian dollar cash. Management believes the foreign exchange risk derived from currency conversions is not significant to its operations and has not entered into any foreign exchange hedges. As at September 30, 2022, the Company had cash and cash equivalents, short-term deposits, investment in associate, convertible notes receivable, reclamation deposits, accounts payable, accrued liabilities and secured note that are in US dollars.
(c) Investment Risk
The
Company has investments in other publicly listed exploration companies which are included in investments. These shares were received
as option payments on certain exploration properties the Company owns or has sold. In addition, the Company holds $
Page 21
| 16. | Corporate and administrative expenses |
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| ($000s) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Employee compensation | ||||||||||||||||
| Stock-based compensation | - | |||||||||||||||
| Professional fees | ||||||||||||||||
| Other general and administrative | ||||||||||||||||
| 17. | Related party disclosures |
| 18. | Income taxes |
As
reported in the Company’s prior year financial statements, in 2019 the Company received a notice from the CRA that it proposed
to reduce the amount of expenditures reported, as Canadian Exploration Expenses (CEE) for the three-year period
ended December 31, 2016. The Company has funded certain of its exploration expenditures, from time-to-time, with
the proceeds from the issuance of flow-through shares and renounced, to subscribers, the expenditures which it determined to be CEE.
The notice disputes the eligibility of certain types of expenditures previously audited and approved as CEE by the CRA. The Company strongly
disagrees with the notice and responded to the CRA auditors with additional information for their consideration. In 2020, the CRA auditors
responded to the Company’s submission and, although accepting additional expenditures as CEE, reiterated that their position remains
largely unchanged and subsequently issued reassessments to the Company reflecting the additional CEE expenditures accepted and $
During
the year ended December 31, 2021, the Company deposited $
Page 22
| 19. | Commitments and contingencies |
| Payments due by years | ||||||||||||||||||||
| ($000s) | Total | 2022 | 2023-24 | 2025-26 | 2027-28 | |||||||||||||||
| Capital expenditure obligations | ||||||||||||||||||||
| Mineral interests | ||||||||||||||||||||
| Flow-through share expenditures | ||||||||||||||||||||
| Lease obligation | ||||||||||||||||||||
During the first quarter of 2022, the Company entered into a Facilities Agreement with British Columbia Hydro and Power Authority (“BC Hydro”) covering the design and construction of facilities by BC Hydro to supply construction phase hydro-sourced electricity to the KSM project.
The cost to complete the construction is estimated to be $28.9 million of which the Company paid $7.7 million to BC Hydro in 2022, and $21.2 million is due in 2023. In addition, the Facilities Agreement requires $54.2 million in security or cash from the Company for BC Hydro system reinforcement, which is required to make the power available of which the Company paid $21.2 million to BC Hydro in 2022, and $33.0 million is due in 2023. The $54.2 million system reinforcement security will be forgiven annually, typically over a period of less than 8 years, based on project power consumption.
Prior
to its maturity, the secured note bears interest at
Page 23
Exhibit 99.2
SEABRIDGE GOLD INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
THIRD QUARTER ENDED
SEPTEMBER 30, 2022
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 November 14, 2022, 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 nine months ended September 30, 2022. 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, 2021, and the 2021 Annual Information Form filed on SEDAR at www.sedar.com. Other corporate documents are also available on SEDAR and EDGAR as well as the Company’s website www.seabridgegold.com. As the Company has no operating projects at this time, its ability to carry out its business plan rests with its ability to sell projects or to secure equity and other financings. All amounts contained in this document are stated in Canadian dollars unless otherwise stated.
The consolidated interim financial statements for the three and nine months ended September 30, 2022 and the comparative period 2021 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 mineral properties, with an emphasis on gold resources, located in North America. The Company’s objective is to provide its shareholders with exceptional leverage to a rising gold price and the returns from significant copper resources it has acquired. The Company’s business plan is to increase its mineral resources in the ground, through exploration, but not to go into production on its own. The Company intends to sell projects or participate in joint ventures towards production with major mining companies. Since inception in 1999, Seabridge has acquired interests in numerous advanced-stage gold projects situated in North America and its principal projects include the KSM property located in British Columbia and the Courageous Lake property located in the Northwest Territories. The Company also holds a 100% interest in the Iskut Project in British Columbia and the Snowstorm Project in Nevada. In 2020, the Company purchased its 100% interest in the 3 Aces gold project in Yukon and acquired the East Mitchell property, adjacent to the KSM project, in British Columbia. Although focused on gold exploration, the Company has made significant copper discoveries, in particular, at KSM. 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”.
During the current quarter ended September 30, 2022, the Company announced Jay Layman retired as President and COO. Mr. Layman, however, will continue to serve as a Director of the Company and will assist in the transitioning and mentoring of two new officer appointments: Ryan Hoel, P.E., as Senior VP, Chief Operating Officer and Melanie Miller as VP, Chief Sustainability Officer. Mr. Hoel joined the Company in September 2021 as VP, Projects and since that time has led the Substantially Started activities at KSM. Ms. Miller joined the Company, as a Director, in June 2020, and has served as the Chairperson of the Company’s Sustainability Committee since its inception. With her new management role, Ms. Miller will step down as Chairperson of the Sustainability Committee, with Mr. Layman taking on the responsibility. Ms. Miller will remain a director of the Company.
Page 1
Results of Operations
During the current quarter, the Company recorded net earnings of $5.0 million, or $0.06 per share, on both a basic and diluted basis. During the comparative period in 2021 the Company recorded net loss of $0.8 million, or $0.01 per share, on both a basic and diluted basis.
During the nine months ended September 30, 2022, the Company recorded net earnings of $17.9 million, or $0.22 per share, on both basic and diluted basis. During the comparative period in 2021, the Company recorded net earnings of $9.4 million, or $0.12 per share, on both a basic and diluted basis.
During the three and nine months ended September 30, 2022, unrealized change in fair value of the Company’s secured note liability was the most significant item contributing to net earnings, partially offset by corporate and administrative expenses, finance costs, stock-based compensation, and income taxes. These items are discussed further below.
During the current quarter, the fair value of the secured note liability, issued on March 24, 2022, decreased by $27.2 million, and the Company recorded a $24.9 million gain, primarily related to the increase in risk-free interest rates and changes in future silver prices. Also, the Company recorded $2.3 million of the gain within other comprehensive income (loss) related to changes in credit spreads. In the current quarter, risk free interest rates and credit spreads increased by 0.3% and reduced the net present value of the interest commitment and the silver royalty embedded in the secured note.
Since the issuance on March 24, 2022, the fair value of the secured note liability decreased by $82.3 million of which the Company recorded $56.5 million gain through profit or loss, and $25.9 million through other comprehensive income (loss).
The Company measures the fair value of its secured note liability using a Monte Carlo simulation model. Significant inputs and assumptions into this model are summarized in the following table.
| Inputs and Assumption | March 24, 2022 | September 30, 2022 | ||||||
| Weighted Average Life1 | 23.5 years | 44.7 years | ||||||
| Risk-free rate | 2.5 | % | 3.2 | % | ||||
| Credit spread | 5.2 | % | 6.4 | % | ||||
| Volatility | 60 | % | 60 | % | ||||
| Silver royalty discount factor | 7.1 | % | 8.6 | % | ||||
| 1) | Weighted average life reflects the revised silver forecast production schedule contained in the recently filed KSM updated Preliminary Feasibility Study (PFS) and Preliminary Economic Assessment (PEA) for the KSM project, discussed below. |
The fair value of the secured note was estimated using Level 3 inputs and is most sensitive to changes in silver prices and forecasted silver production.
