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Form 6-K SEABRIDGE GOLD INC For: May 17

May 17, 2022 4:17 PM EDT

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

F O R M 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of
May 2022

 

Commission File Number 1-32135

 

SEABRIDGE GOLD INC.

(Name of Registrant)

 

106 Front Street East, Suite 400, Toronto, Ontario, Canada M5A 1E1

(Address of Principal Executive Office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F ☐          Form 40-F ☒

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes ☐ No ☒

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _____________

  

 

 

 

 

 

SEABRIDGE GOLD INC.

(the “Company”)

 

See the Exhibit Index hereto for a list of the documents filed herewith and forming a part of this Form 6-K.

 

Exhibits 99.1 and 99.2 hereto are incorporated by reference (as exhibits) to the Company’s registration statements on Form S-8 (File No. 333-211331) and Form F-10 (File No. 333-251081), as may be amended and supplemented.

 

1

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Seabridge Gold Inc.
  (Registrant)
   
  By: /s/ Chris Reynolds
  Name:  Chris Reynolds
  Title: VP Finance and CFO  

 

Date: May 17, 2022

 

2

 

 

EXHIBIT INDEX

 

Exhibit
Number
  Document Description
99.1   Unaudited Interim Condensed Consolidated Financial Statements for the Three Months ended March 31, 2022.
99.2   Management’s Discussion and Analysis for the Three Months ended March 31, 2022.

 

3

Exhibit 99.1

 

SEABRIDGE GOLD INC.

 

 

 

 

 

 

 

UNAUDITED CONDENSED CONSOLIDATED INTERIM

FINANCIAL STATEMENTS

 

AS AT MARCH 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 1

 

 

SEABRIDGE GOLD INC.

Consolidated Statements of Financial Position

(Expressed in thousands of Canadian dollars)

(Unaudited)

 

 

      March 31,   December 31, 
  Note   2022   2021 
Assets            
Current assets            
Cash and cash equivalents       $295,824   $11,523 
Short-term deposits        -    29,243 
Amounts receivable and prepaid expenses   5    9,016    10,026 
Investment in marketable securities   6    3,541    3,367 
         308,381    54,159 
Non-current assets               
Investment in associate   6    2,404    2,429 
Convertible notes receivable   7    592    606 
Long-term receivables and other assets   8    29,436    13,038 
Mineral interests, property and equipment   9    674,253    662,279 
Reclamation deposits   11    19,531    15,231 
         726,216    693,583 
Total assets       $1,034,597   $747,742 
                
Liabilities and shareholders’ equity               
Current liabilities               
Accounts payable and accrued liabilities   10   $9,168   $12,165 
Flow-through share premium   13    1,267    1,366 
Lease obligations        76    90 
Provision for reclamation liabilities   11    3,680    3,680 
         14,191    17,301 
Non-current liabilities               
Secured Note   12    281,160    - 
Deferred income tax liabilities   17    21,717    23,164 
Lease obligations        175    182 
Provision for reclamation liabilities   11    4,398    4,762 
         307,450    28,108 
Total liabilities        321,641    45,409 
                
Shareholders’ equity   13    712,956    702,333 
Total liabilities and shareholders’ equity       $1,034,597   $747,742 

 

Subsequent events (Notes 11, 13 and 18), commitments and contingencies (Note 18)

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

Page 2

 

 

SEABRIDGE GOLD INC.

Consolidated Statements of Operations and Comprehensive Loss

(Expressed in thousands of Canadian dollars except common share and per common share amounts)

(Unaudited)

 

 

      Three months ended
March 31,
 
   Note   2022   2021 
             
Corporate and administrative expenses   15   $(4,601)  $(4,757)
Other income - flow-through shares   13    99    146 
Environmental rehabilitation recovery (expense)   11    67    (17)
Equity loss of associate   6    (44)   (78)
Unrealized gain on convertible notes receivable   7    (6)   129 
Interest income        46    24 
Finance expense and other expense   12    (3,241)   (98)
Loss before income taxes        (7,680)   (4,651)
Income tax recovery   17    1,399    366 
Loss for the period       $(6,281)  $(4,285)
                
Other comprehensive income (loss)               
Items that will not be reclassified to net income or loss               
Change in fair value of marketable securities, net of income taxes (a)   6   $150   $(554)
Comprehensive loss for the period       $(6,131)  $(4,839)
                
Basic and diluted net loss per common share   13   $(0.08)  $(0.06)
                
Basic and diluted weighted average number of common shares outstanding   13    79,245,796    74,385,683 

 

a)Net of tax expense of $0.02 million (2021 - tax recovery of $0.08 million)

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

Page 3

 

 

SEABRIDGE GOLD INC.

Consolidated Statements of Changes in Shareholders’ Equity

(Expressed in thousands of Canadian dollars except number of shares)

(Unaudited)

 

 

   Number of
Shares
   Share
Capital
   Warrants   Stock-based
Compensation
   Contributed
Surplus
   Deficit   Accumulated Other
Comprehensive
Income (Loss)
   Total
Equity
 
                                 
As at December 31, 2021   78,975,349   $809,269    -   $8,697   $36,126   $(149,983)  $(1,776)  $702,333 
Share issuance - At-The-Market offering   588,169    13,044    -    -    -    -    -    13,044 
Share issuance - options exercised   117,500    2,503    -    (884)   -    -    -    1,619 
Share issuance – RSUs vested   800    17    -    (17)   -    -    -    - 
Share issuance costs   -    (275)   -    -    -    -    -    (275)
Deferred tax on share issuance costs   -    73    -    -    -    -    -    73 
Stock-based compensation   -    -    -    2,293    -    -    -    2,293 
Other comprehensive income   -    -    -    -    -    -    150    150 
Net loss for the period   -    -    -    -    -    (6,281)   -    (6,281)
As at March 31, 2022   79,681,818   $824,631    -   $10,089   $36,126   $(156,264)  $(1,626)  $712,956 
As at December 31, 2020   74,162,286   $704,599   $3,275   $23,011   $36,089   $(150,878)  $(1,378)  $614,718 
Share issuance - At-The-Market offering   290,710    6,912    -    -    -    -    -    6,912 
Share issuance - options exercised   356,268    7,612    -    (3,670)   -    -    -    3,942 
Share issuance costs   -    (498)   -    -    -    -    -    (498)
Deferred tax on share issuance costs   -    132    -    -    -    -    -    132 
Stock-based compensation   -    -    -    2,926    -    -    -    2,926 
Expired options   -    -    -    (37)   37    -    -    - 
Other comprehensive loss   -    -    -    -    -    -    (554)   (554)
Net loss for the period   -    -    -    -    -    (4,285)   -    (4,285)
As at March 31, 2021   74,809,264   $718,757   $3,275   $22,230   $36,126   $(155,163)  $(1,932)  $623,293 

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

Page 4

 

 

SEABRIDGE GOLD INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian dollars)

(Unaudited)

 

 

   Three months ended
March 31,
 
   2022   2021 
         
Operating Activities        
Net loss  $(6,281)  $(4,285)
Adjustment for non-cash items:          
Stock-based compensation   2,293    2,926 
Environmental rehabilitation expense   (67)   17 
Other income - flow-through shares   (99)   (146)
Unrealized gain on convertible notes receivable   14    (95)
Income tax recovery   (1,399)   (366)
Equity loss of associate   44    78 
Finance costs   72    104 
Depreciation charge on right-of-use assets   22    21 
Adjustment for cash items:          
Environmental rehabilitation disbursements   (313)   (71)
Changes in working capital items:          
Amounts receivable and prepaid expenses   1,010    (1,587)
Accounts payable and accrued liabilities   (4,915)   (650)
Net cash used in operating activities   (9,619)   (4,054)
           
Investing Activities          
Mineral interests, property and equipment   (10,091)   (7,548)
Redemption of short-term deposits   29,260    - 
Investment in security deposits   (4,300)   (4)
Investment in short-term deposits   (17)   (11)
Investment in associate   (19)   (20)
Long-term receivables   (16,398)   (2,439)
Net cash from (used in) investing activities   (1,565)   (10,022)
           
Financing Activities          
Secured Note   281,160    - 
Share issuance net of costs   12,769    6,415 
Exercise of options   1,619    3,942 
Payment of lease liabilities   (7)   (19)
Net cash from financing activities   295,541    10,338 
Effects of exchange rate fluctuation on cash and cash equivalents   (56)   (66)
Net increase (decrease) in cash and cash equivalents   284,301    (3,804)
Cash and cash equivalents, beginning of the period   11,523    17,528 
Cash and cash equivalents, end of the period  $295,824   $13,724 

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

Page 5

 

 

SEABRIDGE GOLD INC.

Notes to the condensed consolidated interim financial statements

As at and for the three months ended March 31, 2022 and 2021

(Amounts in notes and in tables are in millions of Canadian dollars, except where otherwise indicated) (Unaudited)

 

1.Reporting entity

 

Seabridge Gold Inc. is comprised of Seabridge Gold Inc. (“Seabridge” or the “Company”) and its subsidiaries, KSM Mining ULC, Seabridge Gold (NWT) Inc., Seabridge Gold (Yukon) Inc., Seabridge Gold Corp., SnipGold Corp. and Snowstorm Exploration (LLC), and is a company engaged in the acquisition and exploration of gold properties located in North America. The Company was incorporated under the laws of British Columbia, Canada on September 4, 1979 and continued under the laws of Canada on October 31, 2002. Its common shares are listed on the Toronto Stock Exchange trading under the symbol “SEA” and on the New York Stock Exchange under the symbol “SA”. The Company is domiciled in Canada, the address of its registered office is 10th Floor, 595 Howe Street, Vancouver, British Columbia, Canada V6C 2T5 and the address of its corporate office is 106 Front Street East, 4th Floor, Toronto, Ontario, Canada M5A 1E1.

  

2.Basis of accounting

 

These unaudited condensed consolidated interim financial statements (“consolidated interim financial statements”) were prepared in accordance with IAS 34, Interim Financial Reporting, using accounting policies consistent with those used by the Company in preparing the annual consolidated financial statements as at and for the year ended December 31, 2021 and should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year ended December 31, 2021. They do not include all of the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual financial statements. These interim financial statements were authorized for issue by the Company’s board of directors on May 16, 2022.

