Seabridge Gold Stock: Patience is Required (NYSE: SA)
Seabridge Gold of Toronto (NYSE: SA) published its consolidated financial statements ending December 31, 2021, March 25, 2022.
Seabridge Gold plans to invest a CapEx of $225 million at its KSM project, 65 kilometers northwest of Stewart.
The KSM project has already received a federal and provincial environmental assessment approvals.
The CapEx will be used to capture the site and construct electrical infrastructure that would connect the existing North West transmission line to BS Hydro’s Treaty Creek Switching Station.
The company expects approximately 75-85% of the $225 million to spend on local and indigenous entrepreneurs. They also anticipate more than 1,500 jobs per year during the initial five-year construction period and 1,400 on-site jobs over the life of the mine.
As a reminder, the Proven and Probable mineral reserves at KSM:
- 38.8 MB gold
- 183 MB silver
- 10.155 billion pounds of copper
- 207 million pounds of molybdenum
The company estimates that the project will have an economic impact of $30.6 billion over the life of mine with a mine life of 52 years.
1 – Seabridge Gold Assets
The company wholly owns no less than six core gold 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 company’s most valuable project.
- Courageous Lake – Northern Territories, Canada
- Iskut, 30 km northwest of KSM – British Columbia, Canada
- Snowstorm – Nevada, USA
- 3 Aces – Yukon Territory, Canada
- Recent Snowfield property acquired from Pretium Resources (PVG)
- grassy mountain
- quartz mountain
However, the most critical project that will make or break the company is the KSM project which will be the main subject of this article.
2 – Overview of 4Q21 and the year 2021
During the three months ended December 31, 2021, Seabridge recorded a net loss of $6.68 million ($0.09 per share) compared to a net loss of $9.88 million ($0.16 per share) for the same period in 2020.
Free cash and cash equivalents were $34.48 million in 4Q21.
An important note: On February 28, 2022, Seabridge Gold announcement he had raised $225 million to advance his KSM project through a deal with Sprott Resource Streaming and Royalty and Ontario Teachers Pension Plan.
Seabridge has set out three main goals for KSM that it intends to achieve with the latest funding:
- Achieve “Substantially Commenced” designation, which ensures continuity of the KSM project’s approved EAC environmental assessment certificate for the life of the project;
- Accomplish key tasks that support construction readiness and will shorten the construction period, once a construction decision has been made;
- Improve KSM’s proposal in joint venture negotiations by securing the EAC, further reducing project risk and accelerating the construction schedule.
Rudi Fronk, CEO of Seabridge, said in a press release.
We are thrilled to have Sprott and Ontario Teachers as partners at KSM. Although KSM is best known for its mineral reserves and resources of gold and copper, the project also hosts a large silver inventory.
In KSM’s latest technical report, the cash represents less than 3% of KSM’s projected revenue, with the transaction representing a very small expense compared to the project’s total future revenue.
The agreement is to sell a secured note to be exchanged at maturity for a silver royalty on its KSM/Snowfield project. The company will fund CapEx to KSM to complete the “substantially commenced” phase.
This step allows for environmental approval for the life of the project without incurring shareholder dilution.
3 – Investment thesis
Seabridge Gold is not a producer of gold or metals, and it is essential to approach this investment with caution. There are no genuine parts that could honestly justify a high stock price at this point.
Paying $18.52 per share for a project seems a bit pricey. I’m not saying it’s not justified, but I see a risk in it, with a project far from complete.
However, the Kerr-Sulphurets-Mitchell or KSM/Snowfield is a massive project with 59 years of lifespan. Total P1 and P2 reserves represent the bulk of the company’s reserves with 38.8 Mlbs of gold, 10.155 billion lbs of copper, 183 Mlbs of silver and 207 Mlbs of molybdenum.
But the KSM copper/gold project requires more than $5 billion in CapEx and possibly more with the recent acquisition of Snowfield. It is a massive investment that could only attract a few large gold producers.
The recent financial agreement with Sprott saved the company from painful dilution and gave some confidence in the quality and feasibility of the project.
Therefore, I recommend trading short-term SAs and keeping a long-term minimum bet on the back burner for the last payday.
4 – Stock market performance
SA outperformed GDXJ (GDXJ) on an annual basis. SA is up 12% year-on-year.
Seabridge Gold 4Q21 – The Raw Numbers
Disclaimer: The business does not generate income. I converted the CA$ figures shown in the file to US$ using a ratio of 0.846 for 4Q21.
|Sea Bridge Gold||4T20||1T21||2Q21||3Q21||4Q21|
|Total revenue in millions of dollars||0||0||0||0||0|
|Net income in millions of dollars||-9.88||-3.41||11.91||-0.65||-6.68|
|EBITDA in millions of dollars||-9.95||-3.61||16.53||-1.43||-6.91|
|Diluted EPS in $/share||-0.16||-0.05||0.16||-0.01||-0.09|
|Cash flow from operations in millions of dollars||-3.53||-3.30||1.24||0.13||-7.29|
|CapEx in millions of dollars||107.66||6.01||10.01||20.16||22.09|
|Free cash flow in millions of dollars||-111.19||-9.31||-8.77||-20.03||-29.38|
|Total cash in millions of dollars||32.21||29:30||62.47||45.91||34.48|
|Long-term debt in millions of dollars||0||0||0||0||0|
|Shares outstanding (diluted) in millions||69.11||74.39||77.67||77.11||78.98|
Source: Press release
Some historical financial data in a graph:
Free cash flow (“ttm”) for the last 12 months is now a loss of $67.49 million and $29.38 million in 4Q21.
Technical analysis (short term) and commentary
SA forms a asnext channel pattern with resistance at $20.50 and support at $18.25.
The strategy here is to sell between $19.75 and $20.50 and wait for a retracement to $18.25 or lower.
However, if the price of gold turns bullish in the next few weeks, SA will likely break through the resistance (breakout) and retest the upper resistance at around $21. Conversely, without new catalysts, SA will likely fall to $17.35.
The price of gold is now above $1,925 an ounce, but with the FED ready to increase considerably interest rates and the Russian invasion of Ukraine entering a calmer phase, we may soon see some retracement. Be careful.
Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The table above has a possible validity of approximately one week. Remember that the TA chart is a tool only to help you adopt the right strategy. This is no way to predict the future. Nobody and nothing can.
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