Seabridge Gold Inc 6-K, filed May 15, 2023
Seabridge Gold Inc (SA)
About this 6-K
Seabridge Gold Inc filed this 6-K on May 15, 2023.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 6-K
REPORT
OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For
the month of
May 2023
Commission File Number 1-32135
SEABRIDGE GOLD INC.
(Name of Registrant)
106 Front Street East, Suite 400, Toronto, Ontario, Canada M5A 1E1
(Address of Principal Executive Office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
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. 333-268485), 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: May 15, 2023
| 2 |
EXHIBIT INDEX
| Exhibit Number |
Document Description | |
| 99.1 | Unaudited Interim Condensed Consolidated Financial Statements for the Three Months ended March 31, 2023. | |
| 99.2 | Management’s Discussion and Analysis for the Three Months ended March 31, 2023. |
| 3 |
Exhibit 99.1
SEABRIDGE GOLD INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
AS AT MARCH 31, 2023
SEABRIDGE GOLD INC.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
(Unaudited)
| March 31, | December 31, | |||||||||||
| Note | 2023 | 2022 | ||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | 4 | $ | 37,566 | $ | 46,150 | |||||||
| Short-term deposits | 4 | 1,301 | 81,690 | |||||||||
| Amounts receivable and prepaid expenses | 5 | 8,165 | 8,220 | |||||||||
| Investment in marketable securities | 6 | 3,844 | 3,696 | |||||||||
| Convertible notes receivable | 616 | 631 | ||||||||||
| 51,492 | 140,387 | |||||||||||
| Non-current assets | ||||||||||||
| Investment in associate | 6 | 1,349 | 1,389 | |||||||||
| Long-term receivables and other assets | 7 | 95,353 | 51,703 | |||||||||
| Mineral interests, property and equipment | 8 | 932,445 | 881,497 | |||||||||
| Reclamation deposits | 10 | 20,665 | 20,643 | |||||||||
| 1,049,812 | 955,232 | |||||||||||
| Total assets | $ | 1,101,304 | $ | 1,095,619 | ||||||||
| Liabilities and shareholders’ equity | ||||||||||||
| Current liabilities | ||||||||||||
| Accounts payable and accrued liabilities | 9 | $ | 45,828 | $ | 42,956 | |||||||
| Flow-through share premium | 12 | 4,038 | 4,183 | |||||||||
| Lease obligations | 394 | 511 | ||||||||||
| Provision for reclamation liabilities | 10 | 4,343 | 4,343 | |||||||||
| 54,603 | 51,993 | |||||||||||
| Non-current liabilities | ||||||||||||
| Secured note | 11 | 282,330 | 263,541 | |||||||||
| Deferred income tax liabilities | 17 | 26,310 | 31,934 | |||||||||
| Lease obligations | 1,106 | 1,115 | ||||||||||
| Provision for reclamation liabilities | 10 | 6,331 | 6,503 | |||||||||
| 316,077 | 303,093 | |||||||||||
| Total liabilities | 370,680 | 355,086 | ||||||||||
| Shareholders’ equity | 12 | 730,624 | 740,533 | |||||||||
| Total liabilities and shareholders’ equity | $ | 1,101,304 | $ | 1,095,619 | ||||||||
Subsequent events (Notes 10 12, and 14), commitments and contingencies (Note 18)
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
| Page 2 |
SEABRIDGE GOLD INC.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars except common share and per common share amounts)
(Unaudited)
| Three months ended March 31, | ||||||||||||
| Note | 2023 | 2022 | ||||||||||
| Remeasurement of secured note | 11 | $ | (11,746 | ) | $ | - | ||||||
| Corporate and administrative expenses | 15 | (3,891 | ) | (4,601 | ) | |||||||
| Equity loss of associate | 6 | (60 | ) | (44 | ) | |||||||
| Other income - flow-through shares | 12 | 145 | 99 | |||||||||
| Environmental rehabilitation expense | 10 | - | 67 | |||||||||
| Unrealized gain (loss) on convertible notes receivable | (13 | ) | (6 | ) | ||||||||
| Foreign exchange gain (loss) | 587 | (137 | ) | |||||||||
| Finance costs, interest expense and other income | (72 | ) | (3,104 | ) | ||||||||
| Interest income | 786 | 46 | ||||||||||
| Earnings before income taxes | (14,264 | ) | (7,680 | ) | ||||||||
| Income tax recovery | 17 | 3,480 | 1,399 | |||||||||
| Net loss for the period | $ | (10,784 | ) | $ | (6,281 | ) | ||||||
| Other comprehensive income (loss) | ||||||||||||
| Items that will not be reclassified to net income or loss | ||||||||||||
| Remeasurement of secured note | 11 | $ | (7,601 | ) | $ | - | ||||||
| Change in fair value of marketable securities | 148 | 174 | ||||||||||
| Tax impact | 2,033 | (24 | ) | |||||||||
| Total other comprehensive income (loss) | (5,420 | ) | 150 | |||||||||
| Comprehensive loss for the period | $ | (16,204 | ) | $ | (6,131 | ) | ||||||
| Weighted average number of common shares outstanding | ||||||||||||
| Basic | 12 | 81,554,849 | 79,245,796 | |||||||||
| Diluted | 12 | 81,554,849 | 79,245,796 | |||||||||
| Earnings (loss) per common share | ||||||||||||
| Basic | 12 | $ | (0.13 | ) | $ | (0.08 | ) | |||||
| Diluted | 12 | $ | (0.13 | ) | $ | (0.08 | ) | |||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
| Page 3 |
SEABRIDGE GOLD INC.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars except number of shares)
(Unaudited)
| Number of Shares | Share Capital | Warrants | Stock-based Compensation | Contributed Surplus | Deficit | Accumulated Other Comprehensive Gain (Loss) | Total Equity | |||||||||||||||||||||||||
| As at December 31, 2022 | 81,339,012 | $ | 856,462 | $ | - | $ | 4,655 | $ | 36,160 | $ | (157,377 | ) | $ | 633 | $ | 740,533 | ||||||||||||||||
| Share issuance - At-The-Market offering | 314,000 | 5,729 | - | - | - | - | - | 5,729 | ||||||||||||||||||||||||
| Share issuance costs | - | (413 | ) | - | - | - | - | - | (413 | ) | ||||||||||||||||||||||
| Deferred tax on share issuance costs | - | 110 | - | - | - | - | - | 110 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | 868 | - | - | - | 868 | ||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | (5,419 | ) | (5,419 | ) | ||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | (10,784 | ) | - | (10,784 | ) | ||||||||||||||||||||||
| As at March 31, 2023 | 81,653,012 | $ | 861,888 | $ | - | $ | 5,523 | $ | 36,160 | $ | (168,161 | ) | $ | (4,786 | ) | $ | 730,624 | |||||||||||||||
| As at December 31, 2021 | 78,975,349 | $ | 809,269 | - | $ | 8,697 | $ | 36,126 | $ | (149,983 | ) | $ | (1,776 | ) | $ | 702,333 | ||||||||||||||||
| Share issuance - At-The-Market offering | 588,169 | 13,044 | - | - | - | - | - | 13,044 | ||||||||||||||||||||||||
| Share issuance - options exercised | 117,500 | 2,503 | - | (884 | ) | - | - | - | 1,619 | |||||||||||||||||||||||
| Share issuance – RSUs vested | 800 | 17 | - | (17 | ) | - | - | - | - | |||||||||||||||||||||||
| Share issuance costs | - | (275 | ) | - | - | - | - | - | (275 | ) | ||||||||||||||||||||||
| Deferred tax on share issuance costs | - | 73 | - | - | - | - | - | 73 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | 2,293 | - | - | - | 2,293 | ||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | 150 | 150 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | (6,281 | ) | - | (6,281 | ) | ||||||||||||||||||||||
| As at March 31, 2022 | 79,681,818 | $ | 824,631 | - | $ | 10,089 | $ | 36,126 | $ | (156,264 | ) | $ | (1,626 | ) | $ | 712,956 | ||||||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
| Page 4 |
SEABRIDGE GOLD INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
(Unaudited)
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating Activities | ||||||||
| Net loss | $ | (10,784 | ) | $ | (6,281 | ) | ||
| Adjustment for non-cash items: | ||||||||
| Remeasurement loss on secured note | 11,746 | - | ||||||
| Environmental rehabilitation expense | - | (67 | ) | |||||
| Stock-based compensation | 868 | 2,293 | ||||||
| Other income - flow-through shares | (145 | ) | (99 | ) | ||||
| Income tax recovery | (3,480 | ) | (1,399 | ) | ||||
| Unrealized foreign exchange gain | (559 | ) | - | |||||
| Other non-cash items | 170 | 133 | ||||||
| Adjustment for cash items: | ||||||||
| Environmental rehabilitation disbursements | (233 | ) | (313 | ) | ||||
| Changes in working capital items: | ||||||||
| Amounts receivable and prepaid expenses | 55 | 1,010 | ||||||
| Accounts payable and accrued liabilities | (5,298 | ) | (4,915 | ) | ||||
| Net cash used in operating activities | (7,660 | ) | (9,638 | ) | ||||
| Investing Activities | ||||||||
| Investment in short-term deposits | (31 | ) | (17 | ) | ||||
| Redemption of short-term deposits | 80,420 | 29,260 | ||||||
| Mineral interests, property and equipment | (42,810 | ) | (10,091 | ) | ||||
| Long-term receivables and other assets | (43,650 | ) | (16,398 | ) | ||||
| Investment in reclamation deposits | (22 | ) | (4,300 | ) | ||||
| Net cash used in investing activities | (6,093 | ) | (1,546 | ) | ||||
| Financing Activities | ||||||||
| Secured note | - | 281,160 | ||||||
| Share issuance net of costs | 5,317 | 12,769 | ||||||
| Exercise of options | - | 1,619 | ||||||
| Payment of lease liabilities | (126 | ) | (7 | ) | ||||
| Net cash from financing activities | 5,191 | 295,541 | ||||||
| Effects of exchange rate fluctuation on cash and cash equivalents | (22 | ) | (56 | ) | ||||
| Net increase (decrease) in cash and cash equivalents during the period | (8,584 | ) | 284,301 | |||||
| Cash and cash equivalents, beginning of the period | 46,150 | 11,523 | ||||||
| Cash and cash equivalents, end of the period | $ | 37,566 | $ | 295,824 | ||||
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
| Page 5 |
SEABRIDGE GOLD INC.
