New Petition Challenges Gold Project's 'Substantially Started' Designation

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Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) announced that a second petition has been filed in the British Columbia Supreme Court seeking review of its KSM Project's "Substantially Started" (SS) designation.

The new petition was filed by SkeenaWild Conservation Trust and the nonprofit organization Southeast Alaska Indigenous Transboundary Commission. It challenges the SS determination on the basis that it was unreasonable.

The petition "makes essentially the same arguments on reasonableness as the previous one" by the indigenous group Tsetsaut Skii km Lax Ha (TSKLH), Seabridge noted in a release.

In addition to the unreasonable claim, the new groups are seeking an order that the SS determination be rescinded and remitted to the provincial government for reconsideration.

"The new petitioners are challenging the SS Determination as public interest advocates rather than as private litigants who claim rights or property interests in the KSM Project area," the company said. "Both groups have a history of vocal opposition to all mining projects within their regions. All three of the petitioners made submissions to the Minister opposing the company’s application for the SS Determination, making similar arguments as they are making in their petitions. This is the third legal proceeding brought by SEITC against the KSM Project; the two previous proceedings were brought challenging KSM's 2014 EAC."

Seabridge said that in the hearing on both petitions, the petitioners have to establish that the minister's decision to grant SS status was "unreasonable, not simply incorrect," Seabridge said. "The legislation leaves the Minister with a lot of discretion in making a 'substantially started' determination, making the threshold of 'unreasonable' even harder to meet."

During the application process for the designation, Seabridge said it submitted letters from "representatives of the three largest indigenous peoples in the area of the KSM project, the Nisga'a Lisims government, the Tahltan central government and the Gitxsan hereditary chiefs office, as well as the village of Hazelton, the district of New Hazelton, the town of Smithers, the district of Stewart, the city of Terrace, (and) the regional district of Kitimat-Stikine, all expressing strong support for a positive SS determination for the KSM project."

Analyst Michael Siperco of RBC Capital Markets, in an updated research note on November 25 after the first petition was filed, wrote that the "challenge of KSM's 'substantially started' status is not, in our view, a significant risk to the project or the designation. 

"It is clear that the new petitioners do not represent the interests of northwest British Columbia or Canada," Seabridge Chairman and Chief Executive Officer Rudi Fronk said. "We have had a week to consider the previous petition. We are very confident there is ample evidence that the determination was reasonable and appropriate. Since our subsidiary is included as a respondent to the new petition, we are a party to the proceedings and will aggressively defend against both petitions."

The SS determination is unaffected by the newest petition and will remain in place if the determination is successfully defended, the company said. The new petition will be combined with the previous one and heard together in court.

"Even if the new petitioners are successful, the order being sought is to require the minister to return to the 'substantially started' determination process and reconsider the reasons for the SS Determination, and then issue a fresh determination," Seabridge noted.

Analyst: First Challenge 'Not a Significant Risk'

Analyst Michael Siperco of RBC Capital Markets, in an updated research note on November 25 after the first petition was filed, wrote that the "challenge of KSM's 'substantially started' status is not, in our view, a significant risk to the project or the designation. Until resolved, however, it could impact the timing of a potential partnership agreement for the development of the +$6bn gold/copper project in B.C."

A major milestone for the company, Seabridge announced this summer that it had received the "Substantially Started" designation from the British Columbia government for its massive KSM project, a project newsletter author Jay Taylor of J Taylor's Gold, Energy & Tech Stocks has called "the largest undeveloped gold and copper project in the world!"

The company has worked toward fulfilling the requirements needed to earn the designation since acquiring the project in 2001 and spent more than CA$1 billion advancing KSM, including CA$800 million after its Environmental Assessment Certificate (EAC) was issued in 2014.

"We have a high degree of confidence that Seabridge and KSM have satisfied the  requirements for the substantially started designation, and that even if this dispute between the province and this particular indigenous group results in a restart of that process, KSM should again receive the designation on the same basis, with the support of the three largest indigenous groups affected by the project (The Nisg a'a Lisims government, the Tahltan Central Government, and the Gitxsan Hereditary Chiefs)," Siperco wrote while rating the stock Outperform, Speculative Risk with a US$30 per share price target.

"In our view, the key catalyst for the company remains finding a partner for the development of KSM," the analyst continued.

The Catalyst: Gold Settles, Still in Bull Market

According to Reuters, gold trimmed its gains on Tuesday after a strong U.S. jobs report, while a softer dollar and easing Treasury yields limited losses as markets waited for more economic data to gauge the Federal Reserve's rate path.

Spot gold was US$2,641.53 per ounce Tuesday morning. Prices were up as much as 0.7% before the U.S. job openings data, Reuters said. U.S. gold futures gained 0.2% to US$2,664.40.

"A strong jobs report could lead the Fed to take a cautious stance on cutting interest rates," author Sherin Elizabeth Varghese wrote. "Investors' focus turns to the ADP employment report and Fed Chair Jerome Powell's speech on Wednesday, ahead of Friday's payrolls report."

Most experts agree gold's bull market won't go anywhere soon. Ian Salisbury wrote for Barron's that "most of the arguments gold bulls make — and have been making throughout 2024 — look stronger after Trump's win."

Ownership and Share Structure

Reuters provided a breakdown of the company's ownership and share structure, where management and insiders own approximately 3% of the company. According to Reuters, CEO and Chairman Rudi P. Fronk owns 1.38%.

Reuters reports that institutions own about 50% of the company. According to Reuters, Friedberg Mercantile Group Ltd. owns 12.86%, National Bank of Canada owns 4.92%, Van Eck Associates Corp. owns 4.11%, Kopernik Global Investors, L.L.C. owns 3.35%, and Paulson & Co. Inc. owns 2.28%.

According to Reuters, there are 90.98 million shares outstanding, while the company has a market cap of CA$1.79 billion and trades in a 52-week range of CA$12.62 and CA$28.39.