Page 2
During the second quarter of 2021, the Company disposed of its residual interests in its previously owned Red Mountain project located in northwestern British Columbia, for cash proceeds of US$18 million and recorded a gain of $21.9 million through the statement of operations and comprehensive earnings (loss) in that period. The capitalized costs incurred and accumulated while the Company held the project had previously been recovered through option and acquisition payments and the residual interest in the project had no carrying value.
During the current quarter, corporate and administrative expenses increased by $1.2 million, from $1.8 million in the third quarter in 2021 to $3.0 million. The increase was mainly due to higher cash compensation, and professional fees and other general and administrative expenses incurred during the current quarter, further discussed below.
Cash compensation increased by $0.4 million, from $1.0 million in the third quarter of 2021 to $1.4 million in the current quarter. Higher cash compensation mainly related to a recent and continuing increase in non-project personnel. Professional fees and other general and administrative expenses increased by $0.6 million, from $0.8 million in the third quarter in 2021 to $1.4 million in the current quarter. The increase was mainly related to an increase in external consulting costs and travel costs as pandemic related restrictions have eased over the course of the year.
During the nine months ended September 30, 2022, corporate and administrative expenses increased by $1.9 million, from $8.6 million in 2021 to $10.5 million in 2022. The increase was mainly due to higher cash compensation, and higher professional fees and other general and administrative expenses, partially offset by lower stock-based compensation (discussed below).
Cash compensation increased by $0.9 million, from $3.0 million during the nine months ended September 30, 2021, to $3.9 million during the comparative period in 2022. The increased cash compensation mainly related to an increase in non-project headcount. Professional fees increased by $0.5 million, from $1.0 million during the nine months ended September 30, 2021, to $1.5 million during the comparative period in 2022. The increase mainly related to the costs associated with the implementation of a new ERP system, the Company wide risk assessment review, and sustainability reporting. Other general and administrative expenses increased by $0.7 million, from $1.6 million during the nine months ended September 30, 2021, to $2.3 million during the comparative period in 2022. The increase was mainly related to increased external consulting costs and travel. The Company anticipates that personnel numbers and related remuneration will continue to increase slightly for the remainder of 2022 but not as significantly as has been the case for the first nine months of the year.
The Company has, since 2019, refocused the compensation practices away from issuing a combination of stock options and RSUs to only issuing restricted share units (RSUs). During the nine months ended September 30, 2022, stock-based compensation expense, related to RSUs, decreased by $0.2 million, from $2.9 million during the nine months ended September 30, 2021, to $2.7 million during the comparative period in 2022. The decrease was mainly due to the fact that the RSUs granted in December 2020 and expensed in 2021, had a higher grant date fair value when compared to the RSUs granted during 2021 and expensed in 2022.
Page 3
To the year ended December 31, 2021, the Company had expensed all accumulated fair value associated with stock options as the service period related to the remaining outstanding options ended in that year. The Company’s stock-based compensation expense related to stock options and restricted share units are illustrated on the following tables:
| ($000s) | ||||||||||||||||||||||||
| RSUs granted | Number of RSUs | Grant date fair value | Expensed in 2020 | Expensed in 2021 | Expensed in 2022 | Balance to be expensed | ||||||||||||||||||
| December 16, 2020 | 135,450 | 3,413 | 487 | 2,926 | - | - | ||||||||||||||||||
| June 24, 2021 | 10,000 | 222 | - | - | 141 | 81 | ||||||||||||||||||
| September 01, 2021 | 20,000 | 454 | - | 75 | 170 | 209 | ||||||||||||||||||
| September 07, 2021 | 10,000 | 229 | - | 36 | 86 | 107 | ||||||||||||||||||
| October 01, 2021 | 10,000 | 195 | - | 24 | 73 | 98 | ||||||||||||||||||
| December 13, 2021 | 123,800 | 2,622 | - | 437 | 2,185 | - | ||||||||||||||||||
| 487 | 3,498 | 2,655 | 495 | |||||||||||||||||||||
| ($000s) | ||||||||||||||||||||||||||||||||
| Options granted | Exercise price ($) | Number of options | Grant date fair value | Cancelled prior to 2020 | Expensed prior to 2020 | Expensed in 2020 | Expensed in 2021 | Balance to be expensed | ||||||||||||||||||||||||
| June 24, 2015 | 9.00 | 475,000 | 5,774 | 149 | 1,266 | 4,359 | - | - | ||||||||||||||||||||||||
| December 14, 2017 | 13.14 | 605,000 | 4,303 | - | 4,085 | 218 | - | - | ||||||||||||||||||||||||
| October 11, 2018 | 16.94 | 50,000 | 421 | - | 334 | 87 | - | - | ||||||||||||||||||||||||
| December 12, 2018 | 15.46 | 568,000 | 4,719 | - | 3,383 | 1,328 | 8 | - | ||||||||||||||||||||||||
| June 26, 2019 | 17.72 | 50,000 | 416 | - | 168 | 248 | - | - | ||||||||||||||||||||||||
| 149 | 9,236 | 6,240 | 8 | - | ||||||||||||||||||||||||||||
During the second quarter of 2022, all of the 123,800 RSUs, granted in mid-December 2021, vested upon the Company completing the 2021 exploration program, at Snowstorm, and have been exchanged for common shares of the Company. In December 2021, $0.4 million of the full fair value of $2.6 million, associated with those RSUs, was charged to the statement of operations and comprehensive loss and the remaining fair value of the grant of $2.2 million was charged to the statement of operations and comprehensive loss in the first and current quarter of 2022.
During the second quarter of 2021, 10,000 RSUs were granted to a Board member upon their appointment to the Board. Half of those RSUs vested in the second quarter of 2022, and the remaining half will vest on the second anniversary of their appointment. During the third quarter of 2021, a total of 40,000 RSUs were granted to three members of senior management. Half of those RSUs vested during the current quarter, and the remaining half will vest on the second anniversary of their appointment.
In the first six months of 2021, 135,450 RSUs, granted in 2020, fully vested to the holders upon the Company attaining pre-established vesting conditions and $2.9 million of fair value was expensed through the statement of operations and comprehensive loss.
The Company holds common shares of several mining companies that were received as consideration for optioned mineral properties and other short-term investments, including one gold exchange traded receipt. During the three and nine months ended September 30, 2022, the Company recognized a decrease in fair value of investments of $0.02 million and $0.1 million, net of income taxes, respectively. During the three months ended September 30, 2021, the Company recognized an increase in the fair value of investments, net of income taxes, of $0.1 million. During the nine months ended September 30, 2021, the Company recognized a decrease in the fair value of investments, net of income taxes, of $0.4 million.
Page 4
The Company holds one investment in an associate that is accounted for on the equity basis. During the three and nine months ended September 30, 2022, the Company recognized $0.05 million and $0.1 million loss in investment in associate, respectively. During the comparative three and nine months ended September 30, 2021, the Company recognized $0.05 million and $0.14 million loss in investment in associate, respectively. Also, during the second quarter of 2022, the Company reviewed the recoverability of the investment in the associate and recorded an impairment of $0.9 million in the consolidated statement of operations and comprehensive loss.