Notes to the condensed consolidated interim financial statements
As at and for the three months ended March 31, 2023 and 2022
(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 |
| (a) | Statement of compliance |
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, 2022 and should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year ended December 31, 2022. 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 consolidated interim financial statements were authorized for issue by the Company’s board of directors on May 12, 2023.
| (b) | Amended IFRS standard effective January 1, 2023 |
In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities Arising from a Single Transaction which amended IAS 12, Income Taxes (“IAS 12”). Prior to the amendments, IAS 12 contained a recognition exemption whereby deferred income tax assets and liabilities were not recognized for temporary differences arising on initial recognition of assets and liabilities, other than in business combinations, that affect neither accounting nor taxable income. The amendments narrowed the scope of the recognition exemption in IAS 12 so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences.
The Company initially applied the amendments to IAS 12 to its consolidated financial statements for the annual reporting period beginning on January 1, 2023. The application of these amendments did not have an impact on the Company’s consolidated financial statements.
| (c) | Amended IFRS standard not yet effective |
Certain pronouncements have been issued by the IASB that are mandatory for accounting periods after December 31, 2023:
| ● | Classification of Liabilities as Current or Non-current (Amendments to IAS 1) effective for annual periods beginning on or after January 1, 2024 |
| ● | Lease Liability in a Sale and Leaseback (Amendments to IFRS 16 Leases) effective for annual periods beginning on or after January 1, 2024. |
None of these pronouncements are expected to have a significant impact on the Company’s consolidated financial statements upon adoption.
| Page 6 |
| 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 months ended March 31, 2023 and 2022. 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, 2022. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events which are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
| 4. | Cash and cash equivalents and short-term deposits |
| ($000s) | March 31, 2023 | December 31, 2022 | ||||||
| Cash and cash equivalents | 37,566 | 46,150 | ||||||
| Short-term deposits | 1,301 | 81,690 | ||||||
| 38,867 | 127,840 | |||||||
All of the cash and cash equivalents are held in a Canadian Schedule I bank. Short-term deposits consist of Canadian Schedule I bank guaranteed deposits and are cashable in whole or in part with interest at any time to maturity.
| 5. | Amounts receivable and prepaid expenses |
| ($000s) | March 31, 2023 | December 31, 2022 | ||||||
| HST | 2,992 | 4,247 | ||||||
| Prepaid expenses and other receivables | 5,173 | 3,973 | ||||||
| 8,165 | 8,220 |
| Page 7 |
| 6. | Investments |
| ($000s) | January 1, 2023 | Fair value through other comprehensive income (loss) | Loss of associate | Impairment | Additions | March 31, 2023 | ||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Investments in marketable securities | 3,696 | 148 | - | - | - | 3,844 | ||||||||||||||||||
| Non-current assets: | ||||||||||||||||||||||||
| Investment in associate | 1,389 | - | (60 | ) | - | 20 | (b) | 1,349 |
| ($000s) | January 1, 2022 | Fair value through other comprehensive income (loss) | Loss of associate | Impairment | Additions | December 31, 2022 | ||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Investments in marketable securities | 3,367 | 329 | - | - | - | 3,696 | ||||||||||||||||||
| Non-current assets: | ||||||||||||||||||||||||
| Investment in associate | 2,429 | - | (206 | ) | (873 | )(a) | 39 | (b) | 1,389 |
| (a) | The Company accounts for its investment in Paramount, a publicly listed company, using the equity method. During 2022, the Company concluded that the fair value of its investment in Paramount, determined based on the market price, declining significantly and recorded an impairment of $0.9 million in the consolidated statements of operations and comprehensive income (loss). |
| (b) | In 2023, the Company received 43,928 common shares of Paramount Gold Nevada (“Paramount”) for payment of interest, on the secured convertible notes, that accrued between July 1, 2022 and December 31, 2022. In 2022, the Company received 55,322 common shares of Paramount for payment of interest on the secured convertible notes accrued between July 1, 2021 and June 30, 2022. |
The Company holds common shares of several mining companies that were received as consideration for optioned mineral properties and other short-term investments, including one gold exchange traded receipt. These financial assets are recorded at fair value of $3.8 million (December 31, 2022 - $3.7 million) in the consolidated statements of financial position. At March 31, 2023, the Company revalued its holdings in its investments and recorded a fair value increase of $0.1 million in the statement of operations and comprehensive income (loss).
Investment in associate relates to Paramount. As at March 31, 2023, the Company holds a 5.5% (December 31, 2022 – 5.6%) interest in Paramount for which it accounts using the equity method on the basis that the Company has the ability to exert significant influence through its representation on Paramount’s board of directors. During the current quarter, the Company recorded its proportionate share of Paramount’s net loss of $0.1 million (first quarter of 2022 – $0.04 million) within equity loss of associate on the consolidated statements of operations and comprehensive income (loss). As at March 31 2023, the carrying value of the Company’s investment in Paramount was $1.3 million (December 31, 2022 - $1.4 million).
| Page 8 |
| 7. | Long-term receivables and other assets |
| ($000s) | March 31, 2023 | December 31, 2022 | ||||||
| BC Hydro 1 | 82,150 | 38,500 | ||||||
| Canadian Exploration Expenses (Note 18) | 9,337 | 9,337 | ||||||
| British Columbia Mineral Exploration Tax Credit 2 | 3,866 | 3,866 | ||||||
| 95,353 | 51,703 |
| 1) | During the current quarter, The Company paid $43.6 million (as at December 31, 2022, $38.5 million) to British Columbia Hydro and Power Authority (“BC Hydro”) as advance payment made pursuant to the Company signing a facilities agreement with BC Hydro covering the design and construction of facilities to supply hydro-sourced electricity to the KSM project. |
| 2) | 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. During the first quarter 2022, 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. Based on the facts and circumstances of the Company’s objection, the Company concludes that it is more likely than not that it will be successful in its objection. As at March 31, 2023, the Company has paid $1.6 million to the Receiver General, and the Canada Revenue Agency (CRA) has withheld $2.3 million of HST credits due to the Company that would fully cover the residual balance, including interest, should the Company be unsuccessful in its challenge. The amount recorded in long-term receivables as of March 31, 2023 of $3.9 million includes the initial reassessment of $3.6 million, plus accrued interest. |
| Page 9 |
| 8. | Mineral Interests, Property and Equipment |
| ($000s) | Mineral interests | Construction in progress | Property & equipment 1 | Right-of-use assets 1 | Total | |||||||||||||||
| Cost | ||||||||||||||||||||
| As at January 1, 2022 | 632,005 | 27,061 | 3,080 | 407 | 662,553 | |||||||||||||||
| Additions | 55,069 | 120,287 | 43,177 | 2,030 | 220,563 | |||||||||||||||
| As at December 31, 2022 | 687,074 | 147,348 | 46,257 | 2,437 | 883,116 | |||||||||||||||
| Additions | 7,862 | 43,667 | - | - | 51,529 | |||||||||||||||
| As at March 31, 2023 | 694,936 | 191,015 | 46,257 | 2,437 | 934,645 | |||||||||||||||
| Accumulated Depreciation | ||||||||||||||||||||
| As at January 1, 2022 | - | - | 117 | 157 | 274 | |||||||||||||||
| Depreciation expense | - | - | 953 | 392 | 1,345 | |||||||||||||||
| As at December 31, 2022 | - | - | 1,070 | 549 | 1,619 | |||||||||||||||
| Depreciation expense 1 | - | - | 425 | 156 | 581 | |||||||||||||||
| As at March 31, 2023 | - | - | 1,495 | 705 | 2,200 | |||||||||||||||
| Net Book Value | ||||||||||||||||||||
| As at December 31, 2022 | 687,074 | 147,348 | 45,187 | 1,888 | 881,497 | |||||||||||||||
| As at March 31, 2023 | 694,936 | 191,015 | 44,762 | 1,732 | 932,445 |
| 1) | Depreciation expense related to camps, equipment, and right-of-use assets associated with the KSM construction is capitalized to construction in progress. |
| Page 10 |
Mineral interests, property and equipment additions by project are as follows.
