Seabridge Gold: The KSM Project In Focus This Year (NYSE:SA)

Introduction

Toronto-based Seabridge Gold Inc. (NYSE:SA) released its consolidated financial statements ending September 30, 2022, on November 14, 2022. The company announced that the 2022 exploration program at Iskut was completed, among other items.

Also, one important step was achieved on August 8, 2022, when Seabridge Gold filed the KSM Technical report.

The 2022 Preliminary Feasibility Study (“2022 PFS”) shows a considerably more sustainable and profitable mining operation than its 2016 predecessor, now consisting of an all open pit mine plan that includes the Mitchell, East Mitchell and Sulphurets deposits only. The primary reasons for the improvements in the plan compared to the 2016 study arise from the acquisition of the East Mitchell open pit resource and an expansion to planned mill throughput.

Finally, on January 7, 2023, the company announced today that drilling had been completed and assay results received from its limited 2022 drill program at its 3 Aces Project.

The program commenced in mid-September after receiving a Class 4 Quartz Exploration Permit from the Yukon Government Department of Energy, Mines, and Resources for its 100% owned 3 Aces project. As one of the permit conditions requires that drilling cease each year at the end of October, only four holes were drilled.

This article is an update of my preceding article, published on April 7, 2022. It has been over ten months, and it is about time to look at the company’s progress and new development as we enter 2023.

Seabridge Gold owns 100% ownership of an extensive portfolio of premium North American exploration Projects with six gold core projects and three non-core projects:

• Kerr-Sulphurets-Mitchell (“KSM”) – British Columbia, Canada. The mine is the largest undeveloped copper/gold property in North America and the most valuable project for the company.
• Courageous Lake – Northern Territories, Canada
• Iskut, which is 30 km Northwest of KSM – British Columbia, Canada
• Snowstorm – Nevada, USA
• 3 Aces – Yukon Territory, Canada
• Recent Snowfield Property acquired from Pretium Resources.
• Grassy Mountain
• Quartz Mountain.

However, the most critical project that will make or break the company is the KSM project, which is the most advanced and has the potential to find an acquirer in the next few years.

2 – A look at the balance sheet

During the three months that ended September 30, 2022, Seabridge posted a net income of $3.78 million ($0.05 per share) compared to a net loss of $0.65 million ($0.01 per share) for the same period in 2021.

Cash on hand and cash equivalent were $154.66 million in 3Q22, down from $214.76 million in 2Q22.

3 – Investment thesis

As I said previously, Seabridge Gold is NOT a gold or metals producer, and it is vital to invest in these development-stage companies with extreme caution. A mining project is a complex and expensive endeavor demanding years of preparation and a considerable amount of CapEx before getting an eventual greenlight. No fundamental reasons could explain a stock price valuation at this stage; it is all in the eyes of the beholder.

The company owns about three potential projects that could produce down the road. One of the most advanced projects is the KSM/Snowfield project, with an investment of $150 million in 2022.

A sign of confidence: The company raised $225 million from Sprott Resource streaming and Royalty and Ontario Teacher’ Pension plan in exchange for a KSM silver royalty.

In 2021, Seabridge Gold started early-stage construction activities at the KSM Project to achieve the “substantially started’ status by July 28, 2026, which is required to maintain the validity of the Environmental Assessment Certificate for the Project’s life.

The Kerr-Sulphurets-Mitchell or KSM/Snowfield is a massive project with 59 years of project life. Total P1 and P2 reserves represent the bulk of the company’s reserves, with 38.8 Moz of gold, 10.155 billion pounds of copper, 183 Moz of silver, and 207 Mlbs of Molybdenum.

The recent PEA report outlines the production of 170K TPD with a LOM of 39 years-

The PEA outlines 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, demonstrating that KSM has “multi-generational long-life” mining project potential with flexibility to vary metal output. The recently updated PFS, meanwhile, contains only an open pit plan with a 33-year mine life limited to the Mitchell, East Mitchell and Sulphurets deposits. None of the mineral resources incorporated into the PEA were used in the PFS mine plan.

However, the KSM copper/gold project requires over $5 billion in CapEx and eventually more with the recent Snowfield acquisition. It is a massive investment that could attract only a few major gold producers.

Therefore, I recommend trading Seabridge Gold Inc. short-term and keeping a minimal long-term bet on the back burner for the eventual final payday if the company finds a gold major willing to complete the project.

The primary issue is that Seabridge is financing KSM and other projects like 3 Aces and Iskut using its stock as currency. It is an elevated risk for shareholders who will suffer dilution along the way without guaranteeing any substantial payday.

On January 6, 2023, the company announced:

the Company will be entitled, at its discretion and from time-to-time during the term of the Sales Agreement, to sell, through the Lead Agent, such number of common shares of the Company (the “Common Shares”) that would result in aggregate gross proceeds to the Company of up to US$100 million (the “Offering” or “ATM Facility”). Sales of the Common Shares, if any, will be made in “at the market distributions”… The program can be in effect until Seabridge’s current US$750 million Shelf Registration Statement expires in January 2025.

4 – Stock Performance

SA has underperformed GDXJ (GDXJ) on a one-year basis. SA stock is down nearly 16% on a one-year basis.

Seabridge Gold Balance sheet history until 3Q22 – The raw numbers

Warning: Seabridge Gold Inc. is not generating revenues. I have converted the numbers indicated in C$ in the filing to US$.

Seabridge Gold	3Q21	4Q21	1Q22	2Q22	3Q22
Total Revenues in $ Million	0	0	0	0	0
Net Income in $ Million	-0.65	-6.68	-4.96	14.91	3.78
EBITDA $ Million	-1.43	-6.98	-3.49	21.81	9.48
EPS diluted in $/share	-0.01	-0.09	-0.06	0.19	0.05
Operating Cash Flow in $ Million	0.13	-7.26	-7.60	4.39	8.05
CapEx in $ Million	20.16	22.09	7.97	21.25	56.66
Free Cash Flow in $ Million	-20.03	-29.35	-15.57	-18.86	-48.61
Total Cash $ Million	45.91	34.48	236.47	214.76	154.66
Long-term Debt in $ Million	0	0	222.09	183.00	165.42

Click to enlarge

Source: Press release.

A few historical financial data in one chart:

Trailing 12-month free cash flow (“ttm”) is now a loss of $112.39 million and $48.61 million in 3Q22.

Technical Analysis (short-term) and Commentary

SA forms an ascending triangle pattern with resistance at $13.1 and support at $12.35. The ascending triangle is a bullish chart pattern that occurs in a mid-trend and signals a likely continuation of the overall trend.

The strategy here is to sell between $13 and $13.2 with possible higher resistance at $14.20 and wait for a retracement between $12.25 and $12.70 with possible lower support at $11.25.

However, if the gold price turned bearish last Friday after the bullish U.S. January Job report, that could force the FED to hike interest rates longer in 2023.

Gold’s plunge came after the U.S. Labor Department reported a NFP, or non-farm payrolls, growth for January that was almost three times above forecast, throwing a fresh challenge to the Federal Reserve’s hopes of seeing a cooling of the labor market and wages to get inflation to its target. Some 517,000 jobs were added last month versus a forecast 188,000 and against December’s 223,000.

Gold prices are crucial for development-stage gold miners like Seabridge Gold Inc. Thus, watch gold like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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