During the three and nine months ended September 30, 2022, the finance costs amounted to $0.03 million and $3.4 million, respectively. The finance costs incurred during 2022 were primarily related to the secured note financing. During the comparative three and nine months ended September 30, 2021, the finance costs amounted to $0.05 million and $0.1 million, respectively.
During the three months ended September 30, 2022, the Company recognized $13.6 million of unrealized foreign exchange loss associated with the secured note, partially offset by $2.5 million on realized foreign exchange gain recognized mainly on US dollar denominated cash and short-term investments converted to Canadian dollars during the period. During the nine months ended September 30, 2022, the Company recognized $20.7 million of unrealized foreign exchange loss associated with the secured note, partially offset by $8.7 million realized foreign exchange gains recognized mainly on US dollar denominated cash and short-term investments converted to Canadian dollars during the period. During the comparative three and nine months ended September 30, 2021, the Company recognized a foreign exchange gain of $0.5 million and $0.1 million, respectively.
During the three and nine months ended September 30, 2022, the Company recognized income tax expense of $7.6 million and $13.8 million, respectively, primarily due to the deferred tax liability arising from the gain recognized on remeasurement of the fair value of the secured note liability, and from the renouncement of expenditures related to the June 2021 flow-through shares issued which are capitalized for accounting purposes. The income tax expense was partially offset by income tax recovery arising from the losses in the period. The income tax impact of the revaluation of the secured note liability that was recorded through other comprehensive income (loss) during the three and nine months ended September 30, 2022, of $0.6 million and $7.0 million respectively, was also recorded through other comprehensive income (loss).
During the comparative three and nine months ended September 30, 2021, the Company recognized income tax expense of $0.2 million and $5.0 million, respectively, primarily due to the deferred tax liability arising from the gain recognized on disposition of the Company’s residual interests in its previously owned Red Mountain project, and from the renouncement of expenditures related to the June 2020 flow-through shares issued which are capitalized for accounting purposes. The income tax expense was partially offset by income tax recovery arising from the losses in the period.
Page 5
Quarterly Information
Selected financial information for the last eight quarters ending September 30, 2022 is as follows:
| 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||
| (in thousands of Canadian dollars, except per share amounts) | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | ||||||||||||||||||||||||
| Revenue | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| Earnings (loss) for the period | 5,045 | 19,088 | (6,281 | ) | (8,546 | ) | (822 | ) | 14,548 | (4,285 | ) | (12,653 | ) | |||||||||||||||||||
| Basic earnings (loss) per share | 0.06 | 0.24 | (0.08 | ) | (0.11 | ) | (0.01 | ) | 0.19 | (0.06 | ) | (0.18 | ) | |||||||||||||||||||
| Diluted earnings (loss) per share | 0.06 | 0.24 | (0.08 | ) | (0.11 | ) | (0.01 | ) | 0.19 | (0.06 | ) | (0.18 | ) | |||||||||||||||||||
During the second and third quarter of 2022, the unrealized gain related to the change in the fair value of the secured note was $31.6 million and $24.9 million, respectively. In the first quarter 2022, the loss for the period included $2.3 million of stock-based compensation expense related to amortization of RSUs granted in December 2021 that were vested during the second quarter 2022. In the fourth quarter 2021, the loss included $5.4 million of rehabilitation expenses related to the Johnny Mountain Mine. In the second quarter 2021, net income included $21.9 million gain on disposition of interest in the Red Mountain project. In the first quarter 2021, the loss for the period included $2.9 million of stock-based compensation expense related to amortization of RSUs granted in December 2020 that were vested during the second quarter 2021.
In the fourth quarter 2020, the vesting period of certain stock options was re-estimated to reflect the purchase of the Snowfield property from Pretium Resources Inc. for $127.5 million. The purchase added 25.9 million ounces of gold and 3.0 billion pounds of copper in the measured and indicated categories of resources and alone increased the measured and indicated gold ounces at KSM by 51% and by 28% for copper. The estimated service period for those stock options was reset to the Snowfield property acquisition date, and $8.6 million stock-based compensation expense was recognized through the statement of operations and comprehensive income (loss) in the fourth quarter 2020.
Mineral Interests and Site Capture Activities
During the nine months ended September 30, 2022, the Company added an aggregate of $34 million of expenditures that were attributed to mineral interests. The breakdown of the mineral interests expenditures by project is illustrated on the following table:
| ($000s) | Amount | Percentage | ||||||
| KSM | 23,281 | 68 | % | |||||
| Iskut | 6,388 | 19 | % | |||||
| Snowstorm | 2,632 | 8 | % | |||||
| +3 Aces | 1,237 | 4 | % | |||||
| Courageous Lake | 522 | 1 | % | |||||
| Total expenditures | 34,060 | 100 | % |
During the current quarter, the Company’s main efforts and most significant spending were focused on its 2022 site capture and early infrastructure development activities that are designed to ensure that KSM’s Environmental Assessment Certificate (“EAC”) remains in good standing. During the current quarter, the Company also filed a full updated pre-feasibility study (“PFS”) for KSM. The full study included a preliminary economic assessment (“PEA”) for mineral resources at KSM, not included in the PFS resources. Results of the PFS and PEA are discussed below.
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On site capture activities, under the B.C. Environmental Assessment Act, a project’s EAC is subject to expiry if the project has not been substantially started (“Substantial Start”) by the deadline specified in the EAC. The expiry date for KSM’s EAC is July 29, 2026. However, if the B.C. Minister of Environment and Climate Change Strategy determines that a project has been Substantially Started on or before the before the deadline, the EAC remains in effect for the life of the project. The 2022 full year plan for site capture is approximately $150 million and is being funded by the proceeds of the US$225 million secured note issued in March 2022. Significant activities include road, bridge and camp construction, hydro installations, fish habitat offsetting programs and the acquisition and transport of construction equipment and vehicles.
The site capture expenditures during the nine months ended September 30, 2022 are illustrated below:
| ($000s) | Balance January 1, 2022 |
Expenditures |
Credits | Net expenditures 2022 | Balance September 30, 2022 | |||||||||||||||
| Capital expenditure | 30,024 | 106,927 | (1,735 | ) | 105,192 | 135,216 | ||||||||||||||
| Capitalized borrowing costs | - | 9,775 | - | 9,775 | 9,775 | |||||||||||||||
| 30,024 | 116,702 | (1,735 | ) | 114,967 | 144,991 | |||||||||||||||
| 1) | Cost recoveries related to the Coulter Creek Access Road joint venture. |
The results of the PFS show a considerably more sustainable and profitable mining operation than its 2016 predecessor. It envisages an all open pit mine plan that includes the Mitchell, East Mitchell and Sulphurets deposits only with a 33 year operating life. Mill production is increased from an initial 130,000 metric tonnes per day (tpd) to 195,000 tpd in the third year of production. The primary reasons for the improvements in the plan arise from the acquisition of the East Mitchell resource in December 2020 and an expansion to planned mill throughput. The many design improvements over earlier studies include a smaller environmental footprint, reduced waste rock production, reduced greenhouse gas emissions by electrification of the mine haul fleet, a 50% increase in mill throughput, and the elimination of capital-intensive block cave mining.