 

3.Significant accounting judgments, estimates and assumptions

 

The preparation of consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities as at the date of the consolidated interim financial statements and reported amounts of expenses during the three months ended March 31, 2022 and 2021. Estimates and assumptions used in the preparation of these consolidated interim financial statements are consistent with those used by the Company in preparing the annual consolidated financial statements as at and for the year ended December 31, 2021 (except for those related to valuation of secured note described below in Note 4). Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events which are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

 

Page 6

 

 

4.Significant accounting policies

 

Except as described below, the accounting policies applied in these interim financial statements are the same as the those applied in the Company’s consolidated financial statements as at and for the year ended December 31, 2021. Changes in accounting policies will also be reflected in the Company’s consolidated financial statements as at and for the year ending December 31, 2022.

 

Financial instruments

 

All financial liabilities (including liabilities designated at fair value through profit and loss “FVTPL”) are recognized initially at fair value on the date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.

 

Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss.

 

The Company has elected to account for its secured note liability and all embedded derivatives as a single financial liability at fair value through profit or loss.

 

Significant estimates

 

The Company measures the fair value of its secured note liability using a Monte Carlo simulation model. Significant inputs and assumptions into this model include forecasted silver prices and forecasted interest rates, and probabilities of Environmental Assessment Certificate (“EAC”) expiry, achieving commercial production and securing project financing. Changes to these inputs and assumptions could have a significant impact on the measurement of the secured note liability. Refer to Note 12 for further information.

 

Capitalization of borrowing costs

 

Borrowing costs are capitalized and allocated specifically to qualifying assets when funds have been borrowed, either to specifically finance a project or for general borrowings during the period of construction. Qualifying assets are defined as assets that require more than six months to be brought to the location and condition intended by management. Capitalization of borrowing costs ceases when such assets are ready for their intended use.

 

5.Amounts receivable and prepaid expenses

 

($000s)   March 31,
2022
    December 31,
2021
 
HST   1,320    1,698 
Trade and other receivables due from related parties   19    281 
Prepaid expenses and other receivables   7,677    8,047 
    9,016    10,026 

 

Page 7

 

 

6.Investments

 

($000s)   January 1,
2022
    Fair value
through other
comprehensive
income (loss)
    Loss of
associates
    Additions    

 

March 31,
2022

 
                          
Current assets:                         
Investments in marketable securities   3,367    174    -    -    3,541 
                          
Non-current assets:                         
Investment in associate   2,429    -    (44)   19(a)   2,404 

 

($000s)   January 1, 2021    Fair value
through other
comprehensive
income (loss)
    Loss of
associates
    Additions    

December 31,
2021

 
                          
Current assets:                         
Investments in marketable securities   3,826    (459)   -    -    3,367 
                          
Non-current assets:                         
Investment in associate   2,611    -    (221)   39(b)   2,429 

 

(a)During the current quarter, the Company received 22,610 common shares of Paramount for payment of interest on the secured convertible notes accrued between July 1, 2021 and December 31, 2021.

 

(b)During the year ended December 31, 2021, the Company received 30,086 common shares of Paramount for payment of interest on the secured convertible notes accrued between July 1, 2020 and June 30, 2021. Refer to note 7 for details on convertible notes receivable.

 

The Company holds common shares of several mining companies that were received as consideration for optioned mineral properties and other short-term investments, including one gold exchange traded receipt. These financial assets are recorded at fair value of $3.5 million (December 31, 2021 - $3.4 million) in the consolidated statements of financial position. At March 31, 2022, the Company revalued its holdings in its investments and recorded a fair value increase of $0.2 million on the statement of operations and comprehensive loss.

 

Investment in associate relates to Paramount Gold Nevada Corp (“Paramount”). As at March 31, 2022, the Company holds a 5.62% (December 31, 2021 – 6.4%) interest in Paramount for which it accounts using the equity method on the basis that the Company has the ability to exert significant influence through its representation on Paramount’s board of directors. During the current quarter, the Company recorded its proportionate share of Paramount’s net loss of $0.04 million (March 31, 2021 – $0.08 million) within equity loss of associate on the consolidated statements of operations and comprehensive loss. As at March 31, 2022, the carrying value of the Company’s investment in Paramount was $2.4 million (December 31, 2021 - $2.4 million).

 

Page 8

 

 

7.Convertible notes receivable

 

In September 2019, the Company participated in a private placement to purchase US$410,000, at face value, of secured convertible notes issued by Paramount. Each convertible note had an issue price of US$975 per US$1,000 face value with a four-year maturity. The Company purchased 410 convertible notes for a total of $0.5 million (US$399,750). The convertible notes bear interest at a rate of 7.5% per annum, payable semi-annually. At any time after the issuance of the convertible notes, the Company can convert all or any portion of the outstanding amount into common shares of Paramount at a price of US$1.00 per common share. The convertible notes receivable are recorded at fair value through profit or loss.

 

As at March 31, 2022 the fair value of the convertible notes receivable was $0.6 million (December 31, 2021 - $0.6 million). The fair value was determined using the binomial option pricing model using the following assumptions: risk-free rate of 2.17%, 1.5 years expected remaining life of the convertible note, volatility of 48% based on Paramount stock price volatility, forfeiture rate of nil, and dividend yield of nil.

 

8.Long-term receivables and other assets

 

($000s)   March 31,
2022
    December 31,
2021
 
BC Hydro 1   16,398    - 
Canadian Exploration Expenses (Note 17)   9,172    9,172 
British Columbia Mineral Exploration Tax Credit 2   3,866    3,866 
    29,436    13,038 

 

1)During the current quarter, the Company paid $16.5 million to British Columbia Hydro and Power Authority (“BC Hydro”). The advance payment was made pursuant to the Company signing a facilities agreement with BC Hydro covering the design and construction of facilities to supply construction phase hydro-sourced electricity to the KSM project.
  
2)During 2016, upon the completion of an audit of the application by tax authorities of the British Columbia Mineral Exploration Tax Credit (“BCMETC”) program, the Company was reassessed $3.6 million, including accrued interest, for expenditures that the tax authority has categorized as not qualifying for the BCMETC program. The Company recorded a $3.6 million provision within non-trade payables and accrued expenses on the consolidated statements of financial position as at December 31, 2016 with a corresponding increase in mineral interests. In 2017 the Company filed an objection to the reassessment with the appeals division of the tax authorities and paid one-half of the accrued balance to the Receiver General and reduced the provision by $1.8 million. In 2019, the Company received a decision from the appeals division that the Company’s objection was denied, and the Company filed a Notice of Appeal with the British Columbia Supreme Court. The Attorney General of Canada replied to the facts and arguments in the Company’s Notice of Appeal and stated its position that the Company’s expenditures did not qualify for the BCMETC program. During the current quarter, the Company completed discoveries with the Department of Justice and will continue to move the appeal process forward as expeditiously as possible. The Company intends to continue to fully defend its position. As at March 31, 2022, the Company has paid $1.6 million to the Receiver General, and the Canada Revenue Agency (CRA) has withheld $2.3 million of HST credits due to the Company that would fully cover the residual balance, including interest, should the Company be unsuccessful in its challenge. In 2021, based on further study of the facts and circumstances of the Company’s objection, the Company concluded that it was more likely than not that it will be successful in its objection and reclassified the $3.9 million as long-term receivables on the consolidated statements of financial position.

 

Page 9

 

 

9.Mineral interests, property and equipment

 

($000s)   Mineral
interests
    Construction
in progress
    Property &
equipment
    Right-of-use
assets
    Total 
Cost                         
As at January 1, 2021   591,446    -    -    307    591,753 
Additions   40,559    27,061    3,080    100    70,800 
As at December 31, 2021   632,005    27,061    3,080    407    662,553 
Additions   5,004    7,050    -    -    12,054 
As at March 31, 2022   637,009    34,111    3,080    407    674,607 
Accumulated Depreciation                         
As at January 1, 2021   -    -    -    72    72 
Depreciation expense   -    -    117    85    202 
As at December 31, 2021   -    -    117    157    274 
Depreciation expense 1   -    -    58    22    80 
As at March 31, 2022   -    -    175    179    354 
Net Book Value                         
As at December 31, 2021   632,005    27,061    2,963    250    662,279 
As at March 31, 2022   637,009    34,111    2,905    228    674,253 

 

1)Depreciation expense related to equipment is capitalized to construction in progress.

 

Mineral interests expenditures on projects are considered as exploration and evaluation and their related costs consist of the following:

 

($000s)   

Balance
January 1,
2022

    Expenditures
2022
    

Balance
March 31,
2022

 
KSM   471,774    2,952    474,726 
Courageous Lake   77,176    71    77,247 
Iskut   41,779    299    42,078 
Snowstorm   31,471    1,447    32,918 
3 Aces   9,034    235    9,269 
Grassy Mountain   771    -    771 
    632,005    5,004    637,009 

 

($000s)   

Balance
January 1,
2021

    Expenditures
2021
    

Balance
December 31,
2021

 
KSM   444,167    27,607    471,774 
Courageous Lake   76,522    654    77,176 
Iskut   37,949    3,830    41,779 
Snowstorm   24,924    6,547    31,471 
3 Aces   7,113    1,921    9,034 
Grassy Mountain   771    -    771 
    591,446    40,559    632,005 

 

Continued exploration of the Company’s mineral properties is subject to certain lease payments, project holding costs, rental fees and filing fees.

 

Page 10

 

 

a)KSM (Kerr-Sulphurets-Mitchell)

 

In 2001, the Company purchased a 100% interest in contiguous claim blocks in the Skeena Mining Division, British Columbia. The vendor maintains a 1% net smelter royalty interest on the project, subject to maximum aggregate royalty payments of $4.5 million. The Company is obligated to purchase the net smelter royalty interest for the price of $4.5 million in the event that a positive feasibility study demonstrates a 10% or higher internal rate of return after tax and financing costs.

