Why Analysts Like This Gold Co.
Source: Streetwise Reports
May 29, 2023 (Investorideas.com Newswire) Several analysts agree that this gold company with a large British Columbia resource is a Buy and that it's in a great position for possible joint ventures.
On its website, Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) wrote that the company "is designed to provide its shareholders with exceptional leverage to a rising gold price."
The company's five core projects, including its flagship KSM project in British Columbia, are helping it fulfill that mission, according to analysts.
Recently, Seabridge raised US$150 million by granting Sprott Resource Streaming and Royalty Corp. a 1.2% net smelter return (NSR) royalty on KSM, bringing capital needed for development at the site without diluting its shares.
The money will be used to complete work at the site to meet the criteria for "substantially started" status to get its environmental assessment certificate (EAC) extended indefinitely. It also will enable the company to complete a switching station and work needed to connect to BC Hydro's electricity lines for the construction and operation of the mine.
"We view this royalty agreement positively as it avoids shareholder dilution in the near term and, along with the US$225M (Seabridge) secured from Sprott and Ontario Teacher's Pension Plan in 2022, should allow the company to reach the substantially started designation ahead of 2026 deadline for the current EAC," wrote analysts David Talbot and Taylor Combaluzier of Red Cloud Securities in a May 12 research note.
They rated the stock a Buy with a CA$45.25 per share price target. Lucas Pipes of B Riley Securities, Joe Reagor of Roth Capital Partners, and Mike Kozak of Cantor Fitzgerald also rate Seabridge a Buy.
KSM's current deadline for the EAC is July 29, 2026. In deciding whether a project has been "substantially started," the province decides whether sufficient on-site physical improvements have been made. Work Seabridge has completed includes the building of roads, camps, bridges, and special fish habitats.
Jim Rickards, editor of the Strategic Intelligence Newsletter, has called KSM "one of the most attractive gold-copper acquisition targets in the world."
Proven and probable reserves at KSM's initial mine total 47.3 million ounces (Moz) Au, 7.3 billion pounds copper (Cu), 160 Moz silver (Ag), and 385 million pounds of molybdenum (Mo), with average production over a 33-year mine life of 1.03 Moz Au, 178 million pounds Cu, 3 Moz Ag, and 4.2 million pounds Mo, a preliminary feasibility study (PFS) found.
The company also released a preliminary economic assessment (PEA) for a separate, underground block cave mine with a small open pit. That mine is expected to produce 14.3 billion pounds Cu, 14.3 Moz Au, 68.2 Moz silver, and 13.8 million pounds Mo over 39 years.
The Catalyst: Royalty Deal Shows Sprott's Confidence in Company
KSM project. Source: Seabridge Gold Inc.
Kozak of Cantor Fitzgerald set a price target of CA$42 for the stock after the NSR announcement.
"We have a favorable view of this transaction as it removes significant financing overhang in a way that is not equity dilutive to shareholders," Kozak wrote in a May 12 research update.
"Seabridge is fully cashed-up to complete construction of the switching station and connect its KSM project to BC Hydro's Northern Transmission Line (NTL), that will provide low-cost green energy (hydro) to power the entire site through the construction and operating phases," he wrote.
The Sprott deal also helps the company de-risk future development at the site and enhance partnership prospects for the project, wrote Pipes, who set a CA$60 per share price target on the stock.
"This capital raise is strategically designed to propel the KSM project forward while maintaining shareholder value without share dilution, which aligns with Seabridge's established approach of offering the most favorable leverage in the industry to gold (>2 ounces of gold per share) and one of the world's leading to copper (>600 pounds of copper per share)," the analyst noted.
And the two recent deals involving Sprott underline "Sprott's commitment and confidence in the project," he said.
Sprott Resource Managing Partner Michael Harrison said they "continue to be impressed by the significant progress the Seabridge team is making at KSM. The quality of the engineering and early works is excellent, and their strong relationships with the local indigenous peoples is truly best-in-class."
Company Has 'Clear Vision' For a Potential Partnership
All the analysts said the project was potentially attractive to joint-venture (JV) partners.
"The market is currently short on development projects, and market interest/M&A is heating up," Pipes wrote in April. "While the lack of partnership at KSM has been an overhang for the stock, we believe the asset is now ripe for third-party validation."
The company has a "clear vision for a potential partnership agreement," Pipes said.
Seabridge "would like a partner to fund a bankable feasibility study (BFS) for optionality in KSM," he wrote. "If a BFS was then exercised, the partner buying into majority ownership over time would be the most likely outcome, in our opinion."
In maintaining their Buy rating, Talbot and Combaluzier at Red Cloud said the Sprott funding should help the company finish the switching station work and shorten the construction period once a construction decision is made at the project.
"Along with securing the EAC for the life of the project, we believe this work would further de-risk KSM and should help the company with its ongoing efforts to secure a major JV partner," they wrote.
Reagor set a price target of US$33 per share. He wrote on May 17 that the Sprott NSR deal helping Seabridge achieve "substantially started" status, would allow a future JV partner to "take a conservative approach to developing the asset."
"We are reiterating our Buy rating as we believe Seabridge could see a significant re-rating if it signs an agreement with a JV partner," Reagor wrote.
Company: JV Will Be 'Worth the Wait'
For its part, the company said it has engaged a leading mining industry bank to assist in JV discussions with larger companies.
"Could we have done a joint venture deal along the way? We received proposals, but they would have meant leaving far too much value on the table," Seabridge Chairman and Chief Executive Officer Rudi Fronk wrote in a message to shareholders in the company's annual report this year. "Projects like KSM are very rare. We think the final terms of a JV will be well worth the wait."
Seabridge recently announced a drilling program at its 3 Aces gold project in the Yukon Territory for this year.
But Talbot and Combaluzier wrote in a flash update in Red Clouds' Rocks Daily email newsletter that "our focus is primarily on the development of the 100%-owned KSM project and a potential JV with a major partner, even as we look forward to results from 2023 exploration at Iskut and 3 Aces."
Ownership and Share Structure
About 36% of the company is held by institutional investors, according to Reuters, including Pan Atlantic Bank and Trust with 7.69% or 6.25 million shares, National Bank of Canada with 5.68% or 4.62 million shares, and FCMI Financial Corp. with 5.11% or 4.16 million shares.
Management, board members, and company insiders own approximately 30%, the company said. Fronk owns 1.49% or 1.21 million shares, according to Reuters. The rest is retail.
It has a market cap of CA$1.49 billion and has about 82.4 million shares outstanding, with 79.96 million free-floating. It trades in a 52-week range of CA$21.78 and CA$13.83.
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