Gold Co. Closes US$150M Note With Sprott Streaming

Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) announced it has restructured and closed on the sale of a US$150 million secured note to Sprott Resource Streaming and Royalty Corp.

The money will be used to complete work at the company's flagship KSM project in British Columbia to meet the criteria for "substantially started" status to get its environmental assessment certificate (EAC) there extended indefinitely.

Seabridge Chairman and Chief Executive Officer Rudi Fronk said the transaction will "enhance the KSM proposition in our ongoing joint venture discussions by securing the EAC, further de-risking the project, and accelerating the construction timetable."

When the note matures, Sprott Streaming will use the principal amount repaid to purchase a 1% net smelter royalty (NSR) on all metals produced at the project, the company said.

"KSM's estimated low operating costs mean that the royalty is expected to have a minimal impact on the project's projected financial returns," said Fronk. "Furthermore, this funding does not require share dilution and therefore furthers our long-standing strategy of providing the industry's best leverage to gold as measured by ounces of gold reserves and resources per share."

"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," David Talbot and Taylor Combaluzier wrote.

In May, the company had originally announced the deal as secured through a 1.2% NSR with Sprott Streaming.

"For commercial reasons beneficial to Seabridge, the transaction structure previously announced . . . has been restructured as a sale to Sprott Streaming of a secured note . . .  and a contingent right by Seabridge," the company said in a release. "The Note is designed to be repaid at maturity by a net smelter royalty."

The same structure was used last year to raise US$225 million from Sprott Streaming and the Ontario Teachers' Pension Plan, Seabridge said.

"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," analysts David Talbot and Taylor Combaluzier wrote in a research note for Red Cloud Securities after the original announcement.

The analysts rated the stock a Buy with a target price of CA$45.25 per share.

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.

The Catalyst: 'One of the Most Attractive' Acquisition Targets in the World

Analyst Lucas N. Pipes of B. Riley Securities noted in an April 20 research update that KSM is the world's largest undeveloped gold project by reserves and resources.

Pipes said the company has "a clear vision for a potential partnership agreement" and maintained his Buy rating on the stock with a target price of CA$60 per share.

"The market is currently short on development projects, and market interest/M&A is heating up," Pipes wrote. "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."

Analyst Lucas Pipes said the company has "a clear vision for a potential partnership agreement" and maintained his Buy rating on the stock with a target price of CA$60 per share.

The company said it had engaged a leading mining industry bank to assist in joint venture discussions with larger companies.

Proven and probable reserves at KSM's initial mine total 47.3 million ounces gold (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. 

Jim Rickards, editor of the Strategic Intelligence Newsletter, has called KSM "one of the most attractive gold-copper acquisition targets in the world."

Terms of the Deal

The note matures when commercial production is achieved at KSM or on March 24, 2032, whichever occurs first. Before that, it bears interest at 6.5% annually, payable quarterly in either cash or company common shares.

Seabridge can pay the interest deferral amount by paying Sprott Streaming US$21.5 million in cash or common shares, or it can increase the size of the NSR to be sold to Sprott Streaming on the maturity date from 1% to 1.2%.

Jim Rickards, editor of the Strategic Intelligence Newsletter, has called KSM "one of the most attractive gold-copper acquisition targets in the world."

The quarterly interest payments requirement expires either when KSM reaches commercial production or March 24, 2032, whichever comes first.

If commercial production isn't achieved by that date, the size of the NSR sold to Sprott Streaming will increase to 1.25% if Seabridge pays the interest deferral amount or to 1.5% if it elects the royalty increase. 

The company can purchase the NSR down to 0.5% (or to 0.625% if the production delay increase occurred) on or before three years after commercial production has been reached.

Sprott Streaming can put the note back to Seabridge for its initial investment plus a premium if project financing to reach commercial production is not in place by March 24, 2027, or if KSM's EAC expires.

Seabridge cannot pay in common shares if Sprott Streaming and its affiliates would own more than 9.9% of the company's outstanding shares.

The note is also expected to be an obligation for any future joint venture formed to develop KSM, Seabridge noted.

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$1.28 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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1. Seabridge Gold Inc. is a billboard sponsor of Streetwise Reports and has paid SWR a sponsorship fee between US$3,000 and US$5,000.
2. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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