| Three months ended March 31, 2023 | ||||||||||||||||||||||||||||
| ($000s) | January 1, 2023 | Mineral interests | Construction in progress | Property & equipment | Right-of-use assets | Total Additions | March 31, 2023 | |||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||
| KSM 1 | 707,190 | 6,600 | 43,667 | - | - | 50,267 | 757,457 | |||||||||||||||||||||
| Courageous Lake | 77,999 | 263 | - | - | - | 263 | 78,262 | |||||||||||||||||||||
| Iskut | 49,904 | 352 | - | - | - | 352 | 50,256 | |||||||||||||||||||||
| Snowstorm | 34,562 | 221 | - | - | - | 221 | 34,783 | |||||||||||||||||||||
| 3 Aces | 12,079 | 426 | - | - | - | 426 | 12,505 | |||||||||||||||||||||
| Grassy Mountain | 771 | - | - | - | - | - | 771 | |||||||||||||||||||||
| Corporate | 611 | - | - | - | - | - | 611 | |||||||||||||||||||||
| 883,116 | 7,862 | 43,667 | - | - | 51,529 | 934,645 | ||||||||||||||||||||||
| Year ended December 31, 2022 | ||||||||||||||||||||||||||||
| ($000s) | January 1, 2022 | Mineral interests | Construction in progress | Property & equipment | Right-of-use assets | Total Additions | December 31, 2022 | |||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||
| KSM 1 | 502,015 | 39,985 | 120,287 | 43,177 | 1,726 | 205,175 | 707,190 | |||||||||||||||||||||
| Courageous Lake | 77,176 | 823 | - | - | - | 823 | 77,999 | |||||||||||||||||||||
| Iskut | 41,779 | 8,125 | - | - | - | 8,125 | 49,904 | |||||||||||||||||||||
| Snowstorm | 31,471 | 3,091 | - | - | - | 3,091 | 34,562 | |||||||||||||||||||||
| 3 Aces | 9,034 | 3,045 | - | - | - | 3,045 | 12,079 | |||||||||||||||||||||
| Grassy Mountain | 771 | - | - | - | - | - | 771 | |||||||||||||||||||||
| Corporate | 307 | - | - | - | 304 | 304 | 611 | |||||||||||||||||||||
| 662,553 | 55,069 | 120,287 | 43,177 | 2,030 | 220,563 | 883,116 | ||||||||||||||||||||||
| 1) | The KSM construction in progress additions during the current quarter includes $4.9 million of capitalized borrowing costs (year ended December 31, 2022 - $14.7 million). |
Continued exploration of the Company’s mineral properties is subject to certain lease payments, project holding costs, rental fees and filing fees.
| Page 11 |
| a) | KSM |
In 2001, the Company purchased a 100% interest in contiguous claim blocks in the Skeena Mining Division, British Columbia. The vendor maintains a 1% net smelter royalty interest on the project, subject to maximum aggregate royalty payments of $4.5 million. The Company is obligated to purchase the net smelter royalty interest for the price of $4.5 million in the event that a positive feasibility study demonstrates a 10% or higher internal rate of return after tax and financing costs.
In 2011 and 2012, the Company completed agreements granting a third party an option to acquire a 2% net smelter royalty on all gold and silver production sales from KSM for a payment equal to the lesser of $160 million or US$200 million. The option is exercisable for a period of 60 days following the announcement of receipt of all material approvals and permits, full project financing and certain other conditions for the KSM Project.
In December 2020, the Company purchased the Snowfield (renamed East Mitchell) property from Pretium Resources Inc. The East Mitchell property, located in the same valley that hosts KSM’s Mitchell deposit, was purchased for US$100 million ($127.5 million) in cash, a 1.5% net smelter royalty on East Mitchell property production, and a conditional payment of US$20 million, payable following the earlier of (i) commencement of commercial production from East Mitchell property, and (ii) announcement by the Company of a bankable feasibility study which includes production of reserves from the East Mitchell property. US$15 million of the conditional payment can be credited against future royalty payments.
Additions to mineral interests of $6.6 million (2022 - $40.0 million) consisted of costs incurred to carry out the Company’s environmental, technical support, exploration and drilling programs at KSM.
Additions to construction in progress consisted of $43.7 million (2022- $104.6 million) of KSM assets under construction costs, $4.9 million (2022- $14.7 million) of capitalized borrowing costs related to the secured note interest expense, and $0.4 million (2022- $0.9 million) of capitalized depreciation expense.
| b) | Courageous Lake |
In 2002, the Company purchased a 100% interest in the Courageous Lake gold project from Newmont Canada Limited and Total Resources (Canada) Limited. The Courageous Lake gold project consists of mining leases located in Northwest Territories of Canada.
| c) | Iskut |
On June 21, 2016, the Company purchased 100% of the common shares of SnipGold Corp. which owns the Iskut Project, located in northwestern British Columbia.
| d) | Snowstorm |
In 2017, the Company purchased 100% of the common shares of Snowstorm Exploration LLC which owns the Snowstorm Project, located in northern Nevada. In connection with the acquisition, the Company has agreed to make a conditional cash payment of US$2.5 million if exploration activities at the Snowstorm Project result in defining a minimum of five million ounces of gold resources compliant with National Instrument 43-101 and a further cash payment of US$5.0 million on the delineation of an additional five million ounces of gold resources.
| e) | 3 Aces |
In 2020, the Company acquired a 100% interest in the 3 Aces gold project in the Yukon, Canada from Golden Predator Mining Corp. through the issuance of 300,000 common shares valued at $6.6 million. Should the project attain certain milestones, including the confirmation of a National Instrument 43-101 compliant mineral resource of 2.5 million ounces of gold, the Company will pay an additional $1 million, and upon confirmation of an aggregate mineral resource of 5 million ounces of gold, the Company will pay an additional $1.25 million.
| f) | Grassy Mountain |
In 2013, the Company sold 100% of its interest in the Grassy Mountain Project with a net book value of $0.8 million retained within mineral properties, related to the option to either receive, at the discretion of the Company, a 10% net profits interest royalty or a $10 million cash payment. Settlement is due four months after the later of: the day that the Company receives a feasibility study on the project; and the day that the Company is notified that permitting and bonding for the mine is in place. The current owner of the Grassy Mountain Project is Paramount who completed a feasibility study in 2020 but they have not notified the Company that permitting and bonding for the mine is in place.
| Page 12 |
| 9. | Accounts payable and accrued liabilities |
| ($000s) | March 31, 2023 | December 31, 2022 | ||||||
| Trade payables | 13,374 | 15,686 | ||||||
| Non-trade payables and accrued expenses | 32,454 | 27,270 | ||||||
| 45,828 | 42,956 |
| 1) | Non-trade payables and accrued expenses include $29.5 million (December 31, 2022 - $26.3 million) of accrued expenses related to construction at KSM. |
| 10. | Provision for reclamation liabilities |
| ($000s) | March 31, 2023 | December 31, 2022 | ||||||
| Beginning of the period | 10,846 | 8,442 | ||||||
| Disbursements | (233 | ) | (4,519 | ) | ||||
| Environmental rehabilitation expense | - | 6,851 | ||||||
| Accretion | 61 | 72 | ||||||
| End of the period | 10,674 | 10,846 | ||||||
| Provision for reclamation liabilities – current | 4,343 | 4,343 | ||||||
| Provision for reclamation liabilities – long-term | 6,331 | 6,503 | ||||||
| 10,674 | 10,846 |
The estimate of the provision for reclamation obligations, as at March 31, 2023, was calculated using the estimated undiscounted cash flows of future reclamation costs of $11.3 million (December 31, 2022 - $11.5 million) and the expected timing of cash payments required to settle the obligations between 2023 and 2026. As at March 31, 2023, the discounted future cash outflows are estimated at $10.7 million (December 31, 2022 - $10.8 million). The nominal discount rate used to calculate the present value of the reclamation obligations was 3.8% at March 31, 2023 (4.07% - December 31, 2022). During the three months ended March 31, 2023, reclamation disbursements amounted to $0.2 million (three months ended March 31, 2022 - $0.3 million).
In 2022, the Company updated the closure plan for the Johnny Mountain mine site and charged an additional $6.6 million of rehabilitation expenses to the consolidated statements of operations and comprehensive income (loss). Expenditures include the estimated costs for the closure of all adits and vent raises, removal of the mill and buildings, treatment of landfills and surface water management as well as ongoing logistics, freight and fuel costs.
During the current quarter, the Company placed $0.02 million on deposit as security for the reclamation obligations at 3 Aces. As at March 31, 2023, the Company has placed a total of $20.7 million (December 31, 2022 - $20.6 million) on deposit with financial institutions or with government regulators that are pledged as security against reclamation liabilities. The deposits are recorded on the consolidated statements of financial position as reclamation deposit. As at March 31, 2023, the Company had $7.9 million (December 31, 2022, $7.9 million) of uncollateralized surety bond, issued pursuant to arrangements with an insurance company, in support of environmental closure costs obligations related to the KSM project. Subsequent to the quarter end, the Company placed $2.6 million surety bond on deposit with government regulators pledged as security against reclamation liabilities at KSM. Of the $2.6 million surety bond, 80% was uncollateralized.
| 11. | 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 100% owned KSM Project (“KSM”) to institutional investors (“Investors”) for US$225 million. The transaction closed on March 24, 2022. The key terms of the secured note include:
| ● | When the secured note matures, the Investors will use all of the principal amount repaid on maturity to purchase a 60% gross silver royalty (the “Silver Royalty”) maturity occurs upon the first to occur of: |
| 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. |
| Page 13 |
| ● | 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 February 25, 2027, 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$225 million. Upon funding of the secured note on March 24, 2022, the loan commitment was settled with no gain or loss recognized.
The secured note was recognized at its estimated fair value at initial recognition of $282.3 million (US$225 million) using a discounted cash flow model with a Monte Carlo simulation. This incorporated several scenarios and probabilities of the EAC expiring, achieving commercial production and securing project financing, silver prices forecast from five year quoted forward price, and the discount rates. During the three months ended March 31, 2023, the fair value of the secured note increased, and the Company recorded $18.8 million loss (year ended December 31, 2022 - $18.7 million gain) on the remeasurement.