 

In 2011 and 2012, the Company completed agreements granting a third party an option to acquire a 2% net smelter royalty on all gold and silver production sales from KSM for a payment equal to the lesser of $160 million or US$200 million. The option is exercisable for a period of 60 days following the announcement of receipt of all material approvals and permits, full project financing and certain other conditions for the KSM Project.

 

In December 2020, the Company purchased the Snowfield (renamed East Mitchell) property from Pretium Resources Inc. The East Mitchell property, located in the same valley that hosts KSM’s Mitchell deposit, was purchased for US$100 million ($127.5 million) in cash, a 1.5% net smelter royalty on East Mitchell property production, and a conditional payment of US$20 million, payable following the earlier of (i) commencement of commercial production from East Mitchell property, and (ii) announcement by the Company of a bankable feasibility study which includes production of reserves from the East Mitchell property. US$15 million of the conditional payment can be credited against future royalty payments.

 

b)Courageous Lake

 

In 2002, the Company purchased a 100% interest in the Courageous Lake gold project from Newmont Canada Limited and Total Resources (Canada) Limited. The Courageous Lake gold project consists of mining leases located in Northwest Territories of Canada.

 

c)Iskut

 

On June 21, 2016, the Company purchased 100% of the common shares of SnipGold Corp. which owns the Iskut Project, located in northwestern British Columbia.

 

d)Snowstorm

 

In 2017, the Company purchased 100% of the common shares of Snowstorm Exploration LLC which owns the Snowstorm Project, located in northern Nevada. In connection with the acquisition, the Company has agreed to make a conditional cash payment of US$2.5 million if exploration activities at the Snowstorm Project result in defining a minimum of five million ounces of gold resources compliant with National Instrument 43-101 and a further cash payment of US$5.0 million on the delineation of an additional five million ounces of gold resources.

 

Page 11

 

 

e)3 Aces

 

In 2020, the Company acquired a 100% interest in the 3 Aces gold project in the Yukon, Canada from Golden Predator Mining Corp. through the issuance of 300,000 common shares valued at $6.6 million. Should the project attain certain milestones, including the confirmation of a National Instrument 43-101 compliant mineral resource of 2.5 million ounces of gold, the Company will pay an additional $1 million, and upon confirmation of an aggregate mineral resource of 5 million ounces of gold, the Company will potentially pay an additional $1.25 million.

 

f)Grassy Mountain

 

In 2013, the Company sold 100% of its interest in the Grassy Mountain Project with a net book value of $0.8 million retained within mineral properties, related to the option to either receive, at the discretion of the Company, a 10% net profits interest royalty or a $10 million cash payment. Settlement is due four months after the later of: the day that the Company receives a feasibility study on the project; and the day that the Company is notified that permitting and bonding for the mine is in place. The current owner of the Grassy Mountain Project is Paramount who completed a feasibility study in 2020 but they have not notified the Company that permitting and bonding for the mine is in place.

 

10.Accounts payable and accrued liabilities

 

($000s)   March 31,
2022
    December 31,
2021
 
Trade payables   6,031    10,190 
Trade and other payables due to related parties   40    136 
Non-trade payables and accrued expenses   3,097    1,839 
    9,168    12,165 

 

11.Provision for reclamation liabilities

 

($000s)   March 31,
2022
    December 31,
2021
 
Beginning of the period   8,442    6,164 
Disbursements   (313)   (3,320)
Environmental rehabilitation (recovery) expense   (67)   5,515 
Accretion   16    83 
End of the period   8,078    8,442 
           
Provision for reclamation liabilities - current   3,680    3,680 
Provision for reclamation liabilities - long-term   4,398    4,762 
    8,078    8,442 

 

The estimate of the provision for reclamation obligations, as at March 31, 2022, was calculated using the estimated discounted cash flows of future reclamation costs of $8.1 million (December 31, 2021 - $8.4 million) and the expected timing of cash flow payments required to settle the obligations between 2022 and 2026. As at March 31, 2022, the undiscounted future cash outflows are estimated at $8.4 million (December 31, 2021 - $8.6 million) primarily over the next three years. The discount rate used to calculate the present value of the reclamation obligations was 2.2% at March 31, 2022 (0.9% - December 31, 2021). During the three months ended March 31, 2022, reclamation disbursements amounted to $0.3 million (three months ended March 31, 2021 - $0.1 million).

 

In 2021, the Company updated the closure plan for the Johnny Mountain mine site and charged an additional $5.4 million of rehabilitation expenses to the consolidated statements of operations and comprehensive loss. Expenditures include the estimated costs for the closure of all adits and vent raises, removal of the mill and buildings, treatment of landfills and surface water management as well as ongoing logistics, freight and fuel costs.

 

Page 12

 

 

During the current quarter, the Company placed $4.3 million on deposit as security for the reclamation obligations at KSM. As at March 31, 2022, the Company has placed a total of $19.5 million (December 31, 2021 - $15.2 million) on deposit with financial institutions or with government regulators that are pledged as security against reclamation liabilities. The deposits are recorded on the consolidated statements of financial position as reclamation deposit. As at March 31 2022, the Company had $3.0 million (December 31, 2021, $3.0 million) of uncollateralized surety bond, issued pursuant to arrangements with an insurance company, in support of environmental closure costs obligations related to the KSM project. Subsequent to the quarter end, the Company purchased $2.2 million of uncollateralized surety bond, issued pursuant to arrangements with an insurance company, in support of environmental closure costs obligations related to the KSM project.

 

12.Secured note liability

 

On February 25, 2022, the Company, through its wholly-owned subsidiary, KSM Mining ULC (“KSMCo”) signed a definitive agreement to sell a secured note (“secured note”) that is to be exchanged at maturity for a silver royalty on its 100% owned KSM Project (“KSM”) to institutional investors (“Investors”) for US$225million. The transaction closed on March 24, 2022. The key terms of the secured note include:

 

When the secured note matures, the Investors will use all of the principal amount repaid on maturity to purchase a 60% gross silver royalty (the “Silver Royalty”) maturity occurs upon the first to occur of:

 

a)Commercial production being achieved at KSM; and

 

b)Either the 10-year anniversary, or if the Environmental Assessment Certificate (“EAC”) expires and the Investors do not exercise their right to put the secured note to the Company, the 13-year anniversary of the issue date of the secured note.

 

Prior to its maturity, the secured note bears interest at 6.5% per annum, payable quarterly in arrears. The Company can elect to satisfy interest payments in cash or by delivering common shares.

 

The Company has the option to buyback 50% of the Silver Royalty, once exchanged on or before 3 years after commercial production has been achieved, for an amount that provides the Investors a minimum guaranteed annualized return.

 

If project financing to develop, construct and place KSM into commercial production is not in place by the fifth anniversary from closing, the Investors can put the secured note back to the Company for US$232.5 million, with the Company able to satisfy such amount in cash or by delivering common shares at its option. This right expires once such project financing is in place. If the Investors exercise this put right, the Investors’ right to purchase the Silver Royalty terminates.

 

If KSM’s EAC expires at anytime while the secured note is outstanding, the Investors can put the secured note back to the Company for US$247.5 million at any time over the following nine months, with the Company able to satisfy such amount in cash or by delivering common shares at its option. If the Investors exercise this put right, the Investors’ right to purchase the Silver Royalty terminates.

 

If commercial production is not achieved at KSM prior to the tenth anniversary from closing, the Silver Royalty payable to the Investors will increase to a 75% gross silver royalty (if the EAC expires during the term of the secured note and the corresponding put right is not exercised by the Investors, this uplift will occur at the thirteenth anniversary from closing).

 

No amount payable shall be paid in common shares if, after the payment, any of the Investors would own more than 9.9% of the Company’s outstanding shares.

 

The Company’s obligations under the secured note are secured by a charge over all of the assets of KSMCo and a limited recourse guarantee from the Company secured by a pledge of the shares of KSMCo.

 

A number of the above noted options within the agreement represent embedded derivatives. Management has elected to not separate these embedded derivatives from the underlying host secured note, and instead account for the entire secured note as a financial liability at fair value through profit or loss.

 

The Company entered into a loan commitment within the scope of IFRS 9 ‘Financial Instruments’ on February 25, 2022 related to the secured note, as at that date, the Company and the Investors were committed under pre-specified terms and conditions to complete the transaction. The loan commitment was initially recognized at a fair value of US $225 million. Upon funding of the secured note on March 24, 2025, the loan commitment was settled with no gain or loss recognized.

 

The secured note was recognized at its estimated fair value at initial recognition of $282.3 million (US $225 million) using a Monte Carlo simulation model. This incorporated several scenarios and probabilities of the EAC expiring, achieving commercial production and securing project financing, forecasted silver prices and the pre-tax risk-adjusted nominal discount rate. At March 31, 2022, there was no change in the fair value of the secured note. The fair value of the secured note was estimated using Level 3 inputs and is most sensitive to changes in forecasted silver prices and interest rates.

 

Page 13

 

 

Sensitivity Analysis:

 

For the fair value of the secured note, reasonably possible changes at the reporting date to one of the significant inputs, holding other inputs constant, would have the following effects:

 

Key Inputs  Inter-relationship between  significant
inputs and fair value measurement 
 

Increase
(decrease)
(millions)

 
Key observable inputs  The estimated fair value would increase (decrease) if:    
●     Real long-term silver price (US   $22/oz)  ●     Estimated silver prices were 10% higher  $           16.5 
  ●     Estimated silver prices were 10% lower  $(9.0)
●     Pre-tax risk adjusted nominal
  discount rate (13%)
  ●     Pre-tax risk adjusted nominal discount rate was 1% higher   $(18.3)
  ●     Pre-tax risk adjusted nominal   discount rate was 1% lower  $25.7 
Key unobservable inputs        

●     KSM production profile

  ●      KSM production profile indicated silver ounces contained
         were 10% higher
  $13.7 
   ●      KSM production profile indicated silver ounces contained
         were 10% lower
  $(10.9)

 

The fair value of the secured note has been calculated using a Monte Carlo simulation model.

