Form 6-K SEABRIDGE GOLD INC For: May 15

 

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 2019

 

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 statement Form S-8 (File No. 333-211331), as may be amended and supplemented.

 

 

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 15, 2019

 

 

EXHIBIT INDEX

 

Exhibit 99.1		Unaudited Interim Condensed Consolidated Financial Statements for the Three Months ended March 31, 2019.
Exhibit 99.2		Management’s Discussion and Analysis for the Three Months ended March 31, 2019.

 

 

3

EXHIBIT 99.1

 

SEABRIDGE GOLD INC.

 

 

 

 

 

 

 

 

UNAUDITED CONDENSED CONSOLIDATED INTERIM

FINANCIAL STATEMENTS

 

AS AT MARCH 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SEABRIDGE GOLD INC.

Consolidated Statements of Financial Position

(Expressed in thousands of Canadian dollars)

(Unaudited)

 

		Notes		March 31, 2019				December 31, 2018
Assets
Current assets
Cash and cash equivalents		4		$	1,894			$	2,928
Short-term deposits		4			15,149				17,068
Amounts receivable and prepaid expenses		5			1,722				1,619
Investment in marketable securities		6			2,743				2,858
					21,508				24,473
Non-current assets
Investment in associate		6			2,511				2,460
Mineral interests		7			400,418				395,304
Property, plant and equipment		8			298				-
Reclamation deposits		11			1,225				1,223
					404,452				398,987
Total assets					425,960				423,460
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities		9			4,161				4,749
Flow-through share premium		12			675				798
Lease obligations		10			51				-
Provision for reclamation liabilities		11			856				955
					5,743				6,502
Non-current liabilities
Deferred income tax liabilities		16			22,901				23,289
Lease obligations		10			241				-
Provision for reclamation liabilities		11			7,145				7,114
					30,287				30,403
Total liabilities					36,030				36,905
Shareholders’ equity		12			389,930				386,555
Total liabilities and shareholders’ equity				$	425,960			$	423,460

 

Subsequent events (Notes 9, 12, 16)

 

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

 

 

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,
		Notes		2019				2018
Corporate and administrative expenses		14		$	(4,472	)		$	(3,676	)
Environmental rehabilitation expense		11			-				(7,445	)
Other income - flow-through shares		12			123				775
Equity loss of associate		6			(50	)			(40	)
Depreciation charge of right-of-use assets		8			(9	)			-
Interest income					82				29
Finance and other expenses					(68	)			(23	)
Loss before income taxes					(4,394	)			(10,380	)
Income tax recovery (expense)		16			306				(296	)
Loss for the period				$	(4,088	)		$	(10,676	)
Other comprehensive loss, net of income taxes
Items that may be reclassified to net income or loss
Reclassification of previously deferred gains on marketable securities		6			-				-
Unrealized gain on marketable securities		6			-				-
					-				-
Items that will not be reclassified to net income or loss
Change in fair value of marketable securities		6			(5	)			(373	)
Total other comprehensive loss					(5	)			(373	)
Comprehensive loss for the period				$	(4,093	)		$	(11,049	)
Basic and diluted net loss per common share		12		$	(0.07	)		$	(0.18	)
Basic and diluted weighted average number of common shares outstanding		12			61,582,612				57,897,200

 

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

 

 

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 loss				Total Equity
As at December 31, 2018			61,232,572			$	457,073			$	3,275			$	16,840			$	36,040			$	(124,323	)		$	(2,350	)		$	386,555
Share issuance			100,000				1,730				-				-				-				-				-				1,730
Share issuance costs			-				(155	)			-				-				-				-				-				(155	)
Deferred tax on share issuance costs			-				82				-				-				-				-				-				82
Stock-based compensation			-				-				-				2,470				-				-				-				2,470
Exercise of options			320,475				4,817				-				(1,476	)			-				-				-				3,341
Expired options			-				-				-				(33	)			33				-				-				-
Other comprehensive loss			-				-				-				-				-				-				(5	)			(5	)
Net loss for the period			-				-				-				-				-				(4,088	)			-				(4,088	)
As at March 31, 2019			61,653,047			$	463,547			$	3,275			$	17,801			$	36,073			$	(128,411	)		$	(2,355	)		$	389,930
As at December 31, 2017			57,677,118			$	405,930			$	3,275			$	16,549			$	36,040			$	(104,383	)		$	(1,773	)		$	355,638
Stock-based compensation			-				-				-				2,005				-				-				-				2,005
Exercise of options			530,200				8,518				-				(1,836	)			-				-				-				6,682
Shares - Restricted Share Units			65,000				854				-				(854	)			-				-				-				-
Other comprehensive loss			-				-				-				-				-				-				(373	)			(373	)
Net loss for the period			-				-				-				-				-				(10,676	)			-				(10,676	)
As at March 31, 2018			58,272,318			$	415,302			$	3,275			$	15,864			$	36,040			$	(115,059	)		$	(2,146	)		$	353,276

 

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

 

 

SEABRIDGE GOLD INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian dollars)

(Unaudited)

 

		Three months ended March 31
		2019				2018
Operating Activities
Net loss		$	(4,088	)		$	(10,676	)
Adjustment for non-cash items:
Stock-based compensation			2,470				2,005
Provision for environmental rehabilitation			-				7,445
Other income - flow-though shares			(123	)			(775	)
Income tax recovery (expense)			(306	)			296
Equity loss of associate			50				40
Finance and other expenses			31				23
Depreciation charge of right-of-use assets - properties			9				-
Adjustment for cash items:
Environmental rehabilitation disbursements			(99	)			(97	)
Changes in working capital items:
Amounts receivable and prepaid expenses			(111	)			(381	)
Accounts payable and accrued liabilities			(751	)			269
Net cash used in operating activities before income tax recovered			(2,918	)			(1,851	)
Income tax recovery			4				-
Net cash used in operating activities			(2,914	)			(1,851	)
Investing Activities
Mineral interests			(3,232	)			(4,046	)
Redemption of short-term deposits			1,919				-
Investment in associate			(101	)			-
Investment of reclamation deposits			(2	)			(15	)
Cash proceeds from sale of investments			110				-
Net cash used in investing activities			(1,306	)			(4,061	)
Financing Activities
Share issuance costs			(155	)			-
Exercise of options			3,341				6,682
Net cash from financing activities			3,186				6,682
Net (decrease) increase in cash and cash equivalents during the period			(1,034	)			770
Cash and cash equivalents, beginning of the period			2,928				4,049
Cash and cash equivalents, end of the period		$	1,894			$	4,819

 

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

 

 

SEABRIDGE GOLD INC.