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Projected economic results of the study compared to the 2016 study and against alternate scenarios are illustrated below.
| 2016
PFS Base Case | 2022 PFS Base Case | 2022
PFS Recent Spot Case | 2022
PFS Alternate Case | |||||||||||||
| Metal Prices: | ||||||||||||||||
| Gold ($/ounce) | 1,230 | 1,742 | 1,850 | 1,500 | ||||||||||||
| Copper ($/pound) | 2.75 | 3.53 | 4.25 | 3.00 | ||||||||||||
| Silver ($/ounce) | 17.75 | 21.90 | 22.00 | 20.00 | ||||||||||||
| Molybdenum ($/lb) | 8.49 | 18.00 | 18.00 | 18.00 | ||||||||||||
| US$/Cdn$ Exchange Rate: | 0.80 | 0.77 | 0.77 | 0.77 | ||||||||||||
| Cost Summary: | ||||||||||||||||
| Operating Costs Per Ounce of Gold Produced (years 1 to 7) | $ | 119 | $ | 35 | $ | -83 | $ | 118 | ||||||||
| Operating Costs Per Ounce of Gold Produced (life of mine) | $ | 277 | $ | 275 | $ | 164 | $ | 351 | ||||||||
| Total Cost Per Ounce of Gold Produced (inclusive of all capital and closure) | $ | 673 | $ | 601 | $ | 490 | $ | 677 | ||||||||
| Initial Capital (billions) | $ | 5.0 | $ | 6.4 | $ | 6.4 | $ | 6.4 | ||||||||
| Sustaining Capital (billions) | $ | 5.5 | $ | 3.2 | $ | 3.2 | $ | 3.2 | ||||||||
| Unit Operating Cost (US$/tonne) | $ | 12.36 | $ | 11.36 | $ | 11.36 | $ | 11.36 | ||||||||
| Pre-Tax Results: | ||||||||||||||||
| Net Cash Flow (billions) | $ | 15.9 | $ | 38.6 | $ | 46.1 | $ | 27.9 | ||||||||
| NPV @ 5% Discount Rate (billions) | $ | 3.3 | $ | 13.5 | $ | 16.4 | $ | 9.2 | ||||||||
| Internal Rate of Return | 10.4 | % | 20.1 | % | 22.4 | % | 16.5 | % | ||||||||
| Payback Period (years) | 6.0 | 3.4 | 3.1 | 4.1 | ||||||||||||
| Post-Tax Results: | ||||||||||||||||
| Net Cash Flow (billions) | $ | 10.0 | $ | 23.9 | $ | 28.6 | $ | 17.1 | ||||||||
| NPV @ 5% Discount Rate (billions) | $ | 1.5 | $ | 7.9 | $ | 9.8 | $ | 5.2 | ||||||||
| Internal Rate of Return | 8.0 | % | 16.1 | % | 18.0 | % | 13.1 | % | ||||||||
| Payback Period (years) | 6.8 | 3.7 | 3.4 | 4.3 | ||||||||||||
The results of the PEA announced in the current quarter is a stand-alone mine plan that was undertaken to evaluate a potential future expansion of the KSM mine to the copper rich Iron Cap and Kerr deposits after the PFS mine plan has been completed. The PEA is primarily an underground block cave mining operation supplemented with a small open pit and is planned to operate for 39 years with a peak mill feed production of 170,000 t/d. The PEA demonstrates that KSM is a potential multigenerational mining project with flexibility to vary metal output.
Work also continued on various, significant, components of the eventual design of KSM including connection to BC Hydro’s transmission line. Work was conducted on planned infrastructure projects, including the continuation of the construction of the access road to site as well as new temporary and permanent camp installations.
In the current quarter, the Company continued the 2022 exploration and drilling program at Iskut based on the analysis of the 2021 drilling and geophysical surveying programs. The 2022 program is designed to test the porphyry gold-copper potential at depth on the Bronson Slope deposit as well as below the Quartz Rise Lithocap. Work is also planned to consider forming a drill testing program at an additional site on the SnipGold claim block.
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In addition to exploration work at Iskut, the Company continued its planned 2022 reclamation and closure activities at the Johnny Mountain mine site. Plans for 2022 included, among other items, the dismantling and removal of the historic mill and mill buildings.
At Snowstorm, during the current quarter, the Company evaluated the results of the drilling program completed in the second quarter of 2022. The program entailed re-entering existing drill holes and used directional drilling tools to continue drilling from known gold-bearing intersections, toward prospective higher-grade structures. Approximately 2,500 meters of drilling was completed.
At the 3 Aces gold project in Yukon, the Company successfully secured a five-year, Class 4 permit during the current quarter and work immediately commenced on camp repairs, securing water sources and the drilling program. Due to the delay in the granting of the permit, the Company has altered its original 2022 program to accommodate the shortened drilling season. The 2022 program was designed to test the exploration model developed for a central core area that would confirm the potential for resource expansion and evaluate the applicability of the model to establish drill targets within the 3 Aces claims.
As reported in prior periods, the Company continues to evaluate the best path forward at its Courageous Lake project in NWT. Options include securing a joint venture partner, the sale of all or a portion of the project, updating the 2012 PFS with a smaller initial project, or conducting additional exploration outside the area of known reserves and resources.
In response to the Covid-19 pandemic, the Company implemented measures to safeguard the health and well-being of its employees, contractors, consultants, and community members. Many of the Company’s employees worked remotely prior to the pandemic, and from March 2020 through to most of 2021 and into 2022, employees have been working remotely during ongoing periods of lockdowns in various jurisdictions. The Company is conducting its 2022 programs around social distancing protocols that include safety and preventative actions at its camps. The Company will execute its 2022 exploration and development work at KSM, Iskut, Snowstorm and 3 Aces projects under the same successful protocols it implemented in 2020 and continued through 2021. The Company’s engagement with potential joint venture partners, or potential acquirors of KSM or Courageous Lake diminished in both 2020 and 2021 as major mining companies focused on addressing the needs of their existing operations as a result of the pandemic.
The Company continues to have full access to its properties in Canada and the United States and has managed to adequately staff its camps for conducting its programs. The Company has not experienced problems obtaining the supplies and services needed for its work programs. The Company will follow the advice of local governments and health authorities where it operates. The Company plans work programs on an annual basis and adjusts its plans to the conditions it faces. Now with many of the travel and other restrictions reduced, the Company fully expects to be able to continue operating its planned programs. One factor that the Company must plan for is the recent resurgence of inflation above past multi-decade levels. Budgets prepared for 2022 have incorporated inflation factors, including labour costs, fuel and energy costs and camp operations and supplies. These increases have not materially impacted planned operations or the Company’s ability to fund and execute its plans. The Company will consider these same factors as it develops its 2023 plans.
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Liquidity and Capital Resources
The Company’s working capital position at September 30, 2022, was $154.3 million compared to $36.9 million on December 31, 2021. Increased cash resources resulted from the cash raised through financings (discussed below), and exercise of stock options, partially offset by cash used in early infrastructure development and corresponding equipment, environmental, reclamation and exploration projects, corporate and administrative costs, and reclamation bonding deposits for KSM. Included in current liabilities at September 30, 2022, is $0.4 million of flow-through premium liability which is a non-cash item (December 31, 2021 - $1.4 million) and will be reduced as flow-through expenditures are incurred.