The following inputs and assumptions were used in the determination of fair value:
| Inputs and assumptions | March 31, 2023 | December 31, 2022 | ||||||
| Weighted Average Life 1 | 48.5 years | 44.9 years | ||||||
| Forecast silver production in thousands of ounces | 166,144 | 166,144 | ||||||
| Five year quoted future silver price | US$29.58 | US$29.38 | ||||||
| Risk-free rate | 3.7 | % | 3.4 | % | ||||
| Credit spread | 5.0 | % | 5.3 | % | ||||
| Share price volatility | 60 | % | 60 | % | ||||
| Silver royalty discount factor | 8.9 | % | 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 filed in the second quarter of 2022. |
The carrying amount for the secured note is as follows:
| ($000s) | March 31, 2023 | December 31, 2022 | ||||||
| Fair value beginning of the period | 263,541 | 282,263 | ||||||
| Change in fair value through profit and loss | 11,746 | (36,967 | ) | |||||
| Change in fair value through other comprehensive income (loss) | 7,601 | (2,912 | ) | |||||
| Foreign currency translation (gain) loss | (558 | ) | 21,157 | |||||
| Total change in fair value | 18,789 | (18,722 | ) | |||||
| Fair value end of the period | 282,330 | 263,541 |
| Page 14 |
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: | |||||
| ● Silver price forward curve | ● Future silver prices were 10% higher | $ | 16.5 | |||
| ● Future silver prices were 10% lower | $ | (13.9 | ) | |||
| ● Discount rates (7.9% - 9.9%) | ● Discount rates were 1% higher | $ | (23.7 | ) | ||
| ● Discount rates were 1% lower | $ | 30.9 | ||||
| Key unobservable inputs | ||||||
| ● Forecasted silver production | ● Silver production indicated silver ounces were 10% higher | $ | 16.5 | |||
| ● Silver production indicated silver ounces were 10% lower | $ | (13.9 | ) | |||
| 12. | Shareholders’ equity |
The Company is authorized to issue an unlimited number of preferred shares and common shares with no par value. No preferred shares have been issued or were outstanding at March 31, 2023 or December 31, 2022.
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 2023. The Company considers its capital to be share capital, stock-based compensation, warrants, contributed surplus and deficit. The Company is not subject to externally imposed capital requirements.
| a) | Equity financings |
During the first quarter of 2021, 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$75 million in value of common shares of the Company. This program was in effect until the Company’s US$775 million Shelf Registration Statement, that expired in December 2022, was replaced with a new US$750 million the same month. During the current quarter, a US$100 million prospectus supplement was filed and the program was renewed. During the current quarter, the Company issued 313,666 shares, at an average selling price of $18.26 per share, for net proceeds of $5.6 million under the Company’s At-The-Market offering. In 2022, the Company issued 998,629 shares, at an average selling price of $22.82 per share, for net proceeds of $22.3 million under the Company’s At-The-Market offering.
| Page 15 |
In the current quarter, the Company entered into a new agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$100 million in value of common shares of the Company. This program can be in effect until the Company’s US$750 million Shelf Registration Statement expires in 2025. During the current quarter, the Company issued 313,666 shares, at an average selling price of $18.26 per share, for net proceeds of $5.6 million under the Company’s At-The-Market offering. Subsequent to the quarter end, the Company issued 423,879 shares, at an average selling price of $18.47 per share, for net proceeds of $7.7 million under Company’s At-The-Market offering.
In December 2022, the Company issued a total of 675,400 flow-through common shares at an average $22.24 per common share for aggregate gross proceeds of $15.0 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, 2022. At the time of issuance of the flow-through shares, $4.2 million premium was recognized as a liability on the consolidated statements of financial position. During the current quarter, the Company incurred $0.5 million of qualifying exploration expenditures and $0.1 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive income (loss).
| b) | Stock options and restricted share units |
The Company provides compensation to directors and employees in the form of stock options and RSUs. Pursuant to the Share Option Plan, the Board of Directors has the authority to grant options, and to establish the exercise price and life of the option at the time each option is granted, at a price not less than the closing price of the common shares on the Toronto Stock Exchange on the date of the grant of such option and for a period not exceeding five years. All exercised options are settled in equity. Pursuant to the Company’s RSU Plan, the Board of Directors has the authority to grant RSUs, and to establish terms of the RSUs including the vesting criteria and the life of the RSUs.
| Page 16 |
Stock option and RSU transactions were as follows:
| Options | RSUs | Total | ||||||||||||||||||||||
| Number of Options | Weighted Average Exercise Price ($) | Amortized Value of options ($000s) | Number of RSUs | Amortized Value of RSUs ($000s) | Stock-based Compensation ($000s) | |||||||||||||||||||
| Outstanding January 1, 2023 | 477,500 | 15.85 | 4,117 | 345,266 | 538 | 4,655 | ||||||||||||||||||
| Amortized value of stock-based compensation | - | - | - | - | 868 | 868 | ||||||||||||||||||
| Outstanding at March 31, 2023 | 477,500 | 15.85 | 4,117 | 345,266 | 1,406 | 5,523 | ||||||||||||||||||
| Exercisable at March 31, 2023 | 477,500 | |||||||||||||||||||||||
| Options | RSUs | Total | ||||||||||||||||||||||
| Number of Options | Weighted Average Exercise Price ($) | Amortized Value of options ($000s) | Number of RSUs | Amortized Value of RSUs ($000s) | Stock-based Compensation ($000s) | |||||||||||||||||||
| Outstanding at January 1, 2022 | 1,023,334 | 14.61 | 8,125 | 173,800 | 572 | 8,697 | ||||||||||||||||||
| Granted | - | - | - | 320,266 | 187 | 187 | ||||||||||||||||||
| Exercised option or vested RSU | (540,834 | ) | 13.54 | (3,974 | ) | (148,800 | ) | (3,172 | ) | (7,146 | ) | |||||||||||||
| Expired | (5,000 | ) | 13.14 | (34 | ) | - | - | (34 | ) | |||||||||||||||
| Amortized value of stock-based compensation | - | - | - | - | 2,951 | 2,951 | ||||||||||||||||||
| Outstanding at December 31, 2022 | 477,500 | 15.85 | 4,117 | 345,266 | 538 | 4,655 | ||||||||||||||||||
| Exercisable at December 31, 2022 | 477,500 | |||||||||||||||||||||||
The outstanding share options at March 31, 2023 expire at various dates between October 2023 and June 2024. A summary of options outstanding, their remaining life and exercise prices as at March 31, 2023 is as follows:
| Options Outstanding | Options Exercisable | |||||||||||
| Number | Remaining | Number | ||||||||||
| Exercise price | outstanding | contractual life | Exercisable | |||||||||
| $ | 16.94 | 50,000 | 7 months | 50,000 | ||||||||
| $ | 15.46 | 377,500 | 9 months | 377,500 | ||||||||
| $ | 17.72 | 50,000 | 1 year 3 months | 50,000 | ||||||||
| 477,500 | 477,500 | |||||||||||
During the three months ended March 31, 2023, no options were exercised and no RSUs vested. During the year ended December 31, 2022, 540,834 options were exercised for proceeds of $3.9 million, and 148,800 RSUs vested. The weighted average share price at the date of exercise of options was $18.74.
| Page 17 |
In December 2022, 310,266 RSUs were granted. Of these, 37,500 RSUs were granted to Board members, 232,266 RSUs were granted to members of senior management, and the remaining 40,500 RSUs were granted to other employees of the Company. The fair value of the grants, of $5.1 million, was estimated as at the grant date to be amortized over the expected service period of the grants. The expected service period ranges from six months to three years from the date of the grant and is dependent on certain corporate objectives being met. Of the $5.1 million fair value of the grants, $0.1 million was amortized during the fourth quarter of 2022, $0.8 million was amortized during the current quarter, and the remaining $4.2 million will be amortized over the remaining estimated service periods of the respective tranches.
During the third quarter of 2022, 10,000 RSUs were granted to a Board member. Half of the RSUs vest on the first anniversary of the appointment and the remaining half on the second anniversary. The fair value of the grants, of $0.2 million, was estimated as at the grant date to be amortized over the expected service period of the grants. As at March 31, 2023, $0.1 million of the fair value of the grants was amortized.
In December 2021, 123,800 RSUs were granted. Of these, 28,000 RSUs were granted to Board members, 75,200 RSUs were granted to members of senior management, and the remaining 20,600 RSUs were granted to other employees of the Company. The fair value of the grants, of $2.6 million, was estimated as at the grant date to be amortized over the expected service period of the grants. The expected service period of approximately four months from the date of the grant was dependent on certain corporate objectives being met. Of the $2.6 million fair value of the grants, $0.4 million was amortized during the fourth quarter 2021, and the remaining $2.2 million was amortized during the first quarter of 2022. During the second quarter of 2022, 128,800 RSUs were vested and 119,800 RSUs were exchanged for common shares of the Company.
During the third and fourth quarter of 2021, 40,000 RSUs were granted to three new members of senior management. Half of the RSUs vest on the first anniversary of employment and the remaining half on the second anniversary. The fair value of the grants, of $0.9 million, was estimated at the grant date to be amortized over the expected service period of the grants. In 2022, 20,000 RSUs were vested, and as at March 31, 2023, $0.8 million of the fair value of the grants was amortized.