Notes to the Condensed Consolidated Financial Statements

For the three months ended March 31, 2019 and 2018

 

1.

Reporting entity

 

Seabridge Gold Inc. is comprised of Seabridge Gold Inc. (“Seabridge” or the “Company”) and its subsidiaries (Seabridge Gold (NWT) 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 preparation

 

A.

Statement of compliance

 

These unaudited condensed consolidated interim financial statements ("consolidated interim financial statements") were prepared using the same accounting policies and methods as those described in the consolidated financial statements for the year ended December 31, 2018 except for the adoption of IFRS 16 Leases (“IFRS 16”), IFRIC Interpretation 23, Uncertainty over Income Tax Treatments (“IFRIC Interpretation 23”) which were adopted on January 1, 2019. The changes in accounting policies are also expected to be reflected in the Company’s consolidated financial statements as at and for the year ending December 31, 2019.

 

These consolidated interim financial statements are prepared in compliance with International Accounting Standard 34, Interim Financial Reporting (IAS 34). Accordingly, certain information and disclosure normally included in annual financial statements prepared in accordance with International Financial Reporting Standards have been omitted or condensed. These consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2018.

 

B.

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 revenues and expenses during the three months ended March 31, 2019. 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.

 

3.

Change in accounting policies

 

These consolidated interim financial statements have been prepared using accounting policies consistent with those used in the Company’s annual consolidated financial statements as at and for the year ended December 31, 2018 except for those new standards adopted in the period as described below.

 

 

Leases

 

As of January 1, 2019, the Company adopted IFRS 16, Leases (“IFRS 16”) that revises the definition of leases and requires companies to bring most leases on the statement of financial position, recognizing new assets and liabilities.

 

The Company adopted IFRS 16 using the modified retrospective approach. Under the modified retrospective approach, the Company recognizes transition adjustments, if any, in retained earnings on the date of initial adoption (January 1, 2019), without retrospective restatement of the financial statements.

 

(i)

Leases recognition

 

At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to contract the use of an identified asset, the Company assesses whether:

 

●

The contract involves the use of an identified asset – this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;

 

●

The Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and

 

●

The Company has the right to direct the use of the asset. The Company has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision as to how and for what purpose the asset is used is predetermined, the Company has the right to direct the use of that asset if either:

 

o

The Company has the right to operate the asset; or

o

The Company designed the asset in a way that predetermines how and for what purpose it will be used.

 

If a contract is assessed to contain a lease, a lease liability is recognized representing the present value of cash flows estimated to settle the contract, discounted using a discount rate which would be required if the underlying asset was acquired through a financing arrangement. The Company will also recognize a right-of-use asset (“ROU”) that will generally be equal to the lease obligation at adoption. The ROU is subsequently amortized over the life of the contract or asset, whichever is shorter.

 

This policy is applied to contracts in place, entered into, or changed, on or after January 1, 2019.

 

The ROU asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, adjusted for certain remeasurements of the lease liability.

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate.

 

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made. It is remeasured when there is a change in future lease payments arising from a change in index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

 

 

(ii)

Leases transition

 

For leases that were classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and the lease liability at January 1, 2019 are determined at the carrying amount of the lease asset and lease liability under IAS 17 immediately before that date. For leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Company’s incremental borrowing rate as at January 1, 2019 and the related right-of-use assets were recognized at amounts equal to the corresponding lease liability.

 

The Company used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17.

 

●

Applied the exemption not to recognize ROU assets and liabilities for leases with low value and less than 12 months of lease term

 

●

Excluded initial direct costs from measuring the ROU asset at the date of initial application

 

●

Applied a single discount rate to a portfolio of leases with similar characteristics, and

 

●

Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

 

Lease liabilities recognized at January 1, 2019 amounted to $0.3 million. Refer to note 10 for further details.

 

4.

Cash and cash equivalents and short-term deposits

 

($000s)			March 31, 2019				December 31, 2018
Cash and cash equivalents			1,894				2,928
Short-term deposits			15,149				17,068
			17,043				19,996

 

All the cash and cash equivalents are held in a Canadian Schedule I bank. Short-term deposits consist of Canadian Schedule I bank guaranteed deposits and are cashable in whole or in part with interest at any time to maturity.

 

 

5.

Amounts receivable and prepaid expenses

 

($000s)			March 31, 2019				December 31, 2018
HST			1,315				1,196
Prepaid expenses and other receivables			407				423
			1,722				1,619

 

 

6.

Investments

 

($000s)			January 1, 2019				Dispositions				Fair value through other comprehensive loss				Loss of associates				Impairment				Additions				March 31, 2019
Current assets:
Investment in marketable securities			2,858				(110	)			(5	)			-				-				-				2,743
Non-current assets:
Investment in associate			2,460				-				-				(50	)			-				101				2,511
($000s)			January 1, 2018				Dispositions				Fair value through other comprehensive loss				Loss of associates				Impairment				Additions				December 31, 2018
Current assets:
Investment in marketable securities			3,435				-				(577	)			-				-				-				2,858
Non-current assets:
Investment in associate			3,426				-				-				(160	)			(1,336	)			530				2,460

 

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 $2.7 million (December 31, 2018 - $2.9 million) on the consolidated statements of financial position. At March 31, 2019, the Company revalued its holdings in its investments and recorded a fair value reduction of $5,000 on the statement of comprehensive loss.

 

During the three months ended March 31, 2019, the Company disposed its holdings in one investment at fair value of $0.1 million (March 31, 2018 – nil).

 

Investment in associate relates to Paramount Gold Nevada Corp (“Paramount”). As at March 31, 2019, the Company holds an 8.50% (December 31, 2018 – 8.53%) 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 three months ended March 31, 2019, the Company recorded its proportionate share of Paramount’s net loss of $0.05 million (March 31, 2018 – $0.04 million) within equity loss of associate on the consolidated statements of operations and comprehensive loss. As at March 31, 2019, the carrying value of the Company’s investment in Paramount was $2.5 million (December 31, 2018 - $2.5 million).

