Seabridge Gold Inc.'s (SEA:TSX; SA:NYSE.MKT) recent financing that raised $100 million ($100M) led B Riley Securities to revise its model and lower its target price on the explorer-developer, reported Analyst Nick Giles in a Feb. 27 research note.
"We believe the financing validates KSM's potential and ensures continued momentum as the company works to secure a joint venture partner," Giles wrote. "Seabridge is advancing discussions with three potential partners."
348% Return Potential
B Riley decreased its target price on Seabridge to $50 per share, down from $60, due to the "higher share count and modestly higher capex assumptions," Giles explained. The biggest possible catalyst to the company's stock, he purported, is the announcement of a partnership agreement.
Currently, Seabridge is trading at about $11.15 per share, toward the lower end of its 52-week range, $10.68–$20.55 per share.
The new price target implies a potential return for investors of 348%. Seabridge is a Buy.
The Canadian explorer has 98.5 million (98.5M) shares outstanding and about a $1 billion ($1B) market cap.
About the Financing, Funds
Seabridge's recent $100M financing, which closed on Feb. 19, consisted of two components, noted Giles. One was a bought deal offering of 6.5M shares at $12.25 per share with an option for underwriters to purchase an additional 15%. This raised $80M.
The other part was a private placement by an unnamed strategic investor, who purchased 1.64M shares at the same price, which totaled $20M.
Seabridge will use the bulk of the proceeds on critical work at its KSM project. This will include completion of the switching station by BC Hydro and data collection in support of a bankable feasibility study. Some of the funds will go to general corporate purposes.
NPV Twice the 2022 Figure
Giles discussed KSM's size and potential economics. Calling it a "giant among giants," the analyst highlighted that KSM is the world's largest undeveloped gold project in terms of resources. Its Proven and Probable reserves are 47,300,000 ounces (47.3 Moz) of gold, 160 Moz of silver and 7,300,000,000 pounds of copper.
"We believe there are very few comparable developments today, especially with all three metals combined in one location," Giles wrote.
The analyst reiterated KSM's economics as outlined in the 2022 prefeasibility study (PFS), which for the base case, used a gold price of $1,742 per ounce ($1,742/oz) a copper price of $3.53 per pound and capital costs of $6.4B. In the PFS, KSM's after-tax net present value (NPV) discounted at 5% was US$7.9B.
However, B Riley estimates an after-tax NPV, more than double the PFS amount, of $16.8B. This is using spot prices near $2,900/oz for gold and $4.50/lb for copper.
"Overall, while the project size has limited the pool of potential partners, we believe the economies of scale and tier 1 jurisdiction make for very attractive net economics and should ultimately translate to a joint venture partner," wrote Giles.
Opinion on Recent Petitions
Lastly, Giles mentioned recent objections to KSM's substantially started designation that the British Columbia (B.C.) government had granted. The status ensures validity of KSM's environmental assessment certificate for the life of the project.
Two entities filed petitions in which they claimed the government's decision was "unreasonable" and asked for a land claim and an impact agreement with Seabridge, reported Giles. The B.C. premier and the mining head will address these petitions. Resolution is expected by year-end.
"Overall, we see little risk to the designation status," Giles wrote.
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