During the second quarter of 2021, 10,000 RSUs were granted to a Board member. Half of the RSUs vested on the first anniversary of the appointment and the remaining half will vest on the second anniversary. The fair value of the grants, of $0.2 million, was estimated as at the grant date to be amortized over the expected service period of the grants. During the second quarter of 2022, 5,000 RSUs were vested, and as at March 31, 2023, $0.2 million of the fair value of the grants was amortized.
| c) | Basic and diluted net income (loss) per common share |
Basic and diluted net loss attributable to common shareholders of the Company for the three months ended March 31, 2023 was $10.8 million (three months ended March 31, 2022 - $6.3 million net loss).
| Page 18 |
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:
| ($000s) | March 31, 2023 | March 31, 2022 | ||||||
| Weighted average number of common shares outstanding | 81,554,849 | 79,245,796 | ||||||
| Dilutive effect of options | - | - | ||||||
| Dilutive effect of RSUs | - | - | ||||||
| 81,554,849 | 79,245,796 |
For the three months ended March 31, 2023, 427,500 stock options and 345,266 RSUs were not included in the calculation of diluted earnings per share since to include them would be anti-dilutive. For the three months ended March 31, 2022, 905,834 stock options and 163,000 RSUs were not included in the calculation of diluted earnings per share.
| 13. | Cash flow items |
Adjustment for other non-cash items within operating activities:
| Three Months Ended | |||||||||||
| ($000s) | Notes | March 31, 2023 | March 31, 2022 | ||||||||
| Equity loss of associate | 6 | 60 | 44 | ||||||||
| Unrealized gain on convertible notes receivable | 15 | 14 | |||||||||
| Accrued interest income on convertible notes receivable | (20 | ) | (19 | ) | |||||||
| Depreciation | 8 | 32 | 22 | ||||||||
| Finance costs, net | 61 | 16 | |||||||||
| Effects of exchange rate fluctuation on cash and cash equivalents | 22 | 56 | |||||||||
| 170 | 133 | ||||||||||
| 14. | Fair value of financial assets and liabilities |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value.
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts, volatility measurements used to value option contracts and observable credit default swap spreads to adjust for credit risk where appropriate), or inputs that are derived principally from or corroborated by observable market data or other means.
Level 3: Inputs are unobservable (supported by little or no market activity).
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
| Page 19 |
The Company’s fair values of financial assets and liabilities were as follows:
| March 31, 2023 | ||||||||||||||||||||
| ($000s) | Carrying Amount | Level 1 | Level 2 | Level 3 | Total Fair Value | |||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | 37,566 | 37,566 | - | - | 37,566 | |||||||||||||||
| Short-term deposits | 1,301 | 1,301 | - | - | 1,301 | |||||||||||||||
| Amounts receivable | 4,427 | 4,427 | - | - | 4,427 | |||||||||||||||
| Investment in marketable securities | 3,844 | 3,844 | - | - | 3,844 | |||||||||||||||
| Convertible notes receivable | 616 | - | - | 616 | 616 | |||||||||||||||
| Long-term receivables | 13,203 | 13,203 | - | - | 13,203 | |||||||||||||||
| 60,957 | 60,341 | - | 616 | 60,957 | ||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Accounts payable and accrued liabilities | 45,828 | 45,828 | - | - | 45,828 | |||||||||||||||
| Secured note | 282,330 | - | - | 282,330 | 282,330 | |||||||||||||||
| 328,158 | 45,828 | - | 282,330 | 328,158 | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| ($000s) | Carrying Amount | Level 1 | Level 2 | Level 3 | Total Fair Value | |||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | 46,150 | 46,150 | - | - | 46,150 | |||||||||||||||
| Short-term deposits | 81,690 | 81,690 | - | - | 81,690 | |||||||||||||||
| Amounts receivable and prepaid expenses | 6,260 | 6,260 | - | - | 6,260 | |||||||||||||||
| Investment in marketable securities | 3,696 | 3,696 | - | - | 3,696 | |||||||||||||||
| Convertible notes receivable | 631 | - | - | 631 | 631 | |||||||||||||||
| Long-term receivables | 13,203 | 13,203 | - | - | 13,203 | |||||||||||||||
| 151,630 | 150,999 | - | 631 | 151,630 | ||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Accounts payable and accrued liabilities | 42,956 | 42,956 | - | - | 42,956 | |||||||||||||||
| Secured note | 263,541 | - | - | 263,541 | 263,541 | |||||||||||||||
| 306,497 | 42,956 | - | 263,541 | 306,497 | ||||||||||||||||
The carrying value of cash and cash equivalents, short-term deposits, amounts receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term maturity of these financial assets and liabilities.
The Company’s financial risk exposures and the impact on the Company’s financial instruments are summarized below:
Credit Risk
The Company’s credit risk is primarily attributable to short-term deposits, convertible notes receivable, and receivables included in amounts receivable and prepaid expenses. The Company has no significant concentration of credit risk arising from operations. The short-term deposits consist of Canadian Schedule I bank guaranteed notes, with terms up to one year but are cashable in whole or in part with interest at any time to maturity, for which management believes the risk of loss to be remote. Management believes that the risk of loss with respect to financial instruments included in amounts receivable and prepaid expenses to be remote.
| Page 20 |
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 March 31, 2023, the Company had cash and cash equivalents of $37.6 million and short-term deposits of $1.3 million (December 31, 2022 - $46.2 million and $81.7 million, respectively) for settlement of current financial liabilities of $50.2 million (December 31, 2022 - $47.3 million). Except for the secured note liability and the reclamation obligations, the Company’s financial liabilities are primarily subject to normal trade terms.
The Company’s ability to fund its operations and capital expenditures and other obligations as they become due is dependent upon market conditions. The Company’s has in place an At-the-Market Offering that allows for the issuance of up to US$100 million of its common shares and has been an effective source of funding. During the current quarter, the Company raised $5.6 million, and subsequent to the quarter end, the Company raised a further $7.7 million through the program and has room for an additional US$89.9 million.
Subsequent to March 31, 2023, the Company agreed to the principal terms for the sale of a 1.2% net smelter royalty, on its KSM project, to Sprott Resource Streaming and Royalty Corp. for US$150 million (approximately $200 million at current exchange rates). Closing of the transaction is anticipated in the second quarter and is subject to customary conditions including settling final documentation and obtaining all necessary third-party consents and regulatory approvals.
The following tables detail the Company’s expected remaining contractual cash flow requirements for its financial liabilities on repayment or maturity periods. The amounts presented are based on the contractual undiscounted cash flows and may not agree with the carrying amounts in the Consolidated Statements of Financial Position.
| ($000s) | Less than 1 year | 1-3 years | 3-5 years | Greater than 5 years | Total | |||||||||||
| Secured note including interest | 19,808 | 39,616 | 39,616 | 183,646 | 282,686 | |||||||||||
| Flow-through share expenditures | 14,490 | - | - | - | 14,490 | |||||||||||
| Lease obligation | 496 | 834 | 106 | 92 | 1,528 | |||||||||||
| 34,794 | 40,450 | 39,722 | 183,738 | 298,704 |
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 12 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 11) bears interest at a fixed rate of 6.5% per annum. The Company’s current policy is to invest excess cash in Canadian bank guaranteed notes (short-term deposits). The short-term deposits can be cashed in at any time and can be reinvested if interest rates rise.
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(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 March 31, 2023, the Company had cash and cash equivalents, investment in associate, convertible notes receivable, loan 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 $3.6 million in a gold exchange traded receipt that is recorded on the consolidated statements of financial position in investments. The risk on these investments is significant due to the nature of the investment but the amounts are not significant to the Company.
| 15. | Corporate and administrative expenses |
| Three months ended March 31, | ||||||||
| ($000s) | 2023 | 2022 | ||||||
| Employee compensation | 1,620 | 1,238 | ||||||
| Stock-based compensation | 868 | 2,293 | ||||||
| Professional fees | 274 | 259 | ||||||
| Other general and administrative | 1,129 | 811 | ||||||
| 3,891 | 4,601 | |||||||
| 16. | Related party disclosures |
During the three months ended March 31, 2023 and 2022, 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.
| 17. | Income taxes |
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 the flow-through shares, reducing CEE deductions. Notice of objections to the Company’s and investors’ reassessments have been filed for all those that have been 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 $10.8 million, plus $2.9 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 2021 and 2022, the Company deposited $9.3 million into the accounts of certain investors with the Receiver General, in return for their agreement to object to their respective assessments and agreement to repay the Company the full amount deposited on their behalf upon resolution of the Company’s appeal. The deposits made has been recorded as long-term receivables on the statement of financial position as at March 31, 2023.
| 18. | Commitments and contingencies |
| Payments due by years | ||||||||||||||||||||
| ($000s) | Total | 2023 | 2024-25 | 2026-27 | 2028-29 | |||||||||||||||
| Secured note – interest | 133,704 | 14,856 | 39,616 | 39,616 | 39,616 | |||||||||||||||
| Capital expenditure obligations | 51,321 | 51,321 | - | - | - | |||||||||||||||
| Flow-through share expenditures | 14,490 | 14,490 | - | - | - | |||||||||||||||
| Mineral interests | 5,590 | 634 | 1,652 | 1,652 | 1,652 | |||||||||||||||
| Lease obligation | 1,528 | 496 | 834 | 106 | 92 | |||||||||||||||
| 206,633 | 81,797 | 42,102 | 41,374 | 41,360 | ||||||||||||||||
In 2022, the Company entered into a Facilities Agreement with 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 $32.8 million of which the Company has paid $24.9 million to BC Hydro and the remaining balance is due in December 2023. In addition, the Facilities Agreement requires $59.7 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 has paid $57.1 million to BC Hydro and the balance is due in December 2023. The $59.7 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 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. Refer to Note 11 for details on the secured note.
| Page 23 |
Exhibit 99.2
SEABRIDGE GOLD INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FIRST QUARTER ENDED
MARCH 31, 2023
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 May 12, 2023, 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 months ended March 31, 2023. 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, 2022, and the 2022 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 months ended March 31, 2023 and the comparative period 2022 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”.
Results of Operations
The Company recorded net loss of $10.8 million or $0.13 per share for the three months ended March 31, 2023 compared to net loss of $6.3 million or $0.08 per share for the three months ended March 31, 2022.