 

In 2018, the Company purchased 320,000 units of Paramount for US$1.25 per unit. Each unit consists of one common share and one warrant to purchase one-half of a common share of Paramount. Each warrant has a two-year term and is exercisable at US$1.30 in the first twelve months and US$1.50 in the following twelve months.

 

During 2017 the Company purchased 883,200 common shares and 51,600 warrants of Paramount for $1.6 million. Each warrant allowed the Company to purchase one common share of Paramount for US$2.00 per share until February 14, 2018 and allows for the same purchase at US$2.25 within the period February 15, 2018 to February 13, 2019, when they expire. In the first quarter of 2018, the option to purchase the common shares at US$2.00 lapsed and the Company did not purchase additional shares.

 

During the three months ended March 31, 2019, the warrants to purchase 51,600 common shares at US$2.25 per share were repriced by Paramount to US$0.93 per share and the Company exercised these warrants in addition to warrants to purchase 28,600 shares, transferred to the Company at no additional cost, from parties not wishing to exercise.

 

 

7.

Mineral Interests

 

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

 

($000s)			Balance January 1, 2019				Expenditures / Acquisitions 2019				Balance March 31, 2019
KSM			276,586				4,042				280,628
Courageous Lake			73,647				402				74,049
Iskut			29,031				316				29,347
Snowstorm			15,269				354				15,623
Grassy Mountain			771				-				771
			395,304				5,114				400,418
($000s)			Balance January 1, 2018				Expenditures / Acquisitions 2018				Balance December 31, 2018
KSM			248,561				28,025				276,586
Courageous Lake			69,587				4,060				73,647
Iskut			25,221				3,810				29,031
Snowstorm			13,995				1,274				15,269
Grassy Mountain			771				-				771
			358,135				37,169				395,304

 

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

 

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 July 2009, the Company agreed to acquire various mineral claims immediately adjacent to the KSM property for further exploration and possible mine infrastructure use. The terms of the agreement required the Company to pay $1 million in cash, issue 75,000 shares and pay advance royalties of $100,000 per year for 10 years commencing on closing of the agreement. The acquired claims are subject to a 4.5% net smelter royalty from which the advance royalties are deductible.

 

 

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 January 2019, the Company issued 100,000 common shares at $17.30 per common share, for total fair value of $1.7 million, to the holder of a net smelter return royalty on certain claims within the KSM project. The total fair value of the common shares was recorded to the mineral interest at KSM project.

 

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 Vendors”) for US$2.5 million. 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. (“SnipGold”) which owns the Iskut Project, located in northwestern British Columbia.

 

d)

Snowstorm

 

On June 7, 2017, the Company purchased 100% of the common shares of Snowstorm Exploration LLC (“Snowstorm”) which owns the Snowstorm Project, located in northern Nevada. On the acquisition date, the Company issued 700,000 common shares, with a fair value of $14.39 per share and 500,000 common share purchase warrants with a fair value of $6.55 per common share purchase warrant for a combined fair value of $13.3 million. The common share purchase warrants are exercisable for four years from the date of acquisition, at $15.65 per share. In addition, 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.

 

e)

Grassy Mountain

 

In 2013, the Company sold 100% of interest in the Grassy Mountain Project with a residual net book value of $771,000 retained within mineral properties, related to the option to either receive a non-controlling interest of 10% or a $10 million cash payment, following the delivery of a National Instrument 43-101 feasibility study on the project, at the discretion of the company.

 

 

8.

Property, plant and equipment

 

Property, plant and equipment balance represents the right-of-use asset recognized after the implementation of IFRS 16 on January 1, 2019.

 

($000s)			March 31, 2019
Right-of-use assets - properties Opening balance December 31, 2018			-
Adoption of IFRS 16 on January 1, 2019			307
Less: depreciation			(9	)
Net book value March 31, 2019			298

 

 

9.

Accounts payable and accrued liabilities

 

($000s)			March 31, 2019				December 31, 2018
Trade payables			1,646				2,360
Trade and other payables due to related parties			102				112
Non-trade payables and accrued expenses			2,413				2,277
			4,161				4,749

 

In 2014 and 2015, the Company received $8.5 million related to the application for refund under the British Columbia Mineral Exploration Tax Credit program, for spending in 2010 and 2011. During 2016, upon the completion of an audit of the application by tax authorities, the Company was assessed $3.6 million, including accrued interest, for expenditures that the tax authority has categorized as not applicable to the recovery program within the British Columbia Income Tax Act. 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 to mineral interests. In 2017 the Company filed an objection to the reassessment and paid one-half of the accrued balance while the objection is reviewed. During the first quarter of 2019, the Company received a decision from the appeals division that the objection was denied, and the Company was reassessed for the balance. Subsequent to the quarter end, the Company filed a notice of appeal with the British Columbia Supreme Court and intends to continue to fully defend its position.

 

 

10.

Leases

 

($000s)			March 31, 2019
Maturity analysis - contractual undiscounted cashflows
Less than one year			53
One to three years			160
More than three years			218
Total undiscounted lease liabilities			431
Lease liability – discounted
Current			51
Non-current			241
Total discounted lease liabilities			292

 

The Company did not have a finance lease liability as at December 31, 2018. The below table is a reconciliation of the lease commitments disclosed at December 31, 2018 in the Company’s consolidated financial statements and the lease liability recognized as a result of the adoption of IFRS 16 on January 1, 2019. When measuring the value of the lease liabilities, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average rate applied was 11.09%.

 

 

($000s)			2019
Operating lease commitment at December 31, 2018			246
Operating leases deemed not to be leases under IFRS 16			(68	)
			178
Lease extension options reasonably certain to be exercised			267
Leases at January 1, 2019			445
Discounted value to January 1, 2019			297

 

 

11.

Provision for reclamation liabilities

 

($000s)			March 31, 2019				December 31, 2018
Beginning of the period			8,069				2,481
Revised Johnny Mountain Mine closure provision			-				7,439
Disbursements			(99	)			(2,021	)
Accretion			31				170
End of the period			8,001				8,069
Provision for reclamation liabilities - current			856				955
Provision for reclamation liabilities - long-term			7,145				7,114
			8,001				8,069

 

Although the ultimate costs to be incurred are uncertain, the Company’s estimates for the reclamation liabilities are based on independent studies or agreements with the respective government body for each project using current restoration standards and techniques.