On March 24, 2022, the Company entered into an agreement selling a secured note (“Note”) that is to be exchanged at maturity for a 60% gross silver royalty (the “Silver Royalty”) on the KSM project to Sprott Resource Streaming and Royalty Corp. and Ontario Teachers’ Pension Plan (jointly, the “Investors”) for US$225 million. The proceeds of the financing are to be used to continue ongoing physical works at KSM and advance the project towards a designation of Substantially Started. The Substantially Started designation ensures the continuity of the KSM project’s approved EAC for the life of the project.
The Note bears interest at 6.5% per annum, payable quarterly in arrears. The Company can elect to satisfy interest payments in cash or by delivering common shares. During the nine months ended September 30, 2022, the interest was paid in cash. The Company’s obligations under the Note are secured by a charge over all of the assets of its wholly owned subsidiary, KSM Mining ULC, and a limited recourse guarantee from the Company secured by a pledge of the shares of KSM Mining ULC.
If project financing to develop, construct and place KSM into commercial production is not in place by March 24, 2027, the Investors can put the Note back to the Company for US$232.5 million in cash or common shares at the Company’s option. This right expires once such project financing is in place. If the Investors exercise this put right, the Investors’ right to purchase the Silver Royalty terminates.
If the EAC expires at any time while the Note is outstanding, the Investors can put the Note back to the Company for US$247.5 million at any time over the following nine months, in cash or common shares at the Company’s option. If the Investors exercise this put right, the Investors’ right to purchase the Silver Royalty would terminate.
When the Note matures, the Investors will use all of the principal amount repaid on maturity to purchase the Silver Royalty. The Note matures upon the first of either commercial production being achieved at KSM and either the 10-year anniversary, or if the EAC expires and the Investors do not exercise their right to put the Note to the Company, the 13-year anniversary of the issue date of the Note.
If commercial production is not achieved at KSM prior to the tenth anniversary from closing, the Silver Royalty payable to the Investors will increase to a 75% gross silver royalty. If the EAC expires during the term of the Note and the corresponding put right is not exercised, the increase will occur at the thirteenth anniversary from closing. The Company has the option to buy back 50% of the Silver Royalty, once exchanged on or before 3 years after commercial production has been achieved, for an amount that provides the Investors a minimum guaranteed annualized return.
No amount payable may be paid in common shares of Seabridge if, after the payment, any of the Investors would own more than 9.9% of the Company’s outstanding shares.
The financing provides most of the capital necessary to attain Substantial Start and reduces the time from the construction schedule once a construction decision has been made.
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During the first quarter of 2021, the Company entered into a revised agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$75 million in value of common shares of the Company. This program can be in effect until the Company’s current US$775 million Shelf Registration Statement expires in January 2023. During the nine months ended September 30, 2022, the Company issued 997,508 shares, at an average selling price of $22.83 per share, for net proceeds of $22.3 million under Company’s At-The-Market offering.
During the nine months ended September 30, 2022, the Company received $2.7 million upon the exercise of 186,007 stock options. Subsequent to the quarter end, 100,000 stock options were exercised.
In June 2021, the Company issued 350,000 flow-through common shares at $28.06 per common share for aggregate gross proceeds of $9.8 million. The Company committed to renounce its ability to deduct qualifying exploration expenditures for the equivalent value of the gross proceeds of the flow-through financing and transfer the deductibility to the purchasers of the flow-through shares. The effective date of the renouncement was December 31, 2021. At the time of issuance of the flow-through shares, $1.5 million premium was recognized as a liability on the consolidated statements of financial position. During 2021, the Company incurred $1.1 million of qualifying exploration expenditures and $0.2 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive income (loss). During the nine months ended September 30, 2022, the Company incurred $6.1 million of qualifying exploration expenditures and $0.9 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive income (loss).
During the second quarter of 2021, the Company disposed of its residual interests in its previously owned Red Mountain project located in northwestern British Columbia, for net cash proceeds of $21.9 million.
As part of the acquisition agreement of Snowstorm Exploration LLC in June 2017, the Company issued 500,000 common share purchase warrants exercisable for four years at $15.65 per share. During 2021, all the warrants were exercised for net proceeds of $7.8 million and 500,000 common shares were issued.
During the current quarter, operating activities, including working capital adjustments, generated $10.7 million cash compared to $0.1 million cash generated by operating activities in comparative quarter in 2021. The increase in cash generated from operating activities, was mainly related to the foreign exchange gain, interest income, and working capital movement that was partially offset by increase in cash compensation, general and administrative expenses and financing costs. Operating activities in the near-term are expected to remain stable or increase marginally given the growth in project and corporate activity in the Company.
As previously disclosed in the Company’s prior years financial statements, in 2019 the Company received a notice from the CRA that it proposed to reduce the amount of expenditures reported as Canadian Exploration Expenses (CEE) for the three-year period ended December 31, 2016. The Company has funded certain of its exploration expenditures, from time-to-time, with the proceeds from the issuance of flow-through shares and renounced, to subscribers, the expenditures which it determined to be CEE. The notice disputes the eligibility of certain types of expenditures previously audited and approved as CEE by the CRA. The Company strongly disagrees with the notice and responded to the CRA auditors with additional information for their consideration. In 2020, the CRA auditors responded to the Company’s submission and, although accepting additional expenditures as CEE, reiterated that their position remains largely unchanged and subsequently issued reassessments to the Company reflecting the additional CEE expenditures accepted and $2.3 million of Part Xll.6 tax owing. The Company has been made aware that the CRA has reassessed certain investors who subscribed for flow-through shares in 2013 and will reassess other investors with reduced CEE deductions. Notice of objections to the Company’s and investors’ reassessments have and will be filed as received and will be appealed to the courts, should the notice of objections be denied. The Company has indemnified the investors that subscribed for the flow-through shares. The potential tax indemnification to the investors is estimated to be $11.0 million, plus $2.2 million potential interest. No provision has been recorded related to the tax, potential interest, nor the potential indemnity as the Company and its advisors do not consider it probable that there will ultimately be an amount payable.
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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 in 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 to the Receiver General and reduced the provision by $1.8 million. In 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. Subsequent to the year end, the Company completed discoveries 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 September 30, 2022, the Company has recognized $3.9 million of long-term receivable from the CRA, including $2.3 million of HST credit due to the Company.
The Company will continue its objective of advancing its major gold projects, KSM and Courageous Lake, and to further explore the Iskut, Snowstorm and 3 Aces projects to either sell or enter into joint venture arrangements with major mining companies. The market for metals streams and royalty interests seems to be growing and the Company will determine the merits of disposing of options it holds on non-core net profits interests and net smelter returns. Financing future exploration and development may include the selling or entering into new streaming and royalty arrangements.