For the three months ended March 31, 2023, the most significant items contributing to the net loss included unrealized loss due to changes in the fair value of the Company’s secured note liability, corporate and administrative expenses, and finance costs, partially offset by income taxes recovery, foreign exchange gain and interest income. These items are discussed further below.
During the three months ended March 31, 2023, the fair value of the secured note liability increased by $18.8 million of which the Company recorded $11.2 million loss through profit or loss, and $7.6 million through other comprehensive income (loss).
| Page 2 |
The Company measures the fair value of its secured note liability using a discounted cash flow model with a Monte Carlo simulation. Key assumptions into this model are summarized in the following table.
| Inputs and assumptions | March 31, 2023 | December 31, 2022 | ||||||
| Weighted Average Life 1 | 48.5 years | 44.9 years | ||||||
| Forecast silver production in thousands of ounces | 166,144 | 166,144 | ||||||
| Future silver price | US$29.58 to US$211.38 | US$29.38 to US$110.51 | ||||||
| Risk-free rate | 3.7 | % | 3.4 | % | ||||
| Credit spread | 5.0 | % | 5.3 | % | ||||
| Share price volatility | 60 | % | 60 | % | ||||
| Silver royalty discount factor | 8.9 | % | 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.
Corporate and administrative expenses decreased by $0.7 million, from $4.6 million in the first quarter of 2022 to $3.9 million in the current quarter. The decrease was mainly due to lower stock-based compensation expenses ($0.9 in 2023 vs $2.3 in 2022) partially offset by higher cash compensation, higher professional fees and other general and administrative expenses (discussed below).
Cash compensation increased by $0.4 million, from $1.2 million in 2022 to $1.6 million in 2023. The increased cash compensation was mainly related to an increase in non-project headcount. Professional fees and other general and administrative expenses increased by $0.3 million, from $1.1 million in 2022 to $1.4 million in Q1 of 2023. The increase was mainly due to increase in travel and insurance costs. The Company anticipates that personnel numbers and related remuneration will continue to increase slightly but not as significantly as had been the case in 2022.
The Company has, since 2019, refocused the compensation practices away from issuing a combination of stock options and restricted share units (RSUs) to only RSUs. Stock-based compensation expense related to RSUs decreased by $1.4 million, from $2.3 million in the first quarter of 2022 to $0.9 million in the current quarter. The decrease was mainly due to the fact that the RSUs granted in December 2022 had a range of estimated vesting periods up to 36 months compared to RSUs granted in December 2021 had a vesting period of 4 months and had vested in the second quarter of 2022.
| ($ 000s) | ||||||||||||||||||||||||
| RSUs granted | Number of RSUs | Grant date fair value | Expensed prior to 2022 | Expensed in 2022 | Expensed in 2023 | Balance to be expensed | ||||||||||||||||||
| June 24, 2021 | 10,000 | 222 | 0 | 185 | 18 | 19 | ||||||||||||||||||
| September 01, 2021 | 20,000 | 454 | 75 | 304 | 37 | 38 | ||||||||||||||||||
| September 07, 2021 | 10,000 | 229 | 36 | 155 | 19 | 19 | ||||||||||||||||||
| October 01, 2021 | 10,000 | 195 | 24 | 122 | 16 | 33 | ||||||||||||||||||
| December 13, 2021 | 123,800 | 2,622 | 437 | 2,185 | - | - | ||||||||||||||||||
| July 04, 2022 | 10,000 | 159 | - | 52 | 26 | 81 | ||||||||||||||||||
| December 13, 2022 | 310,266 | 5,073 | - | 135 | 752 | 4,186 | ||||||||||||||||||
| 572 | 3,138 | 868 | 4,376 | |||||||||||||||||||||
| Page 3 |
During the first quarter of 2023, $0.9 million of stock-based compensation expense was charged to the statement of operations and comprehensive loss. Most of the expense relates to the December 2022 grant of 310,266 RSUs issued to the directors, senior management, and employees.
During the second quarter of 2022, 123,800 RSUs granted in December 2021 vested upon the Company completing the 2021 exploration program at Snowstorm and were exchanged for common shares of the Company. Of the total fair value of $2.6 million, $0.4 million was charged to the statement of operations and comprehensive loss in the fourth quarter of 2021, and the remaining $2.2 million was charged to the statement of operations and comprehensive loss during the first and second quarters of 2022.
The $0.6 million foreign exchange gain recognized in the first quarter of 2023 relates to the translation of the US dollar denominated secured note into Canadian dollars. During the comparative year, the Company recognized a foreign exchange loss of $0.1 million.
The finance cost incurred during the first quarter of 2023 amounted to $0.1 million compared with $3.1 million recognized in the comparative quarter and primarily related to the fees paid upon closing the secured note financing.
In the first three months of 2023, the Company recognized $0.1 million of other income related to the flow-through share premium recorded primarily on the financings completed in December 2022 (discussed below). During the comparative period, the Company recognized $0.1 million of other income related to the flow-through share premium recorded on the financings completed in June 2020 and June 2021 (discussed below).
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. In Q1 of 2023, the Company recognized an increase in the fair value of investments of $0.1 million, net of income taxes. During the comparative period, the Company recognized an increase in the fair value of investments, net of income taxes, of $0.2 million. The change in the fair value of these investments was recorded within other comprehensive income (loss) on the consolidated statement of operations and comprehensive income (loss).
The Company holds one investment in an associate that is accounted for on an equity basis. In the first quarter of 2023, the Company recognized a $0.1 million loss in investment in associates. During the comparative period, the Company recognized a $0.04 million loss in investment in associates.
In 2021, the Company reassessed the closure plan for the Johnny Mountain Mine and charged $5.4 million of rehabilitation expenses to the consolidated statements of operations and comprehensive income (loss). Also, in 2022, the Company reassessed the closure plan for the Johnny Mountain Mine and charged an additional $6.6 million of rehabilitation expenses to the consolidated statements of operations and comprehensive income (loss). Additional reclamation costs were mainly the result of weather-related events that delayed 2022 reclamation activities until 2023. Costs are expected to be incurred until 2025.
In the first quarter of 2023, the Company incurred $0.2 million of environmental rehabilitation expenditures (2022 - $0.3 million) related to the reclamation activities at the Johnny Mountain Mine site.
During the current quarter, the Company recognized income tax recovery of $3.5 million, primarily due to the tax recovery arising from the losses during the period, including the loss recognized on remeasurement of the fair value of the secured note liability. The income tax recovery was partially offset by income tax expense arising from the renouncement of expenditures related to the June 2022 flow-through shares issued which are capitalized for accounting purposes. The income tax impact of the revaluation of the secured note liability that was recorded through other comprehensive income (loss) during the current quarter, of $2.1 million of recovery, was also recorded through other comprehensive income (loss).
| Page 4 |
During the three months ended March 31, 2022, the Company recognized income tax recovery of $1.4 million primarily related to deferred tax recovery arising from the losses in the current quarter, partially offset by deferred tax expense arising due to the renouncement of expenditures related to the June 2020 and June 2021 flow-through shares issued which were capitalized for accounting purposes.
Quarterly Information
Selected financial information for the last eight quarters ending Mar 31, 2023, as follows:
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| (in thousands of Canadian dollars, except per share amounts) | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | ||||||||||||||||||||||||
| Revenue | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Earnings (loss) for the period | (10,784 | ) | (25,246 | ) | 5,045 | 19,088 | (6,281 | ) | (8,546 | ) | (822 | ) | 14,548 | |||||||||||||||||||
| Basic earnings (loss) per share | (0.13 | ) | (0.31 | ) | 0.06 | 0.24 | (0.08 | ) | (0.11 | ) | (0.01 | ) | 0.19 | |||||||||||||||||||
| Diluted earnings (loss) per share | (0.13 | ) | (0.31 | ) | 0.06 | 0.24 | (0.08 | ) | (0.11 | ) | (0.01 | ) | 0.19 | |||||||||||||||||||
During the first quarter of 2023 and the fourth quarter of 2022, the unrealized loss related to the change in the fair value of the secured note was $11.7 million and $19.5 million, respectively. During the third and second quarters of 2022, the unrealized gain related to the change in the fair value of the secured note was $24.9 million and $31.6 million, respectively. There was no unrealized gain or loss recognized in the first quarter of 2022 as the secured note was received at the end of March 2022.
In the first quarter of 2022, the loss for the period included $2.3 million of stock-based compensation expenses related to the amortization of RSUs granted in December 2021 that were vested during the second quarter of 2022. In the fourth quarter of 2022, the loss included $6.6 million of rehabilitation expenses related to the Johnny Mountain Mine. In the fourth quarter of 2021, the loss included $5.4 million of rehabilitation expenses related to the Johnny Mountain Mine. In the second quarter of 2021, net income included $21.9 million gain on the disposition of interest in the Red Mountain project.
Mineral Interests and Site Capture Activities
During the first quarter of 2023, the Company’s main efforts and most significant spending were focused on its 2023 site capture and early infrastructure development activities that are designed to ensure that KSM’s Environmental Assessment Certificate (“EAC”) remains in good standing.
