Quarterly
Information
Selected
financial information for the last eight quarters ending September 30, 2022 is as follows:
| | |
2022 | | |
2021 | | |
2020 | |
| (in thousands of Canadian dollars, except per share amounts) | |
Q3 | | |
Q2 | | |
Q1 | | |
Q4 | | |
Q3 | | |
Q2 | | |
Q1 | | |
Q4 | |
| Revenue | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Earnings (loss) for the period | |
| 5,045 | | |
| 19,088 | | |
| (6,281 | ) | |
| (8,546 | ) | |
| (822 | ) | |
| 14,548 | | |
| (4,285 | ) | |
| (12,653 | ) |
| Basic earnings (loss) per share | |
| 0.06 | | |
| 0.24 | | |
| (0.08 | ) | |
| (0.11 | ) | |
| (0.01 | ) | |
| 0.19 | | |
| (0.06 | ) | |
| (0.18 | ) |
| Diluted earnings (loss) per share | |
| 0.06 | | |
| 0.24 | | |
| (0.08 | ) | |
| (0.11 | ) | |
| (0.01 | ) | |
| 0.19 | | |
| (0.06 | ) | |
| (0.18 | ) |
During
the second and third quarter of 2022, the unrealized gain related to the change in the fair value of the secured note was $31.6 million
and $24.9 million, respectively. 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 fourth quarter 2020, the vesting period of certain stock options was re-estimated to reflect the purchase of the Snowfield property
from Pretium Resources Inc. for $127.5 million. The purchase 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 those stock options 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
Interests and Site Capture Activities
During
the nine months ended September 30, 2022, the Company added an aggregate of $34 million of expenditures that were attributed to mineral
interests. The breakdown of the mineral interests expenditures by project is illustrated on the following table:
| ($000s) | |
| Amount | | |
| Percentage | |
| KSM | |
| 23,281 | | |
| 68 | % |
| Iskut | |
| 6,388 | | |
| 19 | % |
| Snowstorm | |
| 2,632 | | |
| 8 | % |
| +3 Aces | |
| 1,237 | | |
| 4 | % |
| Courageous Lake | |
| 522 | | |
| 1 | % |
| Total expenditures | |
| 34,060 | | |
| 100 | % |
During
the current quarter, the Company’s main efforts and most significant spending were focused on its 2022 site capture and early infrastructure
development activities that are designed to ensure that KSM’s Environmental Assessment Certificate (“EAC”) remains
in good standing. During the current quarter, the Company also filed a full updated pre-feasibility study (“PFS”) for KSM.
The full study included a preliminary economic assessment (“PEA”) for mineral resources at KSM, not included in the PFS resources.
Results of the PFS and PEA are discussed below.
On
site capture activities, under the B.C. Environmental Assessment Act, a project’s EAC is subject to expiry if the project has not
been substantially started (“Substantial Start”) by the deadline specified in the EAC. The expiry date 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 on or before the before the deadline, the EAC remains in effect for the life of the project. The 2022 full year plan for site
capture is approximately $150 million and is being funded by the proceeds of the US$225 million secured note issued in March 2022. Significant
activities include road, bridge and camp construction, hydro installations, fish habitat offsetting programs and the acquisition and
transport of construction equipment and vehicles.