 

The estimate of the provision for reclamation obligation, as at March 31, 2019, was calculated using the total estimated cash flows of $8.0 million (December 31, 2017 - $8.1 million) required to settle estimated obligations and expected timing of cash flow payments required to settle the obligations between 2019 and 2026. As at March 31, 2019, the undiscounted future cash outflows are estimated at $8.4 million (December 31, 2017 – $8.5 million) primarily over the next four years. The discount rate used to calculate the present value of the reclamation obligations was 2.0% at March 31, 2019 (2% - December 31, 2018). The Company has placed a total of $1.2 million (December 31, 2018 - $1.2 million) on deposit with financial institutions that are pledged as security against the reclamation liability.

 

In 2018, the Company filed an updated reclamation and closure plan for the Johnny Mountain mine site and charged $7.4 million of rehabilitation expenses to the consolidated statements of operations and comprehensive loss. The Johnny Mountain Mine site was acquired, along with the Iskut Project, during the Snip Gold acquisition in 2016. Expenditures are expected to be incurred between 2019 and 2022 and 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. For three months ended March 31, 2019, reclamation disbursements amounted to $0.1 million (March 31, 2018– $0.1 million).

 

12.

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, 2019 or December 31, 2018.

 

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. The Company will continue to assess new properties and seek to acquire an interest in additional properties that would be accretive and meaningful to the Company. The Company is not subject to externally imposed capital requirements.

 

 

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 the three months ended March 31, 2019. The Company considers its capital to be share capital, stock-based compensation, contributed surplus and deficit.

 

a)

Equity financings

 

In December 2018, the Company closed a non-brokered private placement flow-through financing and issued 250,000 common shares at $20.50 per share for gross proceeds of $5.1 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, 2018. At the time of issuance of the flow-through shares, $0.8 million premium was recognized as a liability on the consolidated statements of financial position. Since the closing of the financing and during the three months ended March 31, 2019, based on qualifying expenditures incurred, $0.1 million was recognized through other income on the consolidated statement of operations and comprehensive loss. As at March 31, 2019, the Company has a remaining commitment of $4.3 million related to the financing.

 

In November 2018, the Company closed a non-brokered private placement of one million common shares, at a price of $14.00 per share, for gross proceeds of $14.0 million. As part of the private placement agreement, the Company also granted an option to increase the size of the private placement by an additional 250,000 common shares exercisable until December 24, 2018. The 250,000 options were fully exercised on December 14, 2018 at a price of $14.00 per share, for gross proceeds of $3.5 million.

 

In May 2018, the Company closed a flow-through financing and issued 1,150,000 common shares at $17.16 per share for gross proceeds of $19.7 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 March 31, 2019. At the time of issuance of the flow-through shares, a $4.1 million premium was recognized as a liability on the consolidated statements of financial position with the balance recorded as share capital. Since the closing of the financing and to the end of 2018, based on qualifying expenditures incurred, the full $4.1 million premium was recognized through other income on the consolidated statements of operations and comprehensive loss.

 

b)

Warrants issuances

 

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, for total fair value of $3.3 million, which are still outstanding as at March 31, 2019. The fair value of the common share purchase warrants was estimated on the date of acquisition using a Black Scholes option pricing model with the following assumptions: dividend yield 0%; expected volatility 62%, risk-free rate of return 0.87%; and expected life of four years.

 

 

c)

Stock options and Restricted share units

 

The Company provides compensation to directors and employees in the form of stock options and a 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 option 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, 2019			3,458,805				11.95				16,657				68,000				183				16,840
Granted			-				-				-				-				-				-
Exercised options or vested RSUs			(320,475	)			10.43				(1,476	)			-				-				(1,476	)
Expired			(1,824	)			-				(33	)			-				-				(33	)
Amortized value of stock-based compensation			-				-				1,602				-				868				2,470
Outstanding at March 31, 2019			3,136,506				12.11				16,750				68,000				1,051				17,801
Exercisable at March 31, 2019			884,897

 

		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, 2018			3,618,509				11.34				15,758				127,750				791				16,549
Granted			618,000				15.58				372				68,000				183				555
Exercised option or vested RSU			(777,704	)			12.00				(3,377	)			(127,750	)			(1,510	)			(4,887	)
Amortized value of stock-based compensation			-				-				3,904				-				719				4,623
Outstanding at December 31, 2018			3,458,805				11.95				16,657				68,000				183				16,840
Exercisable at December 31, 2018			1,208,306

 

 

The outstanding share options at March 31, 2019 expire at various dates between June 2019 and December 2022. A summary of options outstanding, their remaining life and exercise prices as at March 31, 2019 is as follows:

 

Options Outstanding								Options Exercisable
				Number				Remaining		Number
Exercise price				outstanding				contractual life		Exercisable
$	10.36				100,000			1 month			100,000
$	9.72				50,000			3 months			50,000
$	9.00				425,000			1 year 3 months			0
$	11.13				270,000			1 year 9 months			270,000
$	13.52				100,000			2 years			100,000
$	17.16				50,000			2 years 2 months			0
$	17.14				50,000			2 years 5 months			50,000
$	10.45				849,164			2 years 9 months			193,888
$	13.14				605,000			3 years 9 months			101,667
$	16.94				50,000			4 years 7 months			0
$	15.46				568,000			4 years 9 months			0
$	6.30				19,342			3 months to 1 year 11 months			19,342
					3,136,506						884,897

 

During the three months ended March 31, 2019, 320,475 options were exercised for proceeds of $3.3 million, and in total, 320,475 common shares were issued.

 

Subsequent to the quarter end, 100,000 options were exercised for proceeds of $ 1.0 million

 

In December 2018, 568,000 five-year options with an exercise price of $15.46, to purchase common shares of the Company, with a fair value, at the date of the grant, of $4.3 million, were granted. Of these, 408,000 options were granted to board members that are subject to shareholder approval. At the end of the second quarter of 2019, and if approved by shareholders, the fair value will be re-estimated. 150,000 options were granted to members of senior management. Vesting of the options to the board members and senior management is subject to the Company entering into a major transaction on one of the Company’s two core assets or other transformative transaction. The remaining 10,000 options were granted to a member of management and vest over a three-year period. The fair value of these options is being amortized over the service life of the options.