The site capture expenditures during the first quarter of 2023, are illustrated below:
| ($000s) | Capital expenditures | Capitalized borrowing costs | Advance payment to BC Hydro | Total | ||||||||||||
| Cost | ||||||||||||||||
| As at January 1, 2022 | 27,061 | - | 9,620 | 36,681 | ||||||||||||
| Additions | 143,994 | 14,735 | 28,880 | 187,609 | ||||||||||||
| As at December 31, 2022 | 171,055 | 14,735 | 38,500 | 224,290 | ||||||||||||
| Additions | 38,722 | 4,945 | 43,650 | 87,317 | ||||||||||||
| As at March 31, 2023 | 209,777 | 19,680 | 82,150 | 311,607 |
| 1) | During the current quarter, the Company paid $43.6 million (as at December 31, 2022, $38.5 million) to British Columbia Hydro and Power Authority (“BC Hydro”) as advance payments made pursuant to the Company signing a facilities agreement with BC Hydro in 2022, covering the design and construction of facilities to supply construction phase hydro-sourced electricity to the KSM project. |
| Page 5 |
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 deadline, the EAC remains in effect for the life of the project. Significant activities started in 2022 and are continuing into 2023, including road, bridge, and camp construction, hydro installations, fish habitat offsetting programs, and the acquisition and transport of construction equipment and vehicles.
The 2023 full-year plan for site capture is approximately $237 million (2022 full-year actual - $180.4 million),and will be fully executed upon its full funding. The plan so far has been funded by the remaining proceeds of the US$225 million secured note issued in March 2022, and proceeds from the ATM. To continue funding its activities, subsequent to the quarter end, the Company agreed to the principal terms for the sale of a net smelter royalty on its KSM project for US$150 million. Refer to the Liquidity and capital resources section for details.
During 2022, the Company filed a full updated pre-feasibility study (“PFS”) for KSM. The full study included a preliminary economic assessment (“PEA”) for mineral resources at KSM, not included in the PFS resources. The results of the PFS show a considerably more sustainable and profitable mining operation than its 2016 predecessor. It envisages an all-open pit mine plan that includes the Mitchell, East Mitchell, and Sulphurets deposits only with a 33-year operating life. Mill production is increased from an initial 130,000 metric tonnes per day (tpd) to 195,000 tpd in the third year of production. The primary reasons for the improvements in the plan arise from the acquisition of the East Mitchell resource in December 2020 and an expansion to planned mill throughput. The many design improvements over earlier studies include a smaller environmental footprint, reduced waste rock production, a 50% increase in mill throughput, and the elimination of capital-intensive block cave mining. The Company is also studying the use of trolley-assist technology or how the supply of power from BC Hydro and the possible electrification of the entire mine fleet can enhance carbon optimization.
Projected economic results of the study compared to the 2016 study and against alternate scenarios are illustrated below.
| Amounts expressed in US dollars | 2016 PFS Base Case | 2022 PFS Base Case | 2022 PFS Recent Spot Case | 2022 PFS Alternate Case | ||||||||||||
| Metal Prices: | ||||||||||||||||
| Gold ($/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 | ||||||||||||
| Page 6 |
The results of the PEA announced in 2022 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 the flexibility to vary the metal output.
In order to achieve its objectives and milestones, the Company estimates annual costs for each of its mineral interests and tracks costs against those estimates for payroll, environmental and social, technical engineering, exploration, and other holding or property costs. The below information describes those costs versus the 2023 estimates.
During the three months ended March 31, 2023, the Company added an aggregate of $7.9 million of expenditures that were attributed to mineral interests. The breakdown of the mineral interests expenditures by project is illustrated in the following table:
| ($000s) | Amount | Percentage | ||||||
| KSM | 6,600 | 84 | % | |||||
| 3 Aces | 426 | 6 | % | |||||
| Iskut | 352 | 4 | % | |||||
| Snowstorm | 221 | 3 | % | |||||
| Courageous Lake | 263 | 3 | % | |||||
| Total expenditures | 7,862 | 100 | % |
Advancing the KSM Project and in addition to the substantial start discussion above, the Company’s full year-plan, and the actual incurred costs during the three months ended March 31, 2023 were:
| ($000s) | Actual | Plan (full year) | ||||||
| Payroll | 676 | 3,228 | ||||||
| Technical and engineering | 1,203 | 14,336 | ||||||
| Environmental and social | 4,093 | 20,954 | ||||||
| Exploration | 22 | 400 | ||||||
| Other property or holding costs | 61 | 299 | ||||||
| Total | 6,055 | 39,217 |
Technical and engineering costs include costs related to the continuing geotechnical data collection for key mine infrastructure. Environmental and social endeavors relate to environmental monitoring baseline studies at KSM.
At Iskut, the Company’s full year-plan, and the actual incurred costs during the three months ended March 31, 2023 were:
| ($000s) | Actual | Plan (full year) | ||||||
| Payroll | 188 | 766 | ||||||
| Exploration | 152 | 8,000 | ||||||
| Environmental and social | 223 | 5,300 | ||||||
| Other property or holding costs | 22 | - | ||||||
| Total | 585 | 14,066 |
| Page 7 |
The Company plans for an extensive drilling program at Iskut based on the analysis of the 2022 drilling and geophysical surveying programs. The work program is designed to test for deeper copper-gold porphyry systems and to expand the Bronson Slope mineral resource. Three helicopter-portable core drills have been reserved for this program that anticipates completion of 12 to 15 drill holes exceeding 12,000 meters of core.
In 2022, the exploration and drilling program led to the discovery of a large, well-mineralized breccia pipe beneath the historic Bronson Slope skarn deposit. The extensive quartz-magnetite pipe, which has been identified as the source of the Bronson Slope deposit, holds broadly disseminated gold and copper mineralization from multiple hydrothermal eruptive events believed to originate from a major porphyry intrusive source. A 2023 drill program is planned to target an increase in the Bronson gold-copper resource and find the intrusive source of the breccia pipe. The current resource at Bronson Slope contains a measured and indicated resource of 187Mt of 0.36 g/t gold and 0.12% copper.
Regional geophysical surveys and continuous surface geology work on the property point to a distinct structural feature that connects the Quartz Rise, Bronson Slope and Snip North targets. All the prospective gold-copper intrusions recognized on the property fall along this regional trend and this observation has led us to envision a cluster of gold-copper deposits. Prior drilling at the lithocap on Quartz Rise and historical drilling at the Snip North target has encountered gold-copper grades that will be explored further in 2023.
In addition to exploration work at Iskut, the Company is continuing its reclamation and closure activities at the Johnny Mountain mine site. Work includes, among other items, general cleanup activities, monitoring of the tailing management facility, permanent storage of waste rock and hydrocarbon remediation. Reported within provision for reclamation liabilities and in support of the reclamation and closure of the Johnny Mountain Mine, the Company incurred $0.2 million of expenditures in the first quarter of 2023 versus $0.3 million in comparative quarter.
At Snowstorm, the Company’s full year-plan, and the actual incurred costs during the three months ended March 31, 2023 were:
| ($000s) | Actual | Plan (full year) | ||||||
| Payroll | 108 | 487 | ||||||
| Exploration | 46 | 3,056 | ||||||
| Environmental and social | 6 | 75 | ||||||
| Other property or holding costs | 61 | 390 | ||||||
| Total | 221 | 4,008 |
The 2023 exploration program for Snowstorm is to test the potential for mineralized faults across two structures identified in previous exploration efforts. The projected structures are orientated parallel with mineralizing faults in the Getchell Trend. Four RC drill holes are planned with off-sets of about 200 meters, for an expected total drilling of 4,500 meters.
At the 3 Aces project, the Company’s full year-plan, and the actual incurred costs during the three months ended March 31, 2023 were:
| ($000s) | Actual | Plan (full year) | ||||||
| Payroll | 206 | 816 | ||||||
| Exploration | 161 | 7,000 | ||||||
| Environmental | 37 | 1,692 | ||||||
| Other holding or property | 45 | 45 | ||||||
| Total | 449 | 9,553 |
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The Company successfully secured a five-year, Class 4 permit for 3 Aces in 2022 and commenced work on camp repairs, securing water sources and the drilling program. 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. The 2023 exploration objective is to complete drill testing of the geologic model and prioritize areas for resource definition. The program will focus on advancing and refining the 3-dimentional exploration model and will include geophysical surveys drilling approximately 10,000 meters in three target zones. Additionally, the work program will provide a prioritized list of targets and drill plans to initiate resource definition on the identified target areas.
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.
At the Courageous Lake project, the Company’s full year-plan, and the actual incurred costs during the three months ended March 31, 2023 were:
| ($000s) | Actual | Plan (full year) | ||||||
| Payroll | 92 | 288 | ||||||
| Environmental and social | 46 | 864 | ||||||
| Technical and engineering | 7 | 2,675 | ||||||
| Exploration | 116 | 457 | ||||||
| Other property or holding costs | 2 | 148 | ||||||
| Total | 449 | 4,432 |
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 2022, employees have been working remotely during ongoing periods of lockdowns in various jurisdictions. The Company is conducting its 2023 programs around social distancing protocols that include safety and preventative actions at its camps. The Company executed its 2022 exploration and development work at KSM, Iskut, Snowstorm, and 3 Aces projects under the same successful protocols it implemented in 2020 and 2021. The Company’s engagement with potential joint venture partners, or potential acquirers 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 has 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 eliminated, 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 2023 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.
Liquidity and Capital Resources
The Company’s working capital deficit as at March 31, 2023, was $3.1 million compared to positive working capital of $88.4 million on December 31, 2022. Decreased cash resources resulted from the advance payment to the BC Hydro related to the KSM Facility Agreement, early infrastructure development and corresponding equipment, environmental, reclamation and exploration projects, and corporate and administrative costs. Included in current liabilities as at March 31, 2023, is $4.0 million of flow-through premium liability which is a non-cash item (December 31, 2022 - $4.2 million) and will be reduced as flow-through expenditures are incurred.
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Subsequent to March 31, 2023, the Company agreed to the principal terms for the sale of a 1.2% net smelter royalty, on its KSM project, to Sprott Resource Streaming and Royalty Corp. for US$150 million (approximately $200 million at current exchange rates). Closing of the transaction is anticipated in the second quarter and is subject to customary conditions including settling final documentation and obtaining all necessary third-party consents and regulatory approvals.