 

Page 14

 

 

The carrying amount for the secured note is as follows:

 

($000s)   Secured
Note
 
Fair value at inception   282,263 
Add (deduct):     
Change in fair value due to change in the Company’s credit risk, recorded in OCI   - 
Remaining change in fair value, recorded in the statement of operations   - 
Foreign currency translation   (1,103)
Carrying value and fair value on March 31, 2022   281,160 

 

13.Shareholders’ equity

 

The Company is authorized to issue an unlimited number of preferred shares and common shares with no par value. No preferred shares have been issued or were outstanding at March 31, 2022 or December 31, 2021.

 

The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.

 

The properties in which the Company currently has an interest are in the exploration stage, as such the Company is dependent on external financing to fund its activities. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed.

 

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company’s approach to capital management during 2022. The Company considers its capital to be share capital, stock-based compensation, warrants, contributed surplus and deficit. The Company is not subject to externally imposed capital requirements.

 

a)Equity financings

 

In 2019, the Company entered into an agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$40 million in value of common shares of the Company. In 2020, the Company issued 1,327,046 shares, at an average selling price of $21.94 per share, for net proceeds of $28.5 million under the Company’s At-The-Market offering.

 

Page 15

 

 

During the first quarter of 2021, the Company entered into a new agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$75 million in value of common shares of the Company. This program can be in effect until the Company’s current US$775 million Shelf Registration Statement expires in January 2023. In 2021, the Company issued 2,242,112 shares, at an average selling price of $22.71 per share, for net proceeds of $49.9 million under the Company’s At-The-Market offering. During the current quarter, the Company issued 588,169 shares, at an average selling price of $22.18 per share, for net proceeds of $12.8 million under the Company’s At-The-Market offering. Subsequent to the quarter end, the Company issued 334,216 shares, at an average selling price of $24.86 per share, for net proceeds of $8.1 million under Company’s At-The-Market offering.

 

In June 2021, the Company issued 350,000 flow-through common shares at $28.06 per common share for aggregate gross proceeds of $9.8 million. The Company committed to renounce its ability to deduct qualifying exploration expenditures for the equivalent value of the gross proceeds of the flow-through financing and transfer the deductibility to the purchasers of the flow-through shares. The effective date of the renouncement was December 31, 2021. At the time of issuance of the flow-through shares, $1.5 million premium was recognized as a liability on the consolidated statements of financial position. During 2021, the Company incurred $1.1 million of qualifying exploration expenditures and $0.2 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss. During the current quarter, the Company incurred $0.2 million of qualifying exploration expenditures and $0.04 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss.

 

In June 2020, the Company issued 345,000 flow-through common shares at $32.94 per common share for aggregate gross proceeds of $11.4 million. The Company committed to renounce its ability to deduct qualifying exploration expenditures for the equivalent value of the gross proceeds of the flow-through financing and transfer the deductibility to the purchasers of the flow-through shares. The effective date of the renouncement was December 31, 2020. In accordance with draft legislation released on December 16, 2020 in relation to the COVID-19 pandemic, a 12-month extension was provided to the normal timelines in which the qualifying exploration expenditures should be incurred. At the time of issuance of the flow-through shares, $3.9 million premium was recognized as a liability on the consolidated statements of financial position. During 2020, the Company incurred $4.7 million of qualifying exploration expenditures and $1.6 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss. During 2021, the Company incurred $6.5 million of qualifying exploration expenditures and $2.2 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss. During the current quarter, the Company incurred $0.2 million of qualifying exploration expenditures and the remaining $0.1 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss.

 

Page 16

 

 

b)Stock options and Restricted share units

 

The Company provides compensation to directors and employees in the form of stock options and Restricted Share Units (“RSU”s).

 

Pursuant to the Share Option Plan, the Board of Directors has the authority to grant options, and to establish the exercise price and life of the option at the time each option is granted, at a price not less than the closing price of the common shares on the Toronto Stock Exchange on the date of the grant of such option and for a period not exceeding five years. All exercised options are settled in equity. Pursuant to the Company’s RSU Plan, the Board of Directors has the authority to grant RSUs, and to establish terms of the RSUs including the vesting criteria and the life of the RSU. The life of the RSU is not to exceed two years.

 

Stock options and RSU transactions were as follows:

 

       Options   RSUs   Total 
   Number of
Options
   Weighted
Average
Exercise
Price ($)
   Amortized
Value of
options
($000s)
   Number
of RSUs
   Amortized
Value of
RSUs
($000s)
   Stock-based
Compensation
($000s)
 
Outstanding January 1, 2022   1,023,334    14.61    8,125    163,800    572    8,697 
Granted   -    -    -    -    -    - 
Exercised option or vested RSU   (117,500)   13.78    (884)   (800)   (17)   (901)
Expired   -    -    -    -    -    - 
Amortized value of stock-based compensation   -    -    -    -    2,293    2,293 
Outstanding at March 31, 2022   905,834    14.72    7,241    163,000    2,848    10,089 
                               
Exercisable at March 31, 2022   905,834                          

 

       Options   RSUs   Total 
   Number of
Options
   Weighted
Average
Exercise
Price ($)
   Amortized
Value of
options
($000s)
   Number of
RSUs
   Amortized
Value of
RSUs
($000s)
   Stock-based
Compensation
($000s)
 
Outstanding at January 1, 2021  2,611,691   12.51   22,524   135,450   487   23,011 
Granted   -    -    -    163,800    573    573 
Exercised option or vested RSU   (1,585,501)   11.17    (14,370)   (135,450)   (3,413)   (17,783)
Expired   (2,856)   6.30    (37)   -    -    (37)
Amortized value of stock-based compensation   -    -    8    -    2,925    2,933 
Outstanding at December 31, 2021   1,023,334    14.61    8,125    163,800    572    8,697 
                               
Exercisable at December 31, 2021   1,023,334                          

 

Page 17

 

 

The outstanding share options at March 31, 2022 expire at various dates between December 2022 and June 2024. A summary of options outstanding, their remaining life and exercise prices as at March 31, 2022 is as follows:

 

    Options Outstanding      Options Exercisable 
Exercise    Number   Remaining  Number 
price   outstanding   contractual life  Exercisable 
$13.14    368,334   9 months   368,334 
$16.94    50,000   1 year 7 months   50,000 
$15.46    437,500   1 year 9 months   437,500 
$17.72    50,000   2 years 6 months   50,000 
      905,834       905,834 

 

During the current quarter, 117,500 options were exercised for proceeds of $1.6 million and 117,500 common shares were issued. The weighted average share price at the date of exercise of options exercised during the current quarter was $23.20. Subsequent to the quarter end, 68,507 options were exercised for proceeds of $1.0 million.

 

The Company has, since 2019, refocused the compensation practices away from issuing a combination of stock options and RSUs to only issuing RSUs with shorter terms and service periods.

 

In December 2021, 123,800 RSUs were granted. Of these, 28,000 RSUs were granted to Board members, 75,200 RSUs were granted to members of senior management, and the remaining 20,600 RSUs were granted to other employees of the Company. The fair value of the grants, of $2.6 million, was estimated as at the grant date to be amortized over the expected service period of the grants. The expected service period of approximately four months from the date of the grant was dependent on certain corporate objectives being met. Of the $2.6 million fair value of the grants, $0.4 million was amortized during the fourth quarter 2021, and the remaining $2.2 million was amortized during the current quarter. Subsequent to the quarter end, 123,800 RSUs were vested and were exchanged for common shares of the Company.

 

During the third and fourth quarter of 2021, 40,000 RSUs were granted to three new members of senior management. Half of the RSUs will vest on the first anniversary of employment and the remaining half on the second anniversary. The fair value of the grants, of $0.9 million, was estimated as at the grant date to be amortized over the expected service period of the grants. As at March 31, 2022, $0.2 million of the fair value of the grants was amortized.

 

In December 2020, the Board granted 135,450 RSUs. Of these, 28,000 RSUs were granted to the board members, 80,300 RSUs were granted to members of senior management, and the remaining 27,150 RSUs were granted to other employees of the Company. The fair value of the grants, of $3.4 million, was estimated as at the grant date to be amortized over the expected service period of the grants. The expected service period of approximately four months from the date of the grant was dependent on certain corporate objectives being met. Of the $3.4 million fair value of the grants, $0.5 million was amortized during the fourth quarter 2020, and the remaining $2.9 million was amortized during the first quarter 2021. During the second quarter 2021, 135,450 RSUs were vested and were exchanged for common shares of the Company.

 

c)Basic and diluted net loss per common share

 

Basic and diluted net loss attributable to common shareholders of the Company for the three months ended March 31, 2022 was $6.3 million (three months ended March 31, 2021, - $4.3 million net loss).

 

Page 18

 

 

Earnings per share has been calculated using the weighted average number of common shares and common share equivalents issued and outstanding during the period. Stock options are reflected in diluted earnings per share by application of the treasury method. The following table details the weighted average number of outstanding common shares for the purpose of computing basic and diluted earnings per common share for the following periods:

 

   Three months ended
March 31,
 
   2022   2021 
Weighted average number of common shares outstanding   79,245,796    74,385,683 
Dilutive effect of options 1   -    - 
Dilutive effect of RSUs 1   -    - 
Dilutive effect of warrants1   -    - 
    79,245,796    74,385,638 

 

1)The impact of outstanding potentially dilutive options, RSUs and warrants is excluded from the diluted share calculation for loss per share amounts as they are anti-dilutive. At March 31, 2022, there was a total of 905,834 stock options, 163,000 RSUs and nil warrants outstanding (March 31, 2021 – 2,252,567 stock options, 135,450 RSUs and 500,000 warrants).