 

In October 2018, 50,000 five-year options with an exercise price of $16.94, to purchase common shares of the Company, with a fair value, at the date of the grant, of $0.4 million, were granted to a new member of the Board of Directors. Vesting of these options is subject to the Company entering into a major transaction on one of the Company’s two core exploration properties or other transformative transaction. The fair value of these options is being amortized over the service life of the options.

 

In 2018, the Board granted 68,000 RSUs to members of management. The fair value of the grants, of $1.1 million, was estimated as at the grant date and was amortized over the expected service period of the grants. The expected service period of three and a half months from the date of the grant was dependent on certain corporate objectives being met. As at March 31, 2019, the fair value of the grants was fully amortized. Subsequent to the quarter end, all 68,000 RSUs were vested and were exchanged for common shares of the Company.

 

 

d)

Basic and diluted net loss per common share

 

For the three months March 31, 2019 and 2018, basic and diluted net loss per common share are computed by dividing the net loss for the period by the weighted average number of common shares outstanding for the year. The potential effect of stock options, RSUs and warrants has been excluded from the calculation of diluted loss per common share as the effect would be anti-dilutive. At March 31, 2019, there was a total of 3,136,506 stock options and 68,000 RSUs outstanding (March 31, 2018 – 3,088,309 and 62,750 respectively).

 

13.

Fair value of financial assets and liabilities

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value.

 

Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2: Inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts, volatility measurements used to value option contracts and observable credit default swap spreads to adjust for credit risk where appropriate), or inputs that are derived principally from or corroborated by observable market data or other means.

 

Level 3: Inputs are unobservable (supported by little or no market activity).

 

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.

 

The Company’s financial assets and liabilities as at March 31, 2019 and December 31, 2017 are cash and cash equivalents, short-term deposits, accounts receivable, marketable securities, and accounts payable and accrued liabilities. Other than investments, the carrying values approximate their fair values due to the immediate or short-term maturity of these financial instruments and are classified as a Level 1 measurement. The Company’s equity investments are measured at fair value based on quoted market prices and are classified as a level 1 measurement.

 

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, and receivables included in amounts receivable and prepaid expenses. The Company has no significant concentration of credit risk arising from operations. 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, 2019, the Company had a cash and cash equivalents of $1.9 million and short-term deposits of $15.1 million (December 31, 2018 - $2.9 million and $17.1 million, respectively) for settlement of current financial liabilities of $4.2 million (December 31, 2018 - $4.7 million).

 

 

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 in 2019 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. The short-term deposits consist of Canadian Schedule I bank guaranteed deposits and are cashable in whole or in part with interest at any time to maturity. 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.

 

In addition, as at March 31, 2019, the Company had commitments of $5.1 million required to be paid in 2019, including $0.7 million to maintain its mineral property claims in good standing. If required, the Company will seek additional sources of cash, in 2019 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. The short-term deposits consist of Canadian Schedule I bank guaranteed deposits and are cashable in whole or in part with interest at any time to maturity. The Company's financial liabilities primarily have contractual maturities of 30 days and are subject to normal trade terms.

 

Market Risk

 

(a)

Interest Rate Risk

The Company has no interest-bearing debt. 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 currency converted from its Canadian dollar bank accounts held in Canada. Management believes the foreign exchange risk derived from currency conversions is not significant to its operations and therefore does not hedge its foreign exchange risk. As at March 31, 2019, the Company holds $1.0 million of cash and cash equivalents and $0.2 million of accounts payable and accrued liabilities denominated 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. In addition, the Company holds $2.5 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.

 

 

14.

Corporate and administrative expenses

 

($000s)			2019				2018
Employee compensation			1,154				989
Stock-based compensation			2,470				2,005
Professional fees			164				151
Other general and administrative			684				531
			4,472				3,676

 

15.

Related party disclosures

 

During the three months ended March 31, 2019, other than compensation paid to key management personnel, a private company controlled by an officer was paid nil (2018 - $50,100) for legal services rendered. 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.

 

16.

Income taxes

 

During the three months ended March 31, 2019, the Company recognized income tax recovery of $0.3 million (2018 - $0.3 million income tax expense) 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 December 2018 flow-through shares issued which are capitalized for accounting purposes.

 

As disclosed in the December 31, 2018 financial statements, during the current quarter the Company received a notice from the Canada Revenue Agency (“CRA”) that it proposes to reduce the amount of expenditures reported, as Canadian Exploration Expenses (“CEE”) for the three-year period ended December 31, 2016. 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, subsequent to the current quarter end, responded to the CRA with additional information for their consideration. The Company is awaiting a response to the submission.

 

 

Page 20

 

EXHIBIT 99.2

 

SEABRIDGE GOLD INC.

 

 

 

 

 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

FOR THE THREE MONTHS ENDED

MARCH 31, 2019

 

 

 

 

 

 

 

 

 

 

 

SEABRIDGE GOLD INC.

 

Management’s Discussion and Analysis

 

The following Management’s Discussion and Analysis (“MD&A”) of Seabridge Gold Inc. (“Seabridge” or the “Company”) and its subsidiary companies, dated May 13, 2019, is intended to supplement and complement the unaudited condensed consolidated interim financial statements and notes (“consolidated interim financial statements”) thereto as at and for the three months ended March 31, 2019. This MD&A should be read in conjunction with the Company’s audited annual consolidated financial statements and related notes for December 31, 2018 and the related MD&A included in the 2018 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.net. 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 disclosed.

 

The consolidated interim financial statements for the three months ended March 31, 2019 and the comparative period ended March 31, 2018 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 gold properties located in North America. The Company’s objective is to provide its shareholders with exceptional leverage to a rising gold price. The Company’s business plan is to increase its gold ounces in the ground but not to go into production on its own. The Company will either sell projects or participate in joint ventures towards production with major mining companies. During the period 1999 through 2002, when the price of gold was lower than it is today, Seabridge acquired 100% interests in eight advanced-stage gold projects situated in North America. Seabridge’s principal projects include the KSM (Kerr-Sulphurets-Mitchell) property located in British Columbia and the Courageous Lake property located in the Northwest Territories. In 2016, the Company acquired 100% of the common shares of SnipGold Corp. (“SnipGold”) and its 100% owned Iskut Project and the adjacent claims within the KSP Project all in in British Columbia. In 2017, the Company purchased 100% of Snowstorm Exploration LLC and its Snowstorm Project in Nevada. 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”.