Contractual Obligations
The Company has the following commitments as at September 30, 2022:
| Payments due by years | ||||||||||||||||||||
| ($000s) | Total | 2022 | 2023-24 | 2025-26 | 2027-28 | |||||||||||||||
| Capital expenditure obligations | 70,424 | 16,204 | 54,220 | - | - | |||||||||||||||
| Mineral interests | 7,308 | 6 | 2,506 | 2,620 | 2,176 | |||||||||||||||
| Flow-through share expenditures | 2,683 | 2,683 | - | - | - | |||||||||||||||
| Lease obligation | 1,634 | 178 | 1,043 | 314 | 99 | |||||||||||||||
| 82,049 | 19,071 | 57,769 | 2,934 | 2,275 | ||||||||||||||||
During the first quarter of 2022, the Company entered into a Facilities Agreement with British Columbia Hydro and Power Authority (“BC Hydro”) covering the design and construction of facilities by BC Hydro to supply construction phase hydro-sourced electricity to the KSM project.
The cost to complete the construction is estimated to be $28.9 million of which the Company paid $7.7 million to BC Hydro in 2022, and $21.2 million is due in 2023. In addition, the Facilities Agreement requires $54.2 million in security or cash from the Company for BC Hydro system reinforcement, which is required to make the power available of which the Company paid $21.2 million to BC Hydro in 2022, and $33.0 million is due in 2023. The $54.2 million system reinforcement security will be forgiven annually, typically over a period of less than 8 years, based on project power consumption.
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Prior to its maturity, the secured note bears interest at 6.5%, or US$14.6 million per annum, payable quarterly in arrears. The Company can elect to satisfy interest payments in cash or by delivering common shares.
Outlook
As mentioned above, the COVID-19 pandemic has not materially impacted the Company’s operations, financial condition or financial performance in the current or previous quarters of 2022, but in 2020 and 2021 it caused it to reduce the scale of certain programs as it hindered the pace of advancement at the affected projects in those years. The Company has been able to execute its 2022 exploration, and monitoring programs at its projects as well as the site capture and early infrastructure development activities at KSM, safely and within the constraints and safety measures implemented. Depending on potential outbreaks and additional restrictions, the pandemic may hinder progress in the future but to date it has had no material impact to the results of operations. Although the capital markets have been relatively volatile, the Company has not experienced limitations nor does it foresee limitations to accessing capital on acceptable terms. No disruptions to supply chains have been experienced nor have there been delays in project activity.
In 2022, the Company has enjoyed favorable capital markets, closing the US$225 million secured financing in the first fiscal quarter and has successfully raised funds under its ATM offering of common shares and other financings mentioned above and its financial condition has not been adversely impacted by the pandemic. As a company without revenue from operations, its financial performance has not been impacted by the pandemic. The Company will continue to monitor developments of the pandemic and continuously assess the pandemic’s potential impact on the Company’s operations and business.
In addition to the extensive Substantial Start work that the Company is carrying out in 2022, it also continues its pursuit of a joint venture agreement on the KSM project with a suitable partner on terms advantageous to the Company, since it does not intend to build or operate the project alone. The KSM project includes multiple deposits and provides a joint venture partner, or purchaser, flexibility in the design of the project. In accordance with its priorities and risk tolerance, the Company believes that it does not make sense for it to start preparing a feasibility study on the KSM project on its own. The 2022 KSM PFS includes recommendations on additional work that could be completed to advance the project, including budget estimates. The work that a joint venture partner might choose to complete might include some or all of this recommended work and might include significantly more work, and so the timing and cost for a joint venture partner to conclude the recommended work or a feasibility study is difficult to predict. The Company plans its work to advance the KSM project on an annual basis, when the results of one year’s work have been received and analyzed, planning for the next year begins. Currently, the Company is focused on Substantial Start activities and while planning its programs, the Company will consider the recommended work in the PFS, but the Company will decide work based on its priorities, the results of its advancement work and the items it believes are best left for a joint venture partner to decide. Plans for each year are typically announced in the second quarter of the year and budgets are established at the beginning of that year.
At Iskut, the Company will finalize its 2022 exploration program that is focused on a potential porphyry deposit below the Quartz Rise lithocap and on the Bronson Slope deposit. Once completed, results will be evaluated and plans for follow-up, if warranted, will be designed for 2023. Environmental work will also continue on the reclamation and closure plan for the Johnny Mountain mine.
At Snowstorm, the Company will continue to evaluate the results of the drilling program, completed in the second quarter and determine the most suitable follow-up program for 2023.
At the Company’s 3 Aces project, the Company will conclude its modified 2022 drilling program and will evaluate the results along with the knowledge garnered with the study of historical data to establish determine the most suitable follow-up program for 2023. The overall program is focused on the discovery of a high grade mineralized deposit.
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Environment, Social and Governance
Management and the Board of Directors have formalized several key policies that entrench the Company’s environmental, social and governance (ESG) goals, priorities and strategies to operate safely, sustainably and with the highest governance standards. The Board of Directors has established a Sustainability Committee and granted that committee the authority to investigate any activity of the Corporation and its affiliates relating to sustainability and ESG. As the Company operates in the natural resource extraction industry, the Company strives to achieve the highest operating standards, assessing and mitigating the impacts on the physical environment and the communities in which the Company operates. The Company is committed to sustainability and the integration of sustainability principles into all of our activities and has adopted its Sustainability Policy. In the current quarter, the Company published its supplemental Sustainability Report providing insight to the Company’s commitment to local communities, environment and sustainability. The report captures the last quarter of 2021 to highlight the Company’s progress towards integrating sustainability into its operations. The Company’s Sustainability Reports are prepared with select disclosures and guidance from the Sustainability Standards Accounting Board Metals and Mining Industry Standards and the Global Reporting Initiative Standards, as well as metrics designed for specifically for the Company. The Company also published its ESG Performance Tables for its first reporting year, 2020. The sustainability report highlights the Company’s accomplishments and approach to three critical pillars: the economy, society, and the environment. These pillars are seen as interdependent, each necessary and supportive to the other. The Company recognizes that sustainability involves protecting environmental values in the area of our projects, contributing to the health and the economic and social well-being of our employees and the local communities, and taking action on national and global priorities. A sustainable human environment requires the Company to consider issues such as cultural respect, inclusiveness, diversity, and broad participation in the opportunities and benefits which derive from our efforts.
In addition to the Sustainability Policy, the Company has also implemented its Environmental Policy; Health and Safety Policy including a separate policy on discrimination, bullying, harassment, and violence; a Workplace Employment Policy; and its Policy Statement on Diversity. The Inaugural Sustainability Report and all of the Company’s policies related to ESG can be found on the Company’s website www.seabridgegold.com.
Internal Controls Over Financial Reporting
The Company’s management under the supervision of the Chief Executive Officer and Chief Financial Officer are responsible for designing adequate internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Management is responsible for establishing and maintaining adequate internal controls over financial reporting. The control framework used is Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Changes to Internal Controls Over Financial Reporting
There was no change in the Company’s internal controls over financial reporting that occurred during the period beginning on June 30, 2022 and ended on September 30, 2022, 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 September 30, 2022, that they are appropriately designed and effective and that since the December 31, 2021 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.
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Cybersecurity
The Company’s management is responsible for cybersecurity risks that face the Company, and the Board of Directors has granted the Audit Committee the authority to oversee management’s assessment of those risks and their prevention and mitigation approaches and to investigate any material breaches. To date, there have been no material breaches of security measures.
An independent review of access to information and other security protocols around the Company’s IT systems was undertaken in 2020 and another review is planned for early 2023. The review, among other items, verifies all employees’ ability to recognize potentially malicious emails or other communications that could enable an intruder to download malware onto the Company’s systems leading to the potential circumventing of the Company’s security protocols and to potentially steal or hold ransom Company data.