The Company’s ability to fund its operations and capital expenditures and other obligations as they become due is dependent upon market conditions. The Company’s has in place an At-the-Market Offering that allows for the issuance of up to US$100 million of its common shares and has been an effective source of funding. During the current quarter, the Company raised $5.6 million, and subsequent to the quarter end, the Company raised a further $7.7 million through the program and has room for an additional US$89.9 million.
| March 31, | December 31, | |||||||
| ($000s) | 2023 | 2022 | ||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 37,566 | $ | 46,150 | ||||
| Short-term deposits | 1,301 | 81,690 | ||||||
| Amounts receivable and prepaid expenses | 8,165 | 8,220 | ||||||
| Investment in marketable securities | 3,844 | 3,696 | ||||||
| Convertible notes receivable | 616 | 631 | ||||||
| Total current assets | 51,492 | 140,387 | ||||||
| Liabilities and shareholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 45,828 | $ | 42,956 | ||||
| Flow-through share premium | 4,038 | 4,183 | ||||||
| Lease obligations | 394 | 511 | ||||||
| Provision for reclamation liabilities | 4,343 | 4,343 | ||||||
| Total current liabilities | 54,603 | 51,993 | ||||||
| Working Capital (1) | (3,111 | ) | 88,394 |
| (1) | This is a non-GAAP financial performance measure with no standard definition under IFRS. |
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 were 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. For the interest incurred during the three months ended March 31, 2023, the Company elected to pay the interest in common shares, and subsequent to the quarter end, the Company issued 322,084 common shares valued at $15.35 per common share. During 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.
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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 a significant portion of the capital necessary to attain Substantial Start and reduces the time from the construction schedule once a construction decision has been made.
During the first quarter of 2021, 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$75 million in value of common shares of the Company. This program was in effect until the Company’s US$775 million Shelf Registration Statement, that expired in December 2022, was replaced with a new US$750 million the same month. During the current quarter, a US$100 million prospectus supplement was filed and the program was renewed. During the current quarter, the Company issued 313,666 shares, at an average selling price of $18.26 per share, for net proceeds of $5.6 million under the Company’s At-The-Market offering. In 2022, the Company issued 998,629 shares, at an average selling price of $22.82 per share, for net proceeds of $22.3 million under the Company’s At-The-Market offering.
In the current quarter, the Company entered into a new agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$100 million in value of common shares of the Company. This program can be in effect until the Company’s US$750 million Shelf Registration Statement expires in 2025. During the current quarter, the Company issued 313,666 shares, at an average selling price of $18.26 per share, for net proceeds of $5.6 million under the Company’s At-The-Market offering. Subsequent to the quarter end, the Company issued 423,879 shares, at an average selling price of $18.47 per share, for net proceeds of $7.7 million under Company’s At-The-Market offering.
In December 2022, the Company issued a total of 675,400 flow-through common shares at an average $22.24 per common share for aggregate gross proceeds of $15.0 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, 2022. At the time of issuance of the flow-through shares, $4.2 million premium was recognized as a liability on the consolidated statements of financial position. During the current quarter, the Company incurred $0.5 million of qualifying exploration expenditures and $0.1 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive income (loss).
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During the current quarter, operating activities, including working capital adjustments, used $7.7 million cash compared to $9.6 million cash used by operating activities in the comparative quarter in 2022. Lower operating cash used in the current quarter was mainly related to a $3.0 million decrease in financing fees, and $0.7 million increase in interest income, partially offset by $1.3 million increase in cash used in working capital, and $0.7 million increase in general and administrative expenses.
Higher general and administrative expenses in the first quarter of 2023 were mainly related to higher cash compensation, higher D&O insurance, and increased travel 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 $10.8 million, plus $2.9 million potential interest. No provision has been recorded related to the tax, potential interest, nor the potential indemnity as the Company and its advisors do not consider it probable that there will ultimately be an amount payable.
During 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 December 31, 2022, the Company has recognized $3.9 million of long-term receivables from the CRA, including $2.3 million of HST credit due to the Company. The amount recorded in long-term receivables as of March 31, 2023 of $3.9 million includes the initial reassessment of $3.6 million, plus accrued interest.
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.
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Contractual Obligations
The Company has the following commitments as at March 31, 2023:
| Payments due by years | ||||||||||||||||||||
| ($000s) | Total | 2023 | 2024-25 | 2026-27 | 2028-29 | |||||||||||||||
| Secured note – interest expense | 133,704 | 14,856 | 39,616 | 39,616 | 39,616 | |||||||||||||||
| Capital expenditure obligations | 51,321 | 51,321 | - | - | - | |||||||||||||||
| Flow-through share expenditures | 14,490 | 14,490 | - | - | - | |||||||||||||||
| Mineral interests | 5,590 | 634 | 1,652 | 1,652 | 1,652 | |||||||||||||||
| Lease obligation | 1,528 | 496 | 834 | 106 | 92 | |||||||||||||||
| 206,633 | 81,797 | 42,102 | 41,374 | 41,360 | ||||||||||||||||
In 2022, the Company entered into a Facilities Agreement with 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 $32.8 million of which the Company has paid $24.9 million to BC Hydro and the remaining balance is due in December 2023. In addition, the Facilities Agreement requires $59.7 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 has paid $57.1 million to BC Hydro and the balance is due in December 2023. The $59.7 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 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 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. 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 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 will continue to 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, 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.
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The early construction work the Company is considering for completion in 2024 and 2025 includes completing construction of the Taft Creek fish habitat offsetting ponds, constructing the powerline from the Treaty Creek switching station to the area of the proposed processing plant and MTT portals in the North Treaty Creek valley, constructing the power substation at the area of the processing plant, constructing the Coulter Creek Access Road to the 8.6 km mark and clearing of many of the sites for location of proposed KSM Project infrastructure. The Company anticipates submitting an application to the EAO for a decision that the KSM Project has been “substantially started” well before the deadline and believes it is keeping itself on course for a positive decision.
The Company has only prepared preliminary estimates for the cost of all of this work and certain of the work requires further engineering before reasonable cost estimates can be established. The Company may elect not to complete some or many elements of this work and may elect to engage in construction of other elements of the KSM Project infrastructure instead, including in respect of the work for 2023. However, its budget for 2023 early construction activities is estimated at $237 million.
At Iskut, the Company is conducting the 2023 exploration program that is focused on the Bronson Slope copper-gold resource and test porphyry occurrences in other targets on the property. Environmental work is also continuing on the reclamation and closure plan for the Johnny Mountain mine.
At the Company’s 3 Aces project, the Company will conduct the 2023 exploration program that will include drill testing of the exploration model for extrapolation across the entire property. Additionally, the work program will provide a prioritized list of targets and drill plans to initiate resource definition on the identified target areas. The overall program is focused on the discovery of a high grade mineralized deposit.
At Snowstorm, the Company will continue exploration efforts to determine the potential for mineralized faults. Past exploration efforts have identified the geophysical signature of several parallel structures on the eastern margin of an uplifted formation block. This setting is consistent with the large mines and the projected structures are orientated parallel with mineralizing faults in the Getchell Trend. The exploration program is to test across two of these structures.
At Courageous Lake, the Company is commencing a preliminary feasibility study for an alternative development plan for the project and determine the best path forward to unlock value.
The Company is exploring various alternatives for raising the funding necessary to pay for these construction activities and other business objectives. Possible financing options include the sale of royalty or streaming interest in the KSM Project, funding from a joint venture partner as part of earning into an interest in the KSM Project, the sale of all or some form of interest in one of the Company’s other projects or the sale of shares or debt issued by the Company, including a possible financing under a Prospectus Supplement. The Company also has an At-the-Market Offering in the United States which has been an effective source of meaningful funding for the Company.
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.
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During the third quarter of 2022, 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. In the 2022 report, we will be disclosing Scope 1, 2 and 3 emissions and will be compliant with the Task Force on Climate-Related Financial Disclosures. The Company will also make submissions for CDP scoring that will provide a snapshot of the Company’s disclosure and environmental performance.
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.
Disclosure Controls and Procedures and Internal Controls over Financial Reporting
Pursuant to regulations adopted by the U.S. Securities and Exchange Commission, under the U.S. Sarbanes-Oxley Act of 2002 and those of the Canadian Securities Administrators, management evaluates the effectiveness of the design and operation of the Company’s disclosure controls and procedures, and internal control over financial reporting. This evaluation is done under the supervision of, and with the participation of, the Chief Executive Officer and the Chief Financial Officer.
For the quarter ended March 31, 2023, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures, and internal control over financial reporting are designed to provide reasonable assurance regarding the reliability of information disclosed in its filings, including its interim financial statements prepared in accordance with IFRS. There has been no change in the Company’s internal control over financial reporting during the quarter ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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.
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.
| Page 15 |
An independent review of access to information and other security protocols around the Company’s IT systems was undertaken and completed subsequent to the quarter end. The review, among other items, verified 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 May 12, 2023, the issued and outstanding common shares of the Company totaled 82,398,659. In addition, there were 477,500 stock options, and 345,266 RSUs. Assuming the conversion of all of these outstanding instruments, there would be 83,221,425 common shares issued and outstanding.
Related Party Transactions
During the first quarter ended March 31, 2023 and 2022, 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.
Recent Accounting Pronouncements
Refer to Note 2 in the Company’s unaudited condensed consolidated interim financial statements for the period ended March 31, 2023.
Critical Accounting Estimates
Refer to Note 3 (C) in the Company’s audited consolidated financial statements for the year ended December 31, 2022.
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.
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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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