The
site capture expenditures during the nine months ended September 30, 2022 are illustrated below:
| ($000s) | |
Balance
January 1,
2022 | | |
Expenditures
2022 | | |
Credits
20221 | | |
Net
expenditures
2022 | | |
Balance
September 30,
2022 | |
| Capital expenditure | |
| 30,024 | | |
| 106,927 | | |
| (1,735 | ) | |
| 105,192 | | |
| 135,216 | |
| Capitalized borrowing costs | |
| - | | |
| 9,775 | | |
| - | | |
| 9,775 | | |
| 9,775 | |
| | |
| 30,024 | | |
| 116,702 | | |
| (1,735 | ) | |
| 114,967 | | |
| 144,991 | |
| 1) | Cost
recoveries related to the Coulter Creek Access Road joint venture. |
The
results of the PFS show a considerably more sustainable and profitable mining operation than its 2016 predecessor. It envisages an all
open pit mine plan that includes the Mitchell, East Mitchell and Sulphurets deposits only with a 33 year operating life. Mill production
is increased from an initial 130,000 metric tonnes per day (tpd) to 195,000 tpd in the third year of production. The primary reasons
for the improvements in the plan arise from the acquisition of the East Mitchell resource in December 2020 and an expansion to planned
mill throughput. The many design improvements over earlier studies include a smaller environmental footprint, reduced waste rock production,
reduced greenhouse gas emissions by electrification of the mine haul fleet, a 50% increase in mill throughput, and the elimination of
capital-intensive block cave mining.
Projected
economic results of the study compared to the 2016 study and against alternate scenarios are illustrated below.
| | |
2016
PFS
Base Case | | |
2022 PFS
Base Case | | |
2022
PFS
Recent Spot
Case | | |
2022
PFS
Alternate
Case | |
| Metal Prices: | |
| | |
| | |
| | |
| |
| Gold ($/ounce) | |
| 1,230 | | |
| 1,742 | | |
| 1,850 | | |
| 1,500 | |
| Copper ($/pound) | |
| 2.75 | | |
| 3.53 | | |
| 4.25 | | |
| 3.00 | |
| Silver ($/ounce) | |
| 17.75 | | |
| 21.90 | | |
| 22.00 | | |
| 20.00 | |
| Molybdenum ($/lb) | |
| 8.49 | | |
| 18.00 | | |
| 18.00 | | |
| 18.00 | |
| US$/Cdn$ Exchange Rate: | |
| 0.80 | | |
| 0.77 | | |
| 0.77 | | |
| 0.77 | |
| Cost Summary: | |
| | | |
| | | |
| | | |
| | |
| Operating Costs Per Ounce of Gold Produced (years 1 to 7) | |
$ | 119 | | |
$ | 35 | | |
$ | -83 | | |
$ | 118 | |
| Operating Costs Per Ounce of Gold Produced (life of mine) | |
$ | 277 | | |
$ | 275 | | |
$ | 164 | | |
$ | 351 | |
| Total Cost Per Ounce of Gold Produced (inclusive of all capital and closure) | |
$ | 673 | | |
$ | 601 | | |
$ | 490 | | |
$ | 677 | |
| Initial Capital (billions) | |
$ | 5.0 | | |
$ | 6.4 | | |
$ | 6.4 | | |
$ | 6.4 | |
| Sustaining Capital (billions) | |
$ | 5.5 | | |
$ | 3.2 | | |
$ | 3.2 | | |
$ | 3.2 | |
| Unit Operating Cost (US$/tonne) | |
$ | 12.36 | | |
$ | 11.36 | | |
$ | 11.36 | | |
$ | 11.36 | |
| Pre-Tax Results: | |
| | | |
| | | |
| | | |
| | |
| Net Cash Flow (billions) | |
$ | 15.9 | | |
$ | 38.6 | | |
$ | 46.1 | | |
$ | 27.9 | |
| NPV @ 5% Discount Rate (billions) | |
$ | 3.3 | | |
$ | 13.5 | | |
$ | 16.4 | | |
$ | 9.2 | |
| Internal Rate of Return | |
| 10.4 | % | |
| 20.1 | % | |
| 22.4 | % | |
| 16.5 | % |
| Payback Period (years) | |
| 6.0 | | |
| 3.4 | | |
| 3.1 | | |
| 4.1 | |
| Post-Tax Results: | |
| | | |
| | | |
| | | |
| | |
| Net Cash Flow (billions) | |
$ | 10.0 | | |
$ | 23.9 | | |
$ | 28.6 | | |
$ | 17.1 | |
| NPV @ 5% Discount Rate (billions) | |
$ | 1.5 | | |
$ | 7.9 | | |
$ | 9.8 | | |
$ | 5.2 | |
| Internal Rate of Return | |
| 8.0 | % | |
| 16.1 | % | |
| 18.0 | % | |
| 13.1 | % |
| Payback Period (years) | |
| 6.8 | | |
| 3.7 | | |
| 3.4 | | |
| 4.3 | |
The
results of the PEA announced in the current quarter is a stand-alone mine plan that was undertaken to evaluate a potential future expansion
of the KSM mine to the copper rich Iron Cap and Kerr deposits after the PFS mine plan has been completed. The PEA is primarily an underground
block cave mining operation supplemented with a small open pit and is planned to operate for 39 years with a peak mill feed production
of 170,000 t/d. The PEA demonstrates that KSM is a potential multigenerational mining project with flexibility to vary metal output.