 

Results of Operations

 

The Company incurred a $4.1 million net loss for the three months ended March 31, 2019 or $0.07 per share compared to a net loss of $10.7 million or $0.18 per share for the comparative period ended March 31, 2018.

 

Corporate and administrative expenses, including stock-based compensation were the most significant items contributing to losses in the current quarter ended March 31, 2019. Other income reported for flow-through shares offset some of these expenses in the current quarter. These and other items are discussed further below.

 

 

Corporate and administrative expenses increased by $0.8 million, from $3.7 million in the first quarter 2018 to $4.5 million in the first quarter 2019. The increase was mainly due to higher stock-based compensation incurred during the first quarter 2019. Cash compensation increased by $0.2, from $1.0 million in the first quarter 2018 to $1.2 million in the current quarter, mainly due to higher exchange rates affecting US denominated payroll and benefit costs.

 

Corporate, non-project related staffing levels have remained consistent between the current period and comparative period. Cash compensation may increase marginally from current levels as administrative staffing levels change. Stock-based compensation expense, comprising of stock options and RSUs, increased by $0.5 million, from $2.0 million in the first quarter 2018 to $2.5 million in the first quarter 2019. The increase was due to the fact that the fair value of options granted in December 2018, and expensed in first quarter 2019, had a higher fair value when compared to the options granted late in 2017 and expensed in first quarter 2018. Also, the fair value of RSUs granted in December 2018, and expensed in first quarter 2019, was higher than the fair value of RSUs granted in December 2017 and expensed in first quarter 2018. The stock-based compensation expense is expected to decrease over the next few quarters as the RSUs have fully been expensed and majority of the stock options will fully vest by the third quarter of 2019.

 

The Company’s stock-based compensation expenses related to stock options and restricted share units are illustrated on the following tables:

 

Options granted		Number of options				Exercise price ($)				Grant date fair value ($000s)				Expensed prior to 2018 ($000s)				Expensed in 2018 ($000s)				Expensed in 2019 ($000s)				Remaining balance to be expensed ($000s)
December 21, 2015			365,000				11.13				1,959				1,959				-				-				-
March 24, 2016			100,000				13.52				684				658				26				-				-
August 11, 2016			50,000				17.14				438				349				89				-				-
December 19, 2016			890,833				10.45				6,159				5,505				469				47				138
December 14, 2017			605,000				13.14				4,303				210				3,321				141				631
October 11, 2018			50,000				16.94				421				-				96				107				218
December 12, 2018			568,000				15.46				4,280				-				276				1,307				2,697
															8,681				4,277				1,602				3,684

 

RSUs granted		Number of RSUs				Grant date fair value ($000s)				Cancelled prior to 2017 ($000s)				Expensed prior to 2018 ($000s)				Expensed in 2018 ($000s)				Expensed in 2019 ($000s)				Remaining balance to be expensed ($000s)
December 19, 2013			235,000				2,267				24				2,243				-				-				-
December 9, 2014			272,500				2,624				-				2,624				-				-				-
December 31, 2015			94,000				1,046				-				1,046				-				-				-
December 19, 2016			125,500				1,311				-				1,311				-				-				-
December 14, 2017			65,000				854				-				136				718				-				-
December 12, 2018			68,000				1,051				-				-				183				868				-
											24				7,360				901				868				-

 

 

Other corporate and administrative costs in the current quarter were marginally higher than the comparable period of 2018. The Company does not anticipate significant increases in general and administrative costs for the remainder of 2019.

 

The Company recognized $0.1 million of other income in the first quarter 2019 related to the flow-through share premium recorded on the financing completed in December 2018 (discussed below). The Company recognized $0.8 million of other income in the first quarter 2018 related to the flow-through share premium recorded on financings completed in April and December 2017.

 

In the first quarter 2018, the Company charged $7.4 million of rehabilitation costs to the statement of operations and comprehensive loss related to the filing of a Johnny Mountain Mine reclamation report in British Columbia and the charge was added to the provision for reclamation liabilities on the statement of financial position at March 31, 2018. The report estimated the full closure at approximately $9.1 million with costs expected to be incurred over five years. Significant costs include estimates of 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. All costs incurred associated with these activities in the first quarter of 2019 have been charged to the provision for reclamation liabilities.

 

The Company holds investment in an associate that is accounted for on the equity basis. During the three months ended March 31, 2019, the Company recorded its proportionate share of the associate’s net loss of $0.05 million (March 31, 2018 – $0.04 million).

 

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 three months ended March 31, 2019, the Company disposed its holdings in one investment with a fair value of $0.1 million (March 31, 2018 – nil). At March 31, 2019, the Company recognized a $5,000 (March 31, 2018 - $0.4 million) reduction in the fair value of these investments that was recorded within comprehensive loss on the consolidated statements of operations and comprehensive loss.

 

During the three months ended March 31, 2019, the Company recognized income tax recovery of $0.3 million (2018 - $0.3 million income tax expense) 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 December 2018 flow-through shares issued which are capitalized for accounting purposes.

 

 

Quarterly Information

 

Selected financial information for the last eight quarters ending March 31, 2019 is as follows:

 

(unaudited)

 

Quarterly operating results ($000s)		1st Quarter Ended March 31, 2019				4thQuarter Ended December 31, 2018				3nd Quarter Ended September 30, 2018				2nd Quarter Ended June 30, 2018
Revenue			-				-				-				-
Loss for period			(4,088	)			(4,030	)			(2,831	)			(2,403	)
Basic loss per share			(0.07	)			(0.07	)			(0.05	)			(0.04	)
Diluted loss per share			(0.07	)			(0.07	)			(0.05	)			(0.04	)

 

Quarterly operating results ($000s)		1st Quarter Ended March 31, 2018				4th Quarter Ended December 31, 2017				3nd Quarter Ended September 30, 2017				2nd Quarter Ended June 30, 2017
Revenue			-				-				-				-
Loss for period			(10,676	)			(5,206	)			(1,535	)			(1,715	)
Basic loss per share			(0.18	)			(0.09	)			(0.03	)			(0.03	)
Diluted loss per share			(0.18	)			(0.09	)			(0.03	)			(0.03	)

 

The loss for the fourth quarter of 2018 includes administrative costs related to remuneration and stock-based compensation for option and RSU awards. The other three quarters of 2018 are comparable to the previous four quarters in 2017 as the majority of the current and comparable losses comprised administrative expenses offset by varying income related to the flow through share premiums. In the first quarter 2017, the Company recorded $7.4 million of rehabilitation costs to the statement of operations and comprehensive loss related to the filing of the Johnny Mountain Mine reclamation report in British Columbia.