Shares Issued and Outstanding
At November 14, 2022, the issued and outstanding common shares of the Company totaled 80,398,664. In addition, there were 737,327 stock options, and 34,000 RSUs. Assuming the conversion of all of these instruments outstanding, there would be 81,169,991 common shares issued and outstanding.
Related Party Transactions
During the current quarter and the comparative quarter in 2021, there were no payments to related parties other than compensation paid to key management personnel. These transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Critical Accounting Estimates
The Company’s management makes judgments in its process of applying the Company’s accounting policies in the preparation of its consolidated financial statements. In addition, the preparation of financial data requires that the Company’s management make assumptions and estimates of effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period and the reported amounts of income and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively.
The critical judgments, estimates and assumptions applied in the preparation of the Company’s consolidated financial statements are reflected in note 3 (N) of the Company’s audited annual consolidated financial statements for the year ended December 31, 2021.
The Company has elected to account for its secured note liability and all embedded derivatives as a single financial liability. The change in fair value of the secured note liability is recognized in profit or loss. The change in the fair value related to the Company’s own credit risk is recorded through other comprehensive income (loss).
The Company measures the fair value of its secured note liability using a Monte Carlo simulation model. Significant inputs and assumptions into this model include future silver prices, discount rates, forecasted silver production, and probabilities of Environmental Assessment Certificate (“EAC”) expiry, achieving commercial production and securing project financing. Changes to these inputs and assumptions could have a significant impact on the measurement of the secured note liability. Refer to Note 12 for further information.
Borrowing costs are capitalized and allocated specifically to qualifying assets when funds have been borrowed, either to specifically finance a project or for general borrowings during the period of construction. Qualifying assets are defined as assets that require more than nine months to be brought to the location and condition intended by management. Capitalization of borrowing costs ceases when such assets are ready for their intended use.
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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 September 30, 2022
Recent Highlights
| ● | Awarded the 2022 Jake McDonald Mine Reclamation Award for our work at Johnny Mountain |
| ● | Continued progress of Substantially Started activities at KSM |
| ● | Received Class 4 Exploration Permit for 3 Aces |
| ● | Immediate commencement of drill program at 3 Aces |
| ● | 2022 exploration program at Iskut completed … assays awaited |
| ● | Published Q4 2021 Sustainability Report |
Reclamation Activities Recognized at Historic Johnny Mountain Mine
Seabridge was awarded the 2022 Jake McDonald Annual Mine Reclamation Award presented by the British Columbia Technical and Research Committee on Reclamation (TRCR) to recognize outstanding achievement in mine reclamation in British Columbia.
The award recognizes the multi-year $12 million environmental and reclamation program Seabridge Gold is voluntarily undertaking with the Tahltan Nation at the 100%-owned Iskut Project, located in the transboundary region of northwest British Columbia, bordering southeast Alaska. The comprehensive program is reclaiming the former Johnny Mountain Mine (JMM) which was operated by previous owners in the late 1980s, by bringing the site back to its pre-mining conditions. The award validates Seabridge’s reputation as a ‘responsible operator’ and our commitment to protect the environment.
In 2016, Seabridge Gold purchased SnipGold Corp and its mineral tenures, including the former Johnny Mountain Mine, which was in a complete state of disrepair, with significant existing and historic reclamation liabilities, including several outstanding BC Ministry of the Environment environmental orders. For the past six years, the Seabridge team has been actively working to reclaim the historic JMM Site.
Seabridge plans to complete the full reclamation and closure of the JMM Site in 2025. Work completed to date has included a detailed regional aquatic characterization study, a site investigation study and a detailed project execution plan in line with an approved Closure Management Plan developed in cooperation with the Tahltan Nation. On the ground, we have designed, constructed and permitted a non-hazardous solid waste landfill and removed the contents from five unauthorized landfills across the site for final disposal at the approved landfill. We have dismantled and cleaned an old fuel tank farm and completed in-situ hydrocarbon remediation of contaminated soils. Potential acid-generating waste rock from the portal pads was moved to the tailings management facility to be stored underwater. The Company also closed five vent raises which posed safety risks to both humans and the local wildlife. We also undertook multiple Dam Safety Reviews and annual Dam Safety Inspections, and maintenance of the tailings impoundment. Hazardous materials from the mill building were removed and sent offsite to a licensed hazardous waste disposal facility. The mill building was also demolished, drastically changing the landscape of the old JMM site.
To learn more about the reclamation work underway at the JMM, watch here.
Substantially Started activities advance at KSM with bridges, access roads, camps, power and fish compensation facilities
Seabridge continued its early construction activities at KSM. Installation of the Bell-Irving River Bridge was completed and placed into service. The bridge will provide permanent access to KSM’s process plant and tailings facility areas. As of early November, construction of the Treaty Creek Access Road reached the planned milestone of 17 kilometers for the 2022 season. The remaining 13 kilometers are planned for completion in the 2023 season.
106 Front Street East, Suite 400, Toronto, OntarioM5A 1E1, Canada
(416) 367-9292 www.seabridgegold.com
Permanent housing at Camp 11 was commissioned with 99 beds to support construction and eventual operations on the Treaty side of the property just off Highway 37. Earthworks for the Camp 11 area were accelerated to help de-risk construction and operation activities, which include support facilities, laydown areas and centralized infrastructure. Earthworks at Camp 9 in the Mitchell Valley were completed following a successful heavy lift program. Higher than average snowpack resulted in a compressed construction season on the Coulter Creek Access Road, which translated into less than planned progress. Site development by BC Hydro on the multi-year Treaty Creek Terminal continued as planned with the station pad nearing completion. Bulk earthworks at the Glacier Creek Fish Habitat Offsetting Pond were substantially completed by the end of the construction season, with planned revegetation scheduled for 2023.
Successful execution of the 2022 data collection program concluded with 6,200 meters of drilling in the mine area focused on geotechnical and geohydrological characterization of the Water Storage Dam (WSD) and the Mitchell Diversion Tunnel (MDT).
Seabridge has partnered with Fluor Corporation, a globally recognized EPCM firm, to develop an integrated KSM project team and leverage industry best project management processes and systems. Engineering efforts progressed on early infrastructure in support of the master schedule. Seabridge continued to focus on Health, Safety, Community and Environment with the implementation of a shuttle service, site-wide safety programs and emphasis on environmental compliance and stewardship.
Seabridge continued to prioritize the awarding of work to Indigenous partners and/or companies that have formed joint ventures with Indigenous groups. The ongoing site capture activities are intended to move KSM towards accomplishing four main objectives:
| 1. | Achieve a ’substantially started’ designation which ensures the continuity of the KSM project’s approved Environmental Assessment Certificate (“EAC”) for the life of the project; | |
| 2. | Complete key tasks which support construction readiness and will shorten the construction period once a construction decision has been made; | |
| 3. | Enhance the KSM proposition in our joint venture negotiations by securing the EAC, further de-risking the project, and accelerating the construction timetable; and | |
| 4. | Continue to build on the relationships with our Indigenous stakeholders. |
3 Aces Class 4 permit opens the door for exploration at 3 Aces
On September 9, Seabridge received its Class 4 Quartz Exploration Permit from the Yukon Government Department of Energy, Mines, and Resources for its 100% owned 3 Aces project. This permit allows Seabridge to conduct a gold focused exploration program with the following activities:
| ● | Camp operations to support exploration personnel | |
| ● | Field activities, consisting of line cutting, trenching, geological mapping, and the completion of geophysical surveys | |
| ● | Drilling |
Seabridge thanks the Yukon Government, the Liard First Nation (LFN), and Ross River Dena Council (RRDC) for working together to issue this permit. We look forward to establishing in the Yukon the same reputation for operating excellence that we have established with the Indigenous peoples of northwest British Columbia and provincial regulators.