 

14.Fair value of financial assets and liabilities

 

The Company’s fair values of financial assets and liabilities were as follows:

 

   March 31,
2022
                     
($000s)   Carrying
Amount
    

Level 1

    

Level 2

    

Level 3

    Total Fair
Value
 
Assets                         
Cash and cash equivalents   295,824    295,824    -    -    295,824 
Amounts receivable and prepaid expenses   4,979    4,979    -    -    4,979 
Investment in marketable securities   3,541    3,541    -    -    3,541 
Convertible notes receivable   592    -    -    592    592 
Long-term receivables   29,436    29,436    -    -    29,436 
    334,372    333,780    -    592    334,372 
Liabilities                         
Accounts payable and accrued liabilities   9,168    9,168    -    -    9,168 
Secured note   281,160    -    -    281,160    281,160 
    290,328    9,168    -    281,160    290,328 

 

   December 31,
2021
                     
($000s)   Carrying
Amount
    

Level 1

    

Level 2

    

Level 3

    Total Fair
Value
 
Assets                         
Cash and cash equivalents   11,523    11,523    -    -    11,523 
Short-term deposits   29,243    29,243    -    -    29,243 
Amounts receivable and prepaid expenses   6,206    6,206    -    -    6,206 
Investment in marketable securities   3,367    3,367    -    -    3,367 
Convertible notes receivable   606    -    -    606    606 
Long-term receivables   13,038    13,038    -    -    13,038 
    63,983    63,377    -    606    63,983 
Liabilities                         
Accounts payable and accrued liabilities   12,165    12,165    -    -    12,165 
    12,165    12,165    -    -    12,165 

 

Page 19

 

 

The Company’s financial risk exposures and the impact on the Company’s financial instruments are summarized below:

 

Credit Risk

 

The Company’s credit risk is primarily attributable to short-term deposits, convertible notes receivable, and receivables included in amounts receivable and prepaid expenses. The Company has no significant concentration of credit risk arising from operations. The short-term deposits consist of Canadian Schedule I bank guaranteed notes, with terms up to one year but are cashable in whole or in part with interest at any time to maturity, for which management believes the risk of loss to be remote. Management believes that the risk of loss with respect to financial instruments included in amounts receivable and prepaid expenses to be remote.

 

Liquidity Risk

 

The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at March 31, 2022, the Company had cash and cash equivalents of $295.8 million and short-term deposits of nil (December 31, 2021 - $11.5 million and $29.2 million, respectively) for settlement of current financial liabilities of $9.2 million (December 31, 2021 - $12.2 million). The Company’s financial liabilities primarily have contractual maturities of 30 days and are subject to normal trade terms. The Company’s ability to fund its operations and capital expenditures and other obligations as they become due is dependent upon market conditions.

 

As the Company does not generate cash inflows from operations, the Company is dependent upon external sources of financing to fund its exploration projects and on-going activities. If required, the Company will seek additional sources of cash to cover its proposed exploration and development programs at its key projects, in the form of equity financings and from the sale of non-core assets. Refer to note 13 for details on equity financings.

 

Market Risk

 

(a) Interest Rate Risk

 

Interest rate risk is the risk that the future cash flows of a financial instrument or its fair value will fluctuate because of changes in market interest rates. The secured note liability (Note 12) bears interest at a fixed rate of 6.5% per annum. The Company’s current policy is to invest excess cash in Canadian bank guaranteed notes (short-term deposits). The short-term deposits can be cashed in at any time and can be reinvested if interest rates rise.

 

(b) Foreign Currency Risk

 

The Company’s functional currency is the Canadian dollar and major purchases are transacted in Canadian and US dollars. The Company funds certain operations, exploration and administrative expenses in the United States on a cash call basis using US dollar cash on hand or converted from its Canadian dollar cash. Management believes the foreign exchange risk derived from currency conversions is not significant to its operations and has not entered into any foreign exchange hedges. As at March 31, 2022, the Company had cash and cash equivalents, investment in associate, convertible notes receivable, reclamation deposits, accounts payable, accrued liabilities and secured note that are in US dollars.

 

(c) Investment Risk

 

The Company has investments in other publicly listed exploration companies which are included in investments. These shares were received as option payments on certain exploration properties the Company owns or has sold. In addition, the Company holds $3.5 million in a gold exchange traded receipt that is recorded on the consolidated statements of financial position in investments. The risk on these investments is significant due to the nature of the investment but the amounts are not significant to the Company.

 

Page 20

 

 

15.Corporate and administrative expenses

 

   Three months ended
March 31,
 
($000s)  2022   2021 
Employee compensation   1,238    968 
Stock-based compensation   2,293    2,926 
Professional fees   259    165 
Other general and administrative   811    698 
    4,601    4,757 

 

16.Related party disclosures

 

During the current quarter, the Company received 22,610 common shares of Paramount for payment of interest on the secured convertible notes accrued between July 1, 2021 and December 31, 2021. There were no other transactions with related parties other than compensation paid to key management personnel.

 

17.Income taxes

 

As reported in the Company’s prior year financial statements, in 2019 the Company received a notice from the CRA that it proposed to reduce the amount of expenditures reported, as Canadian Exploration Expenses (CEE) for the three-year period ended December 31, 2016. The Company has funded certain of its exploration expenditures, from time-to-time, with the proceeds from the issuance of flow-through shares and renounced, to subscribers, the expenditures which it determined to be CEE. The notice disputes the eligibility of certain types of expenditures previously audited and approved as CEE by the CRA. The Company strongly disagrees with the notice and responded to the CRA auditors with additional information for their consideration. In 2020, the CRA auditors responded to the Company’s submission and, although accepting additional expenditures as CEE, reiterated that their position remains largely unchanged and subsequently issued reassessments to the Company reflecting the additional CEE expenditures accepted and $2.3 million of Part Xll.6 tax owing. The Company has been made aware that the CRA has reassessed certain investors who subscribed for flow-through shares in 2013 and will reassess other investors with reduced CEE deductions. The Company’s and investors’ reassessments will be appealed to the courts. The Company has indemnified the investors that subscribed for the flow-through shares. The potential tax indemnification to the investors is estimated to be $11.0 million, plus $2.2 million potential interest. No provision has been recorded related to the tax, potential interest, nor the potential indemnity as the Company and its advisors do not consider it probable that there will ultimately be an amount payable.

 

During the year ended December 31, 2021, the Company deposited $9.2 million into the accounts of certain investors with the Receiver General, in return for their agreement to object to their respective assessments and agreement to repay the Company the full amount deposited on their behalf upon resolution of the Company’s appeal. The deposits made were recorded as long-term receivables on the statement of financial position. No additional payments were made during the current quarter.

 

Page 21

 

 

18.Commitments and contingencies

 

   Payments due by years 
($000s)  Total   2022   2023-24   2025-26   2027-28 
Capital expenditure obligations (1)   74,126    19,906    54,220    -    - 
Mineral interests   7,997    695    2,506    2,620    2,176 
Flow-through share expenditures   8,506    8,506    -    -    - 
Lease obligation   618    108    194    158    158 
    91,247    29,215    56,920    2,778    2,334 

 

1)Subsequent to the quarter end, the Company paid $12.3 million to BC Hydro.

 

During the current period, the Company entered into a Facilities Agreement with British Columbia Hydro and Power Authority (“BC Hydro”) covering the design and construction of facilities by BC Hydro to supply construction phase hydro-sourced electricity to the KSM project.

 

The cost to complete the construction is estimated to be $28.9 million of which the Company paid $6.6 million to BC Hydro during current period, $1.2 million paid subsequent to the quarter end, and $21.1 million is due in 2023. In addition, the Facilities Agreement requires $54.2 million in security or cash from the Company for BC Hydro system reinforcement, which is required to make the power available of which the Company paid $10.0 million to BC Hydro during the current period, $11.2 million paid subsequent to the quarter end, and $33 million is due in 2023. The $54.2 million system reinforcement security will be forgiven annually, typically over a period of less than 8 years, based on project power consumption.

 

 

Page 22

 

 

Exhibit 99.2

 

SEABRIDGE GOLD INC.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

FIRST QUARTER ENDED

MARCH 31, 2022

 

 

 

 

 

 

SEABRIDGE GOLD INC.

 

Management’s Discussion and Analysis

 

This management’s discussion and analysis (“MD&A”) of Seabridge Gold Inc. (“Seabridge” or the “Company”) and its subsidiary companies, dated May 16, 2022, is intended to supplement and complement the unaudited condensed consolidated interim financial statements and related notes ("consolidated interim financial statements") as at and for the three months ended March 31, 2022. It should be read in conjunction with the Company's audited annual consolidated financial statements and annual management’s discussion and analysis for the year ended December 31, 2021, and the 2021 Annual Information Form filed on SEDAR at www.sedar.com. Other corporate documents are also available on SEDAR and EDGAR as well as the Company’s website www.seabridgegold.com. As the Company has no operating projects at this time, its ability to carry out its business plan rests with its ability to sell projects or to secure equity and other financings. All amounts contained in this document are stated in Canadian dollars unless otherwise stated.

 

The consolidated interim financial statements for the three months ended March 31, 2022 and the comparative period 2021 have been prepared by the Company in accordance with IAS 34, Interim Financial Reporting.

 

Company Overview

 

Seabridge Gold Inc. is a company engaged in the acquisition and exploration of mineral properties, with an emphasis on gold resources, located in North America. The Company’s objective is to provide its shareholders with exceptional leverage to a rising gold price and the returns from significant copper resources it has acquired. The Company’s business plan is to increase its mineral resources in the ground, through exploration, but not to go into production on its own. The Company intends to sell projects or participate in joint ventures towards production with major mining companies. Since inception in 1999, Seabridge has acquired interests in numerous advanced-stage gold projects situated in North America and its principal projects include the KSM property located in British Columbia and the Courageous Lake property located in the Northwest Territories. The Company also holds a 100% interest in the Iskut Project in British Columbia and the Snowstorm Project in Nevada. In 2020, the Company purchased its 100% interest in the 3 Aces gold project in Yukon and acquired the East Mitchell property, adjacent to the KSM project, in British Columbia. Although focused on gold exploration, the Company has made significant copper discoveries, in particular, at KSM. Seabridge’s common shares trade in Canada on the Toronto Stock Exchange under the symbol “SEA” and in the United States on the New York Stock Exchange under the symbol “SA”.
 

2

 

 

Results of Operations

 

The Company incurred a $6.3 million net loss for the three months ended March 31, 2022 or $0.08 per share compared to a net loss of $4.3 million or $0.06 per share for the comparative period ended March 31, 2021.

 

Corporate and administrative expenses, including stock-based compensation, and finance expense and other expense were the most significant items contributing to losses in the current quarter ended March 31, 2022. These expenses and other items are discussed further below.