 

Mineral Interest Activities

 

In the first quarter 2019 the Company added an aggregate of $5.1 million of expenditures that were attributed to mineral interests. Of the $5.1 million expenditures, $1.7 million was related to the fair value of common shares issued to buy out and extinguish a net smelter return that was held on certain claims within the KSM project. Cash expenditures of $3.2 million were made at KSM (67%), Courageous Lake (12%), Iskut (10%), and Snowstorm (11%).

 

Based on the drilling program completed in 2018, the Company updated its mineral resource estimate for the Iron Cap deposit. Iron Cap is one of four large gold/copper porphyry deposits within the KSM Project. The updated resource estimate incorporated all previous drillings plus 20,341 meters of diamond core drilling completed in 18 holes during the 2018 program. The update increased the size of the overall resource and with further study, exploration and evaluation could take a more prominent place in eventual mine planning and has the potential to improve project economics.

 

The 2019 exploration program at Snowstorm commenced in the first quarter of 2019 where a ground geophysical study was completed. The results of the study will further refine drill targets and the first drill program is planned for later in the year.

 

 

The 2019 planned exploration programs at KSM and Iskut are expected to commence at the end of the second fiscal quarter of 2019. Currently no field work is planned, for 2019, at Courageous Lake however the Company continues to evaluate the results of the 2018 exploration and drilling program that identified two new gold zones, Olsen and Marsh Pond, and also found two other target zones that, with additional work, could potentially contribute to the resource base at the Courageous Lake Project.

 

Liquidity and Capital Resources and Subsequent Event

 

The Company’s working capital position at March 31, 2019, was $15.8 million, down from $18.0 million at December 31, 2018. Included in current liabilities at March 31, 2019 is $0.7 million for flow-through premium liability which is a non-cash item (December 31, 2018 - $0.8 million) and will be reduced as flow-through expenditures are incurred. Cash resources, including cash and cash equivalents and short-term deposits, have increased due to the exercise of 320,475 options in the current quarter for proceeds of $3.3 million. The Company however, incurred exploration costs at KSM and Courageous Lake in addition to corporate and administrative costs, reducing cash balances. Subsequent to the quarter end, 100,000 options were exercised for proceeds of $1.0 million.

 

In December 2018, the Company issued 250,000 flow-through common shares at $20.50 per share for aggregate gross proceeds of $5.1 million. Proceeds of this financing will be used to fund the 2019 KSM and Iskut programs. The Company was 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, 2018. A $0.8 million premium was recognized as a liability on the consolidated statements of financial position with the balance recorded as share capital. During the three months ended March 31, 2019, $0.8 million of qualifying exploration expenditures were incurred and $0.1 million premium was recognized through other income on the consolidated statement of operations and comprehensive loss.

 

In November 2018, the Company closed a non-brokered private placement of one million common shares at a price of $14.00 per share for gross proceeds of $14.0 million. As part of the private placement agreement, the Company also granted an option to increase the size of the private placement by an additional 250,000 common shares exercisable until December 24, 2018. The 250,000 options were fully exercised on December 14, 2018 at the price of $14.00 per share, for additional gross proceeds of $3.5 million.

 

In May 2018, the Company closed a flow-through financing and issued 1,150,000 flow-through common shares at $17.16 per share for gross proceeds of $19.7 million. The Company was 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, 2018. A $4.1 million premium was recognized as liability on the consolidated statements of financial position with the balance recorded as share capital. During the period from May 2018 through December 31, 2018, the $19.7 million of qualifying exploration expenditures were fully incurred and the $4.1 million premium was fully recognized through other income on the consolidated statements of operations and comprehensive loss.

 

 

Subsequent to the quarter end, the Company filed a short form base shelf prospectus with securities commissions in Canada and a corresponding registration statement on Form F-10 with the United States Securities and Exchange Commission. The shelf prospectus filings will allow the Company to make offerings of common shares up to an aggregate total of $100 million until June 2021 and provides flexibility should additional funding be required for general corporate purposes or future exploration and evaluation work on the Company’s projects. Common shares may be offered in amounts, at prices and on terms to be determined based on market conditions at the time of sale and set forth in one or more shelf prospectus supplements and, subject to applicable regulations, may include at-the-market transactions, public offerings or strategic investments.

 

During the current quarter, operating activities, including working capital adjustments, used $2.9 million compared to $1.9 million used by operating activities in the comparative quarter in 2018. In 2017, the Company deposited $1.8 million with tax authorities along with an objection to a reassessment of 2010 and 2011 refunds received under the British Columbia Mineral Exploration Tax Credit program. In the current quarter, the Company received a decision from the appeals division that the objection was denied, and the Company was reassessed for the balance. The Company has filed a notice of claim with the Supreme Court of British Columbia and intends to vigorously defend its position within that court. The balance of the re-assessment remains recorded within accounts payable and accrued liabilities on the statement of financial position as at March 31, 2019. Operating activities in the near-term are not expected to deviate significantly from the current quarter.

 

In 2001, the Company purchased a 100% interest in an array of assets associated with mineral claims in the Skeena Mining Division, British Columbia. In 2014, the Company entered into an agreement with IDM Mining (“IDM”) to option the Red Mountain Project. In 2017, IDM exercised the option to acquire the project. Upon commencing commercial production IDM must pay the Company an additional $1.5 million and, either an additional $4 million or sell to the Company up to 50,000 ounces of gold at a pre-determined price.

 

In 2001, the Company purchased a 100% interest in mineral claims in Lake County, Oregon. In 2011, subject to an agreement between the Company and Orsa Ventures Corp. (now Alamos Gold Inc. or “Alamos”), the Company granted Alamos the exclusive option to earn a 100% interest in the Quartz Mountain gold property. Upon the completion of a feasibility study, Alamos must pay the Company $3 million and, at the option of the Company, either an additional $15 million or provide a 2% net smelter return royalty on production.