Seabridge’s inaugural drill program now underway at 3 Aces
3 Aces was acquired by Seabridge in March 2020 as a district scale, orogenic-gold project consisting of 1,734 claims covering 357 km² (35,700 ha) 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, Murentau in Uzbekistan and Obuasi in Ghana. Historical work has identified a broad area of gold-in-soil occurrences extending more than 20 kilometers (12.4 miles) along strike.
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Field programs completed by Seabridge in 2021 identified four separate target areas for drill testing. To fit the limited season still available in 2022 after the permit was granted, drilling tested our 3-dimensional model on four targets at the Hearts zone to confirm our theory that gold-bearing veins are hosted on the axis of secondary aniticlinal folds intersected by specific thrust faults. The current program will generate approximately 1,500 meters of core to improve 3-dimensional controls on these structures and institute sampling protocols to confirm the reliability and repeatablity of gold assays.
The following table summarizes selected intervals from drilling by previous owners at the Hearts zone:
| Hole ID | DH Type | From (meters) | To | Intercept (meters) | Gold Grade (g/T) | |||||||||||||
| 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 | |||||||||||||
NOTE: RC – reverse circulation drilling; DD = diamond core drilling
Environmental monitoring activities focusing on wildlife management, water sampling and understanding environmental baseline conditions are being conducted to support the exploration activities. Additionally, Seabridge will continue its previously initiated reclamation activities at the site, focusing on unused exploration roads.
2022 drill program at Iskut discovers large, mineralized breccia pipe
The 2022 core drilling program at its 100%-owned Iskut project in northwestern British Columbia’s Golden Triangle has discovered a significant breccia pipe beneath the historical Bronson Slope skarn deposit. Visual inspections of the core plus preliminary assay results demonstrate the pipe is mineralized with gold associated with copper mineralization on its margins. Represented in the breccia pipe are multiple hydrothermal eruptive events believed to have originated from a mineralized intrusive source. While assays are still in process, we believe this discovery could have important implication for the future of our Company.
The complexly brecciated pipe-like body, with an indicated diameter of about 320 meters, contains varying size clasts of wall rock, chiefly porphyritic monzonite, and Triassic sedimentary rocks in a matrix of quartz-magnetite. Irregular clast size in the breccia displays intense textural destruction and hydrothermal alteration. Matrix to the breccia consists of massive magnetite, massive quartz, and ribbon-banded quartz-magnetite veins. Veins of quartz-magnetite, quartz-sulfide and magnetite are observed cutting the breccia clasts and matrix. The scale and intensity of this breccia pipe are unusual and a trait of many large, productive oceanic-arc porphyry mineral systems including Grasberg (Indonesia), Cadia Ridgeway (Australia) and Ok Tedi (Papua New Guinea).
The 2022 program consisted of 10 core drill holes totaling 10,600 meters. Assay results are pending and are expected to be released over the next month.
Q4 2021 Sustainability Report Filed
In September, Seabridge filed its supplemental Sustainability Report providing insight into the Company’s commitment to local communities, environment and sustainability. The report captures the last quarter of 2021 to highlight progress towards integrating sustainability into all aspects of our business. To review the report and supporting data tables please go to https://www.seabridgegold.com/sustainability.
The report was prepared with select disclosures and guidance from the Sustainability Standards Accounting Board (SASB) Metals and Mining Industry Standards and the Global Reporting Initiative (GRI) Standards, as well as metrics designed for Seabridge. Going forward, Seabridge expects to file its annual sustainability reports by June 30th of each year.
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The Gold Market
On Wednesday, November 2 the Federal Reserve raised its Fed Funds Rate another 75 basis points into the range of 3.75% to 4% from effectively zero at the start of the year. This is the fastest the Fed has ever raised rates in its history, and we did not expect them to get this far without fomenting a financial accident significant enough to cause a pivot.
The $6T flood of additional liquidity engineered by the Treasury in the last two years to offset pandemic shutdowns and fund green programs, $4T of it financed by Fed balance sheet expansion, has been sufficient to delay the inevitable. The dollar has hit 20-year highs as rates have risen and as Quantitative Tightening (QT) has reduced liquidity by shrinking the Fed balance sheet by about 3% in the past 4 months. The historic run in the dollar has generated downward pressure on the price of gold in U.S. dollars.
In 2018, a similar attempt by the Fed to raise rates and reduce its balance sheet was hastily withdrawn when failing liquidity froze the high yield debt market and sent financial players scrambling for liquidity. Within weeks, the Fed was forced to cut rates, stop QT and inject trillions in additional dollar liquidity into overnight markets to bring credit markets back into some measure of stability. Fed tightening always ends this way and it will again. And we think credit markets will again be the deciding factor. The extreme rapidity of the current QT into the face of a recession is a guarantee that this pivot will not be gentle.
Illiquidity in the Treasury market was recently singled out by Treasury Secretary Yellen herself. Treasury markets this year have had the worst performance in their history. Why? More sellers than buyers. The largest sovereign holders (and previous buyers) such as Japan, China and the EU are now regular sellers. Commercial banks are reducing their holdings as interest rates rise. The Treasury is raising issuance to pay for bigger deficits thanks to expensive new programs such as the $739B Inflation Reduction Act. The Fed is now a seller at $95B per month. And as rates rise, Treasury interest expense is climbing fast while recessionary tax revenues are falling --- a doom loop of bigger deficits and more issuance.
The repercussions of rapid tightening aren’t yet obvious; the data lags as Chair Powell has noted. But we are almost there, and gold will be the primary beneficiary.
Financial Results
During the three-month period ended September 30, 2022 Seabridge posted a net profit of $5.0 million ($0.06 per share) compared to a net loss of $0.8 million ($0.01 per share) for the same period last year. During the 3rd quarter, Seabridge invested $75.6 million in mineral interests, compared to $25.6 million during the same period last year. At September 30, 2022, net working capital was $154.3 million compared to $36.9 million at December 31, 2021.
Included in the net profit reported for the current quarter was a non-cash gain associated with the Secured Note issued to Sprott Resource Streaming and Royalty Corp. and Ontario Teachers’ Pension Plan in February 2022. The Company is treating the Secured Note as a financial liability and under IFRS Accounting Standards, Seabridge will be revaluing the liability on a quarterly basis. The change in value reported as of September 30, 2022 was primarily due to increases in interest rates during the quarter. For details on the accounting treatment of the Secured Note, please refer to Note 12 to Seabridge’s September 30, 2022 financial statements.
| On Behalf of the Board of Directors, | |
| /s/ Rudi P. Fronk | |
| Rudi P. Fronk | |
| Chairman and Chief Executive Officer | |
| November 14, 2022 |
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