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 planned infrastructure projects, including the continuation of the construction of the access road to site
as well as new temporary and permanent camp installations.
In
the current quarter, the Company continued the 2022 exploration and drilling program at Iskut based on the analysis of the 2021 drilling
and geophysical surveying programs. The 2022 program is designed to test the porphyry gold-copper potential at depth on the Bronson Slope
deposit as well as below the Quartz Rise Lithocap. Work is also planned to consider forming a drill testing program at an additional
site on the SnipGold claim block.
In
addition to exploration work at Iskut, the Company continued its planned 2022 reclamation and closure activities at the Johnny Mountain
mine site. Plans for 2022 included, among other items, the dismantling and removal of the historic mill and mill buildings.
At
Snowstorm, during the current quarter, the Company evaluated the results of the drilling program completed in the second quarter of 2022.
The program entailed re-entering existing drill holes and used directional drilling tools to continue drilling from known gold-bearing
intersections, toward prospective higher-grade structures. Approximately 2,500 meters of drilling was completed.
At
the 3 Aces gold project in Yukon, the Company successfully secured a five-year, Class 4 permit during the current quarter and work immediately
commenced on camp repairs, securing water sources and the drilling program. Due to the delay in the granting of the permit, the Company
has altered its original 2022 program to accommodate the shortened drilling season. The 2022 program was designed to test the exploration
model developed for a central core area that would confirm the potential for resource expansion and evaluate the applicability of the
model to establish drill targets within the 3 Aces claims.
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.
In
response to the Covid-19 pandemic, the Company 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 is conducting 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 will 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. Now with many of the travel and other restrictions reduced, the Company
fully expects to be able to continue operating its planned programs. 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. The Company will consider these same factors as it develops its 2023 plans.
Liquidity
and Capital Resources
The
Company’s working capital position at September 30, 2022, was $154.3 million compared to $36.9 million on December 31, 2021. Increased
cash resources resulted from the cash raised through financings (discussed below), and exercise of stock options, partially offset by
cash used in early infrastructure development and corresponding equipment, environmental, reclamation and exploration projects, corporate
and administrative costs, and reclamation bonding deposits for KSM. Included in current liabilities at September 30, 2022, is $0.4 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 are to
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. During the nine months ended September 30, 2022, the interest was paid in cash. 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 March 24, 2027, 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 nine months ended September 30, 2022, the Company issued 997,508 shares, at an average selling price of $22.83 per share,
for net proceeds of $22.3 million under Company’s At-The-Market offering.
During
the nine months ended September 30, 2022, the Company received $2.7 million upon the exercise of 186,007 stock options. Subsequent to
the quarter end, 100,000 stock options were exercised.
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 nine months ended September 30, 2022, the Company incurred $6.1 million of qualifying exploration expenditures and
$0.9 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, generated $10.7 million cash compared to $0.1 million
cash generated by operating activities in comparative quarter in 2021. The increase in cash generated from operating activities, was
mainly related to the foreign exchange gain, interest income, and working capital movement that was partially offset by increase in cash
compensation, general and administrative expenses and financing costs. 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 $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
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 September 30, 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. Financing future exploration and development may include the selling or entering into
new streaming and royalty arrangements.