 

The Company will continue its objective of advancing its major gold projects, KSM and Courageous Lake, and to further explore the Iskut Project to either sell or enter into joint venture arrangements with major mining companies.

 

Outlook

 

In 2019, the Company will complete an exploration program at KSM evaluating the potential for blind porphyry targets that could enhance the value of the project. In the past, several potential blind targets have been recognized, but were not mature enough to prioritize for drilling. The 2019 program will entail a deep penetrating geophysical survey west of the current deposits to refine the targets.

 

At Iskut, the Company will carry out an exploration program to complete target identification and recommend drilling on a potential porphyry deposit below the Quartz Rise lithocap. The program will concentrate on completing a geophysical survey to identify the upper reaches of an interpreted intrusive body that is imaged as an intense chargeability anomaly. In conjunction, surface mapping and sampling to define the exposed margins of the porphyry system will be conducted in un-explored areas. In addition to the exploration work at Iskut, the Company will continue with the 2019 portion of the reclamation and closure activities at the Johnny Mountain mine site.

 

 

At Snowstorm, the Company plans to continue with its exploration program to complete the prioritization of drill targets and execute an initial drill program. Field work to date has identified several well-developed structures with robust geochemical anomalies.

 

The Company continues to evaluate the results of the 2018 exploration and drill program at Courageous Lake and will evaluate the merits of various future work programs. Future plans may entail additional follow-up drilling and other exploration activities.

 

As disclosed in the December 31, 2018 financial statements, during the current quarter the Company received a notice from the Canada Revenue Agency (“CRA”) that it proposes to reduce the amount of expenditures reported, as Canadian Exploration Expenses (“CEE”) for the three-year period ended December 31, 2016. 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, subsequent to the current quarter end, responded to the CRA with additional information for their consideration. The Company is awaiting a response to the submission.

 

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).

 

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, 2019 and ended on March 31, 2019, 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, 2019, that they are appropriately designed and effective and that since the December 31, 2018 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.

 

Shares Issued and Outstanding

 

At May 13, 2019, the issued and outstanding common shares of the Company totaled 61,821,047. In addition, there were 3,036,506 stock options and 500,000 warrants outstanding. Assuming the conversion of all of these instruments outstanding, there would be 65,357,553 common shares issued and outstanding.

 

Related Party Transactions

 

During the three months ended March 31, 2019, other than compensation paid to key management personnel, a private company controlled by an officer was paid nil (2018 - $50,100) for legal services rendered. 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.

 

Changes in Accounting Standards Implemented or Not Yet Adopted

 

Accounting standards recently adopted

 

IFRS 16, effective January 1, 2019, Leases (“IFRS 16”) replaced IAS 17 Leases. The new standard requires lessees to recognize assets and liabilities for most leases. Application of the standard was mandatory for annual reporting periods beginning on or after January 1, 2019. The Company adopted IFRS 16 using the modified retrospective approach and recognized lease liability of $0.3 million and right-of-use assets of $0.3 million on January 1, 2019. The liability was determined as the present value of the Company’s unavoidable lease payments, discounted at the Company’s incremental borrowing rate of 11.09%. The profit and loss impact is recognition of interest expense associated with this lease liability, accrued at the incremental borrowing rate, and amortization of the corresponding right-of-use assets over their remaining lease terms. The majority of the Company’s leases are of a short-term nature, for which the company applied exemptions available under IFRS 16.

 

IFRIC Interpretation 23, Uncertainty over Income Tax Treatments (“IFRIC Interpretation 23”) The interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The interpretation was applicable for periods beginning on or after January 1, 2019. Under this interpretation, the key test is whether it is probable that the tax authorities will accept a chosen tax treatment. If it is probable, then the amount recorded in the consolidated interim financial statements must be the same as the treatment in the tax return. If it is not probable, then the amount recorded in the consolidated interim financial statements would be different than in the tax return and would be measured as either the most likely amount or the expected value. The interpretation also requires companies to reassess the judgments and estimates applied if facts and circumstances change because of examination or actions by tax authorities, following changes in tax rules or when a tax authority’s right to challenge a treatment expires. The Company adopted the interpretation in its consolidated interim financial statements on January 1, 2019. The adoption of this interpretation did not impact the Company’s consolidated interim financial statements.

 

 

Critical Accounting Estimates

 

Critical accounting estimates used in the preparation of the consolidated financial statements include the Company’s estimate of recoverable value of its mineral properties and related deferred exploration expenditures, the value of stock-based compensation, asset retirement obligations and deferred income tax. All of these estimates involve considerable judgment and are, or could be, affected by significant factors that are out of the Company’s control.

 

The factors affecting stock-based compensation include estimates of when stock options and compensation warrants might be exercised and the stock price volatility. The timing for exercise of options is out of the Company’s control and will depend upon a variety of factors, including the market value of the Company’s shares and financial objectives of the stock-based instrument holders. The Company used historical data to determine volatility. However, the future volatility is uncertain.

 

The recoverability of the carrying value of mineral properties and associated deferred exploration expenses is based on market conditions for minerals, underlying mineral resources associated with the properties and future costs that may be required for ultimate realization through mining operations or by sale. The Company is in an industry that is dependent on a number of factors including environmental, legal and political risks, the existence of economically recoverable reserves, the ability of the Company and its subsidiaries to obtain necessary financing to complete the development, and future profitable production or the proceeds of disposition thereof.

 

The provision for asset retirement obligations is the best estimate of the present value of the future costs of reclaiming the environment that has been subject to disturbance through exploration activities or historical mining activities. The Company uses assumptions and evaluates technical conditions for each project that have inherent uncertainties, including changes to laws and practices and to changes in the status of the site from time-to-time. The timing and cost of the rehabilitation is also subject to uncertainty. These changes, if any, are recorded on the statement of financial position as incurred.

 

The Company has net assets in Canada and the United States and files corporate tax returns in each. Deferred tax liabilities are estimated for tax that may become payable in the future. Future payments could be materially different from our estimated deferred tax liabilities. We have deferred tax assets related to non-capital losses and other deductible temporary differences. Deferred tax assets are only recognized to the degree that it shelters tax liabilities or when it is probable that we will have enough taxable income in the future to recover them.

 

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 and as supplemented by the Short Form Base Shelf Prospectus filed on SEDAR on April 29, 2019 and Form F-10/A filed on EDGAR on May 1, 2019.

 

 

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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