 

Corporate and administrative expenses decreased by $0.2 million, from $4.8 million in the first quarter 2021 to $4.6 million in the current quarter. The decrease was mainly due to lower stock-based compensation, partially offset by higher cash compensation and general and administrative expenses incurred during the current quarter. Cash compensation increased by $0.2 million, from $1.0 million in the first quarter 2021 to $1.2 million in the current quarter. Higher cash compensation in the current quarter was mainly related to an increase in non-project headcount.

 

Finance expense and other expense increased by $3.03 million, from $0.08 million in the first quarter 2021, to $3.1 million in the current quarter. The increase was related to the financing fees associated with the secured note financing discussed below.

 

The Company has, since 2019, refocused the compensation practices away from issuing a combination of stock options and RSUs to only issuing restricted share units (RSUs). Stock-based compensation expense, related to RSUs, decreased by $0.6 million, from $2.9 million in the first quarter of 2021 to $2.3 million in the current quarter. The decrease was mainly due to the fact that the RSUs granted in December 2021 and expensed during the current quarter, had a lower grant date fair value when compared to the RSUs granted in December 2020 and expensed during the first quarter 2021.

 

To the year ended December 31, 2021, the Company had expensed all accumulated fair value associated with stock options as the service period related to the remaining outstanding options ended in that year. The Company’s stock-based compensation expense related to stock options and restricted share units are illustrated on the following tables:

 

       ($000s) 
RSUs granted  Number
of RSUs
   Grant
date fair
value
   Expensed
in 2020
   Expensed
in 2021
   Expensed
in 2022
   Balance
to be
expensed
 
December 16, 2020   135,450    3,413    487    2,926    -    - 
September 01, 2021   20,000    454    -    75    56    323 
September 07, 2021   10,000    229    -    36    28    165 
October 01, 2021   10,000    195    -    24    24    147 
December 13, 2021   123,800    2,622    -    437    2,185    - 
              487    3,498    2,293    635 

 

3

 

 

           ($000s) 

Options granted

  Exercise price ($)  

Number
of
options

   Grant date
fair value
   Cancelled
prior to
2020
   Expensed
prior to
2020
   Expensed
in 2020
   Expensed
in 2021
   Balance
to be
expensed
 
June 24, 2015    9.00    475,000    5,774    149    1,266    4,359            -         - 
December 14,
2017
   13.14    605,000    4,303    -    4,085    218    -    - 
October 11,
2018
   16.94    50,000    421    -    334    87    -    - 
December 12,
2018
   15.46    568,000    4,719    -    3,383    1,328    8    - 
June 26, 2019
   17.72    50,000    416    -    168    248    -    - 
                   149    9,236    6,240    8    - 

 

Subsequent to the quarter end in April 2022, all of the 123,800 RSUs, granted in mid-December 2021, vested upon the Company completing the 2021 exploration program at Snowstorm and have been exchanged for common shares of the Company. In December 2021, $0.4 million of the full fair value of $2.6 million, associated with those RSUs, was charged to the statement of operations and comprehensive loss and the remaining fair value of the grant of $2.2 million was charged to the statement of operations and comprehensive loss in the current quarter.

 

In 2021, 135,450 RSUs fully vested to the holders upon the Company attaining pre-established vesting conditions and $2.9 million of fair value was expensed through the statement of operations and comprehensive loss.

 

The Company holds common shares of several mining companies that were received as consideration for optioned mineral properties and other short-term investments, including one gold exchange traded receipt. During the current quarter, the Company recognized an increase in fair value of investments, net of income taxes, of $0.2 million. During the comparative period, the Company recognized a decrease in fair value of investments, net of income taxes of $0.6 million. The change in the fair value of these investments was recorded within comprehensive loss on the consolidated statements of operations and comprehensive loss.

 

The Company holds one investment in an associate that is accounted for on the equity basis. During the first quarter of 2022 and 2021, the Company recognized a loss in the associate of $0.04 million and $0.08 million, respectively.

 

During the three months ended March 31, 2022, the Company recognized income tax recovery of $1.4 million primarily related to deferred tax recovery arising from the losses in the current quarter, partially offset by deferred tax expense arising due to the renouncement of expenditures related to the June 2020 and June 2021 flow-through shares issued which were capitalized for accounting purposes.

 

During the three months ended March 31, 2021, the Company recognized income tax recovery of $0.4 million primarily related to deferred tax recovery arising from the losses in the current quarter, partially offset by deferred tax expense arising due to the renouncement of expenditures related to the June 2020 flow-through shares issued which were capitalized for accounting purposes.

 

4

 

 

Quarterly Information

 

Selected financial information for the last eight quarters ending March 31, 2022 is as follows:

 

(in thousands of Canadian
dollars, except per share
amounts)
  2022   2021   2020 
   Q1   Q4   Q3   Q2   Q1   Q4   Q3   Q2 
Revenue   -    -    -    -    -    -    -    - 
Income (loss) for period   (6,281)   (8,546)   (822)   14,548    (4,285)   (12,653)   4,977    (4,068)
Basic earnings (loss) per share   (0.08)   (0.11)   (0.01)   0.19    (0.06)   (0.18)   0.07    (0.06)

 

In the first quarter 2022, the loss for the period included $2.3 million of stock-based compensation expense related to amortization of RSUs granted in December 2021 that were vested during the second quarter 2022. In the fourth quarter 2021, the loss included $5.4 million of rehabilitation expenses related to the Johnny Mountain Mine. In the second quarter 2021, net income included $21.9 million gain on disposition of interest in the Red Mountain project. In the first quarter 2021, the loss for the period included $2.9 million of stock-based compensation expense related to amortization of RSUs granted in December 2020 that were vested during the second quarter 2021.

 

In the third quarter 2020, net income included a $4.9 million reversal of stock-based compensation expense, related to non-market condition, performance vesting stock options granted in the years 2015 to 2019, that was previously recognized through the statement of operations and comprehensive income (loss). The reversal reflected a revised estimated vesting period of those options. In the fourth quarter 2020, that vesting period was re-estimated to reflect the purchase of the Snowfield property from Pretium Resources Inc. for $127.5 million. The purchase, discussed below, added 25.9 million ounces of gold and 3.0 billion pounds of copper in the measured and indicated categories of resources and alone increased the measured and indicated gold ounces at KSM by 51% and by 28% for copper. The estimated service period for these stock options, including those whose fair value was reversed in the previous quarter, was reset to the Snowfield property acquisition date, and $8.6 million stock-based compensation expense was recognized through the statement of operations and comprehensive income (loss) in the fourth quarter 2020.

 

Mineral Interest Activities

 

In response to the Covid-19 pandemic, the Company has implemented measures to safeguard the health and well-being of its employees, contractors, consultants, and community members. Many of the Company’s employees worked remotely prior to the pandemic, and from March 2020 through to most of 2021 and into 2022, employees have been working remotely during ongoing periods of lockdowns in various jurisdictions. The Company will conduct its 2022 programs around social distancing protocols that include safety and preventative actions at its camps. The Company will execute its 2022 exploration and development work at KSM, Iskut, Snowstorm and 3 Aces projects under the same successful protocols it implemented in 2020 and continued through 2021. The Company’s engagement with potential joint venture partners, or potential acquirors of KSM or Courageous Lake diminished in both 2020 and 2021 as major mining companies focused on addressing the needs of their existing operations as a result of the pandemic.

 

The Company continues to have full access to its properties in Canada and the United States and has managed to adequately staff its camps for conducting its programs. The Company has not experienced problems obtaining the supplies and services needed for its work programs. The Company has instituted and will continue to implement operational and monitoring protocols to ensure the health and safety of its employees and stakeholders, which follow the advice of local governments and health authorities where it operates. The Company plans work programs on an annual basis and adjusts its plans to the conditions it faces. The Company fully expects to be able to continue operating its planned programs on this basis going forward, as required, and anticipates that the pandemic will continue to have minimal impact on its exploration activities. One factor that the Company must plan for is the recent resurgence of inflation above past multi-decade levels. Budgets prepared for 2022 have incorporated inflation factors, including labour costs, fuel and energy costs and camp operations and supplies. These increases have not materially impacted planned operations or the Company’s ability to fund and execute its plans.

 

During the first quarter of 2022, the Company added an aggregate of $5.0 million of expenditures that were attributed to mineral interests. Of the cash expenditures made of $4.7 million, 56% related to KSM, 31% to Snowstorm, 7% to Iskut, 5% to 3 Aces, and 2% to Courageous Lake.

 

5

 

 

During the current quarter, the Company commenced its 2022 site capture plans that are designed to ensure that KSM’s Environmental Assessment Certificate (EAC) remains in good standing as well as collecting additional data that will be required for an updated pre-feasibility study, expected to be filed in the second quarter of 2022, and data collection for an eventual final feasibility study. On substantial start, under the B.C. Environmental Assessment Act, a project’s EAC is subject to expiry if the project has not been substantially started by the deadline specified in the EAC. The deadline for KSM’s EAC is July 29, 2026. However, if the B.C. Minister of Environment and Climate Change Strategy determines that a project has been substantially started before the deadline, the EAC remains in effect for the life of the project.

 

The Company also evaluated the 2021 drill programs for metallurgical testing at the East Mitchell and Mitchell deposits and geotechnical drilling at East Mitchell and at various sites that will be utilized in engineering studies. The results of that drilling provided a high degree of confidence that the East Mitchell deposit can be integrated into the overall KSM mine plan. Geological modeling of the drilling show the East Mitchell deposit is the upper part of the Mitchell deposit with essentially identical controls on metal distribution and complementary metallurgy, allowing for planning for a combined surface mining scenario for initial production at KSM. The integration could reshape the project enhancing gold reserves, projected annual gold production and payback while also deferring capital expenditures associated with block-cave development.

 

In the current quarter, work also continued on various, significant, components of the eventual design of KSM including connection to BC Hydro’s transmission line. Work was conducted on planed infrastructure projects, including the continuation of the construction of the first section of the Coulter Creek access road as well as new temporary and permanent camp installations.

 

During the current quarter, the Company deposited $4.3 million in the form of security for reclamation activities related to the infrastructure programs mentioned above.