Contractual
Obligations
The
Company has the following commitments as at September 30, 2022:
| | |
Payments due by years | |
| ($000s) | |
Total | | |
2022 | | |
2023-24 | | |
2025-26 | | |
2027-28 | |
| Capital expenditure obligations | |
| 70,424 | | |
| 16,204 | | |
| 54,220 | | |
| - | | |
| - | |
| Mineral interests | |
| 7,308 | | |
| 6 | | |
| 2,506 | | |
| 2,620 | | |
| 2,176 | |
| Flow-through share expenditures | |
| 2,683 | | |
| 2,683 | | |
| - | | |
| - | | |
| - | |
| Lease obligation | |
| 1,634 | | |
| 178 | | |
| 1,043 | | |
| 314 | | |
| 99 | |
| | |
| 82,049 | | |
| 19,071 | | |
| 57,769 | | |
| 2,934 | | |
| 2,275 | |
During
the first quarter of 2022, 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 $7.7 million to BC Hydro in 2022, and $21.2
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 $21.2 million to BC Hydro in 2022, and
$33.0 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.
Prior
to its maturity, the secured note bears interest at 6.5%, or US$14.6 million per annum, payable quarterly in arrears. The Company can
elect to satisfy interest payments in cash or by delivering common shares.
Outlook
As
mentioned above, the COVID-19 pandemic has not materially impacted the Company’s operations, financial condition or financial performance
in the current or previous quarters of 2022, but in 2020 and 2021 it caused it to reduce the scale of certain programs as it
hindered the pace of advancement at the affected projects in those years. The Company has been able to execute its 2022 exploration,
and monitoring programs at its projects as well as the site capture and early infrastructure development activities at KSM, safely and
within the constraints and safety measures implemented. Depending on potential outbreaks and additional restrictions, the pandemic may
hinder progress in the future but to date it has had no material impact to the results of operations. Although the capital markets have
been 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.
In
2022, the Company has enjoyed favorable capital markets, closing the US$225 million secured financing in the first fiscal quarter and
has successfully raised 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 impact on the Company’s operations and business.
In
addition to the extensive Substantial Start work that the Company is carrying out in 2022, it also continues 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 2022 KSM PFS includes recommendations on additional work that
could be completed to advance the project, including budget estimates. 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 difficult 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. Currently, the Company is focused on Substantial Start activities and while 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.
At
Iskut, the Company will finalize its 2022 exploration program that is focused on a potential porphyry deposit below the Quartz Rise lithocap
and on the Bronson Slope deposit. Once completed, results will be evaluated and plans for follow-up, if warranted, will be designed for
2023. Environmental work will also continue on the reclamation and closure plan for the Johnny Mountain mine.
At
Snowstorm, the Company will continue to evaluate the results of the drilling program, completed in the second quarter and determine the
most suitable follow-up program for 2023.
At
the Company’s 3 Aces project, the Company will conclude its modified 2022 drilling program and will evaluate the results along
with the knowledge garnered with the study of historical data to establish determine the most suitable follow-up program for 2023. The
overall program is focused on the discovery of a high grade mineralized deposit.
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. In the current quarter, the Company published its supplemental Sustainability Report providing
insight to the Company’s commitment to local communities, environment and sustainability. The report captures the last quarter of 2021
to highlight the Company’s progress towards integrating sustainability into its operations. The Company’s Sustainability
Reports are 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 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).
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 June 30,
2022 and ended on September 30, 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 September
30, 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 early 2023. 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
November 14, 2022, the issued and outstanding common shares of the Company totaled 80,398,664. In addition, there were 737,327 stock
options, and 34,000 RSUs. Assuming the conversion of all of these instruments outstanding, there would be 81,169,991 common shares issued
and outstanding.
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.
The
Company has elected to account for its secured note liability and all embedded derivatives as a single financial liability. The change
in fair value of the secured note liability is recognized in profit or loss. The change in the fair value related to the Company’s
own credit risk is recorded through other comprehensive income (loss).
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 future silver prices, discount rates, forecasted silver production, 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.
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 nine
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.
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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