 

In the current quarter, the Company analyzed the results of the 2021 exploration and drilling program at Iskut. The program was partially based on results of a geophysical survey conducted early in 2021. It was designed to drill a geochemical target and to test for a potential gold/copper porphyry deposit below the Quartz Rise lithocap. In addition to exploration work at Iskut, the Company continued its planned 2021 reclamation and closure activities at the Johnny Mountain mine site as described in the results of operations section above. A follow-up exploration program is expected to commence in late second quarter.

 

At Snowstorm, during the current quarter, the Company continued the drilling program commenced in 2021. The program entailed re-entering existing drill holes and using directional drilling tools to continue the drill from known gold-bearing intersections toward prospective higher-grade structures. Approximately 2,500 meters of drilling was planned for this program and was completed subsequent to the current quarter end. Results of the program will be evaluated in the coming quarters.

 

At the 3 Aces gold project in the Yukon, Canada, the Company planned for the 2022 exploration program in the current quarter. Management awaits the receipt of appropriate permits to conduct planned activities. The timing of receipt is unknown, and the Company may have to alter the 2022 program should significant delays ensue.

 

As reported in prior periods, the Company continues to evaluate the best path forward at its Courageous Lake project in NWT. Options include securing a joint venture partner, the sale of all or a portion of the project, updating the 2012 PFS with a smaller initial project, or conducting additional exploration outside the area of known reserves and resources.

 

6

 

 

Liquidity and Capital Resources

 

The Company’s working capital position at March 31, 2022, was $294.2 million compared to $36.9 million on December 31, 2021. Increase in cash resources was the net result of cash raised through financings (discussed below), and exercise of stock options, offset by cash used in environmental, reclamation and exploration projects, corporate and administrative costs, early infrastructure development and corresponding equipment, and reclamation bonding deposits for KSM. Included in current liabilities at March 31, 2022 is $1.3 million of flow-through premium liability which is a non-cash item (December 31, 2021 - $1.4 million) and will be reduced as flow-through expenditures are incurred.

 

On March 24, 2022, the Company entered into an agreement selling a secured note (“Note”) that is to be exchanged at maturity for a 60% gross silver royalty (the “Silver Royalty”) on the KSM project to Sprott Resource Streaming and Royalty Corp. and Ontario Teachers’ Pension Plan (jointly, the “Investors”) for US$225 million. The proceeds of the financing will be used to continue ongoing physical works at KSM and advance the project towards a designation of ‘substantially started’. The ‘substantially started’ designation ensures the continuity of the KSM project’s approved EAC for the life of the project.

 

The Note bears interest at 6.5% per annum, payable quarterly in arrears. The Company can elect to satisfy interest payments in cash or by delivering common shares. The Company’s obligations under the Note are secured by a charge over all of the assets of its wholly owned subsidiary, KSM Mining ULC, and a limited recourse guarantee from the Company secured by a pledge of the shares of KSM Mining ULC.

 

If project financing to develop, construct and place KSM into commercial production is not in place by the fifth anniversary from closing, the Investors can put the Note back to the Company for US$232.5 million in cash or common shares at the Company’s option. This right expires once such project financing is in place. If the Investors exercise this put right, the Investors’ right to purchase the Silver Royalty terminates.

 

If the EAC expires at any time while the Note is outstanding, the Investors can put the Note back to the Company for US$247.5 million at any time over the following nine months, in cash or common shares at the Company’s option. If the Investors exercise this put right, the Investors’ right to purchase the Silver Royalty would terminate.

 

When the Note matures, the Investors will use all of the principal amount repaid on maturity to purchase the Silver Royalty. The Note matures upon the first of either commercial production being achieved at KSM and either the 10-year anniversary, or if the EAC expires and the Investors do not exercise their right to put the Note to the Company, the 13-year anniversary of the issue date of the Note.

 

If commercial production is not achieved at KSM prior to the tenth anniversary from closing, the Silver Royalty payable to the Investors will increase to a 75% gross silver royalty. If the EAC expires during the term of the Note and the corresponding put right is not exercised, the increase will occur at the thirteenth anniversary from closing. The Company has the option to buy back 50% of the Silver Royalty, once exchanged on or before 3 years after commercial production has been achieved, for an amount that provides the Investors a minimum guaranteed annualized return.

 

No amount payable may be paid in common shares of Seabridge if, after the payment, any of the Investors would own more than 9.9% of the Company’s outstanding shares.

 

The financing provides most of the capital necessary to attain substantial start and reduces the time from the construction schedule once a construction decision has been made.

 

During the first quarter of 2021, the Company entered into a revised agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$75 million in value of common shares of the Company. This program can be in effect until the Company’s current US$775 million Shelf Registration Statement expires in January 2023. During the current quarter, the Company issued 588,169 shares, at an average selling price of $22.18 per share, for net proceeds of $12.8 million and in the comparative quarter, $6.8 million. Subsequent to the quarter end, the Company issued 334,216 shares, at an average selling price of $24.86 per share, for net proceeds of $8.1 million under Company’s At-The-Market offering.

 

7

 

 

During the current quarter, the Company received $1.6 million upon the exercise of 117,500 stock options and subsequent to the quarter end, the Company received $1.0 million upon the exercise of an additional 68,507 stock options.

 

In June 2021, the Company issued 350,000 flow-through common shares at $28.06 per common share for aggregate gross proceeds of $9.8 million. The Company committed to renounce its ability to deduct qualifying exploration expenditures for the equivalent value of the gross proceeds of the flow-through financing and transfer the deductibility to the purchasers of the flow-through shares. The effective date of the renouncement was December 31, 2021. At the time of issuance of the flow-through shares, $1.5 million premium was recognized as a liability on the consolidated statements of financial position. During 2021, the Company incurred $1.1 million of qualifying exploration expenditures and $0.2 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive income (loss). During the current quarter, the Company incurred $0.2 million of qualifying exploration expenditures and the $0.04 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive income (loss).

 

During the second quarter of 2021, the Company disposed of its residual interests in its previously owned Red Mountain project located in northwestern British Columbia, for net cash proceeds of $21.9 million.

 

As part of the acquisition agreement of Snowstorm Exploration LLC in June 2017, the Company issued 500,000 common share purchase warrants exercisable for four years at $15.65 per share. During 2021, all the warrants were exercised for net proceeds of $7.8 million and 500,000 common shares were issued.

 

During the current quarter, operating activities, including working capital adjustments, used $9.6 million cash compared to $4.1 million cash used by operating activities in comparative quarter in 2021. Higher operating cash used in the current quarter was mainly related to $1.7 million increase in cash used in working capital, $3.1 million increase in financing fees, $0.5 million increase in general and administrative expenses, and $0.2 million increase in environmental rehabilitation disbursements. Operating activities in the near-term are expected to remain stable or increase marginally given the growth in project and corporate activity in the Company.

 

As previously disclosed in the Company’s prior years financial statements, in 2019 the Company received a notice from the CRA that it proposed to reduce the amount of expenditures reported as Canadian Exploration Expenses (CEE) for the three-year period ended December 31, 2016. The Company has funded certain of its exploration expenditures, from time-to-time, with the proceeds from the issuance of flow-through shares and renounced, to subscribers, the expenditures which it determined to be CEE. The notice disputes the eligibility of certain types of expenditures previously audited and approved as CEE by the CRA. The Company strongly disagrees with the notice and responded to the CRA auditors with additional information for their consideration. In 2020, the CRA auditors responded to the Company’s submission and, although accepting additional expenditures as CEE, reiterated that their position remains largely unchanged and subsequently issued reassessments to the Company reflecting the additional CEE expenditures accepted and $2.3 million of Part Xll.6 tax owing. The Company has been made aware that the CRA has reassessed certain investors who subscribed for flow-through shares in 2013 and will reassess other investors with reduced CEE deductions. Notice of objections to the Company’s and investors’ reassessments have and will be filed as received and will be appealed to the courts, should the notice of objections be denied. The Company has indemnified the investors that subscribed for the flow-through shares. The potential tax indemnification to the investors is estimated to be $10.8 million, plus $2.6 million potential interest. No provision has been recorded related to the tax, potential interest, nor the potential indemnity as the Company and its advisors do not consider it probable that there will ultimately be an amount payable.

 

8

 

 

During 2016, upon the completion of an audit of the application by tax authorities of the British Columbia Mineral Exploration Tax Credit (“BCMETC”) program, the Company was reassessed $3.6 million, including accrued interest, for expenditures that the tax authority has categorized as not qualifying for the BCMETC program. The Company recorded a $3.6 million provision within non-trade payables and accrued expenses on the consolidated statements of financial position as at December 31, 2016 with a corresponding increase in mineral interests. In 2017 the Company filed an objection to the reassessment with the appeals division of the tax authorities and paid one-half of the accrued balance to the Receiver General and reduced the provision by $1.8 million. In 2019, the Company received a decision from the appeals division that the Company’s objection was denied, and the Company filed a Notice of Appeal with the British Columbia Supreme Court. The Attorney General of Canada replied to the facts and arguments in the Company’s Notice of Appeal and stated its position that the Company’s expenditures did not qualify for the BCMETC program. Subsequent to the year end, the Company completed discoveries with the Department of Justice and will continue to move the appeal process forward as expeditiously as possible. The Company intends to continue to fully defend its position. As at March 31, 2022, the Company has recognized $3.9 million of long-term receivable from the CRA, including $2.3 million of HST credit due to the Company.

 

The Company will continue its objective of advancing its major gold projects, KSM and Courageous Lake, and to further explore the Iskut, Snowstorm and 3 Aces projects to either sell or enter into joint venture arrangements with major mining companies. The market for metals streams and royalty interests seems to be growing and the Company will determine the merits of disposing of options it holds on non-core net profits interests and net smelter returns. On financing future exploration and development by selling or entering into new streaming and royalty arrangements.

 

Contractual Obligations

 

The Company has the following commitments as at March 31, 2022:

 

   Payments due by years 
($000s)  Total   2022   2023-24   2025-26   2027-28 
Capital expenditure obligations   74,126    19,906    54,220    -    - 
Mineral interests   7,997    695    2,506    2,620    2,176 
Flow-through share expenditures   8,506    8,506    -    -    - 
Lease obligation   618    108    194    158    158 
    91,247    29,215    56,920    2,778    2,334 

 

During the current period, the Company entered into a Facilities Agreement with British Columbia Hydro and Power Authority ("BC Hydro") covering the design and construction of facilities by BC Hydro to supply construction phase hydro-sourced electricity to the KSM project. KSM will connect to BC Hydro's existing Northwest Transmission Line ("NTL") running parallel to Highway 37 and 30 km from the proposed KSM plant site. The transmission line is scheduled to be constructed in 2023 with completion and commissioning planned for late 2024.

 

The cost to complete the construction is estimated to be $28.9 million of which the Company paid $6.6 million to BC Hydro during current period, $1.2 million paid subsequent to the quarter end, and $21.1 million is due in 2023. In addition, the Facilities Agreement requires $54.2 million in security or cash from the Company for BC Hydro system reinforcement, which is required to make the power available of which the Company paid $10.0 million to BC Hydro during the current period, $11.2 million paid subsequent to the quarter end, and $33 million is due in 2023. The $54.2 million system reinforcement security will be forgiven annually, typically over a period of less than 8 years, based on project power consumption.

 

Fair value of secured note

 

The carrying amount for the secured note is as follows:

 

($000s)  Secured
Note
 
Fair value at inception  $282,263 
Add (deduct):     
Change in fair value due to change in the Company’s credit risk, recorded in OCI   - 
Remaining change in fair value, recorded in the statement of operations   - 
Foreign currency translation   (1,103)
Carrying value and fair value on March 31, 2022  $281,160 

 

9

 

 

Outlook

 

As mentioned above, the COVID-19 pandemic has not materially impacted the Company’s operations, financial condition or financial performance, but it has caused it to reduce the scale of certain programs and has hindered, and may continue to hinder, the pace of advancement at the affected projects. The Company has been able to carry out its 2021 exploration and monitoring programs at its projects safely and within the constraints and measures implemented and the pandemic had no material impact to the results of operations. Although the capital markets are relatively volatile, the Company has not experienced limitations nor does it foresee limitations to accessing capital on acceptable terms. No disruptions to supply chains have been experienced nor have there been delays in project activity.

 

The pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to business globally resulting in an economic slowdown. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. Working closely with the health authorities and with its business partners, the Company developed effective procedures for operating safely in the current global health crisis.

 

With the increase in the price of gold since the start of the pandemic, the Company has enjoyed favourable capital markets and has continued to raise funds under its ATM offering of common shares and other financings mentioned above and its financial condition has not been adversely impacted by the pandemic. As a company without revenue from operations, its financial performance has not been impacted by the pandemic. The Company will continue to monitor developments of the pandemic and continuously assess the pandemic’s potential further impact on the Company’s operations and business.

 

In addition to the extensive substantial start work that the Company plans to carry out in 2022, it also intends to continue its pursuit of a joint venture agreement on the KSM project with a suitable partner on terms advantageous to the Company, since it does not intend to build or operate the project alone. The KSM project includes multiple deposits and provides a joint venture partner, or purchaser, flexibility in the design of the project. In accordance with its priorities and risk tolerance, the Company believes that it does not make sense for it to start preparing a feasibility study on the KSM project on its own. The current KSM PFS includes recommendations on additional work that could be completed to advance the project, including budget estimates. It is anticipated that the updated PFS will contain similar recommendations. The work that a joint venture partner might choose to complete might include some or all of this recommended work and might include significantly more work, and so the timing and cost for a joint venture partner to conclude the recommended work or a feasibility study is impossible to predict. The Company plans its work to advance the KSM project on an annual basis, when the results of one year’s work have been received and analyzed, planning for the next year begins. When planning its programs, the Company will consider the recommended work in the PFS, but the Company will decide work based on its priorities, the results of its advancement work and the items it believes are best left for a joint venture partner to decide. Plans for each year are typically announced in the second quarter of the year and budgets are established at the beginning of that year. The Company will continue its efforts to integrate East Mitchel into KSM’s development and complete the work required to advance the new PFS expected to be finalized in the second quarter of 2022.

 

At Iskut, the Company will evaluate its 2021 exploration activities that focused on a potential porphyry deposit below the Quartz Rise lithocap. The 2021 geophysical surveys and two deeper drill holes, now completed, will be evaluated for evidence of the source of the intrusions. Environmental work will also continue on the reclamation and closure plan for the Johnny Mountain mine weather permitting.

 

At Snowstorm, the Company will utilize the results of the 2021 drill program, completed subsequent to the current quarter end, to undertake a follow-up drill program based on those results.

 

At the Company’s 3 Aces project, the Company has used the results of historical data to establish the scope of an initial drill program it plans to conduct in 2022 once all appropriate permits are in place, the program is focus on high grade mineralized targets.

 

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Environment, Social and Governance

 

Management and the Board of Directors have formalized several key policies that entrench the Company’s environmental, social and governance (ESG) goals, priorities and strategies to operate safely, sustainably and with the highest governance standards. The Board of Directors has established a Sustainability Committee and granted that committee the authority to investigate any activity of the Corporation and its affiliates relating to sustainability and ESG. As the Company operates in the natural resource extraction industry, the Company strives to achieve the highest operating standards, assessing and mitigating the impacts on the physical environment and the communities in which the Company operates. The Company is committed to sustainability and the integration of sustainability principles into all of our activities and has adopted its Sustainability Policy and produced and published its inaugural sustainability report that was prepared with select disclosures and guidance from the Sustainability Standards Accounting Board Metals and Mining Industry Standards and the Global Reporting Initiative Standards, as well as metrics designed for specifically for the Company. The Company has also published its ESG Performance Tables for its first reporting year, 2020. The sustainability report highlights the Company’s accomplishments and approach to three critical pillars: the economy, society, and the environment. These pillars are seen as interdependent, each necessary and supportive to the other. The Company recognizes that sustainability involves protecting environmental values in the area of our projects, contributing to the health and the economic and social well-being of our employees and the local communities, and taking action on national and global priorities. A sustainable human environment requires the Company to consider issues such as cultural respect, inclusiveness, diversity, and broad participation in the opportunities and benefits which derive from our efforts.

 

In addition to the Sustainability Policy, the Company has also implemented its Environmental Policy; Health and Safety Policy including a separate policy on discrimination, bullying, harassment, and violence; a Workplace Employment Policy; and its Policy Statement on Diversity. The Inaugural Sustainability Report and all of the Company’s policies related to ESG can be found on the Company’s website www.seabridgegold.com.

 

Internal Controls Over Financial Reporting

 

The Company’s management under the supervision of the Chief Executive Officer and Chief Financial Officer are responsible for designing adequate internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Management is responsible for establishing and maintaining adequate internal controls over financial reporting. The control framework used is Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

11

 

 

Changes to Internal Controls Over Financial Reporting

 

There was no change in the Company’s internal controls over financial reporting that occurred during the period beginning on January 1, 2022 and ended on March 31, 2022, that has materially affected or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

Disclosure Controls and Procedures

 

Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods specified in the rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company is accumulated and communicated to management as appropriate, to allow timely decisions regarding required disclosure. The Company’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation of the design of the disclosure controls and procedures as of March 31, 2022, that they are appropriately designed and effective and that since the December 31, 2021 evaluation, there have been no material changes to the Company’s disclosure controls and procedures.

 

Limitations of Controls and Procedures

 

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe that any internal controls over financial reporting and disclosure controls and procedures, no matter how well designed, can have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance that the objectives of the control system are met.

 

Cybersecurity

 

The Company’s management is responsible for cybersecurity risks that face the Company, and the Board of Directors has granted the Audit Committee the authority to oversee management’s assessment of those risks and their prevention and mitigation approaches and to investigate any material breaches. To date, there have been no material breaches of security measures.

 

An independent review of access to information and other security protocols around the Company’s IT systems was undertaken in 2020 and another review is planned for 2022. The review, among other items, verifies all employees’ ability to recognize potentially malicious emails or other communications that could enable an intruder to download malware onto the Company’s systems leading to the potential circumventing of the Company’s security protocols and to potentially steal or hold ransom Company data.

 

Shares Issued and Outstanding

 

At May 16, 2022, the issued and outstanding common shares of the Company totaled 80,207,541. In addition, there were 837,327 stock options, and 40,000 RSUs. Assuming the conversion of all of these instruments outstanding, there would be 81,084,868 common shares issued and outstanding.

 

12

 

 

Related Party Transactions

 

During the current quarter and the comparative quarter in 2021, there were no payments to related parties other than compensation paid to key management personnel. These transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

 

Critical Accounting Estimates

 

The Company’s management makes judgments in its process of applying the Company’s accounting policies in the preparation of its consolidated financial statements. In addition, the preparation of financial data requires that the Company’s management make assumptions and estimates of effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period and the reported amounts of income and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively.

 

The critical judgments, estimates and assumptions applied in the preparation of the Company's consolidated financial statements are reflected in note 3 (N) of the Company's audited annual consolidated financial statements for the year ended December 31, 2021.

 

Risks and Uncertainties

 

The risks and uncertainties are discussed within the Company’s most recent Annual Information Form filed on SEDAR at www.sedar.com, and the Annual Report on Form 40-F filed on EDGAR at www.sec.gov/edgar.shtml.

 

Forward Looking Statements

 

The consolidated financial statements and management’s discussion and analysis and any other materials included with them, contain certain forward-looking statements relating but not limited to the Company’s expectations, intentions, plans and beliefs. Forward-looking information can often be identified by forward-looking words such as “anticipate”, “believe”, “expect”, “goal”, “plan”, “intend”, “estimate”, “may” and “will” or similar words suggesting future outcomes, or other expectations, beliefs, estimates, plans, objectives, assumptions, intentions or statements about future events or performance. Forward-looking information may include reserve and resource estimates and expected changes to them, estimates of future production and related financial analysis, unit costs, costs of capital projects and timing of commencement of operations, and is based on current expectations that involve a number of business risks and uncertainties. Factors that could cause actual results to differ materially from any forward-looking statement include, but are not limited to, failure to establish estimated resources and reserves, the grade and recovery of ore which is mined varying from estimates, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results.

 

Potential shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Shareholders are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.

 

 

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