ANNUAL REPORT 2022
KSM
Substantially Started
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ANNUAL REPORT 2022
SUBSTANTIALLY
STARTED:
Seabridge construction crews have
completed erection of a permanent,
high capacity bridge over the Bell-
Irving River for trucking copper
concentrate out to Highway 37
and on to the ocean-going port at
Stewart and to bring supplies into
the project. A temporary bridge
(on the right) was constructed first
to enable work to proceed on the
permanent structure from both
river banks. Indigenous-owned and
managed companies have been the
mainstay of our substantially started
work programs.
4 CEO's Report to Stakeholders
10 2022 Corporate Report Card and 2023 Objectives
18 Mineral Reserves and Resources
20 Management’s Discussion and Analysis
35 Management’s Responsibility for Financial Statements
36 Report of Independent Registered Public Accounting Firm
39 Consolidated Statements of Financial Position
40 Consolidated Statements of Operations and Comprehensive Loss
41 Consolidated Statements of Changes in Shareholders’ Equity
42 Consolidated Statements of Cash Flows
43 Notes to the Consolidated Financial Statements
65 Corporate Information
CONTENTS
Forward-Looking Statements
We are making statements and providing information about our expectations for the
future which are considered to be forward-looking information or forwardlooking
statements under Canadian and United States securities laws. These include statements
regarding future plans and the timing of them, including construction activities,
the proposed production scenarios in respect of our principal projects, anticipated
exploration results at our projects and our view of the gold and copper market and
financial markets generally. The purpose of these statements is to help the reader
understand management’s current views of our future prospects and is not
intended for other purposes. This information will not necessarily be updated
unless required by securities laws. It is not investment advice. This information
is based on a number of material assumptions, and is subject to a number of
material risks, which are discussed in our annual Management's Discussion and
Analysis contained in this document under the headings “Forward-Looking
Statements” and “Risks and Uncertainties” and in the Notes to Consolidated
Financial Statements. We also refer shareholders to the more comprehensive
discussion of forward-looking information in our Annual Information Form
filed on SEDAR at www.sedar.com and our Annual Report on Form 40-F filed
on EDGAR at www.sec.gov/edgar.shtml.
CORPORATE OVERVIEW
Seabridge Gold’s resource base of gold, copper and silver is one of the world’s
largest. Our principal projects are located in Canada. Our objective is to grow
resource and reserve ownership per share. Our risk-reducing strategy: acquire
North American deposits; expand them through exploration; move them to
reserves through engineering; and sell or joint venture them to established
producers for mine construction and operation.
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ANNUAL REPORT 2022
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ANNUAL REPORT 2022
2022 Substantially Started
Activities
2022 Substantially Started activities at
KSM focused on power, camps, roads,
bridges and fish habitat areas.
Power
In February 2022 Seabridge signed an $84
million Facilities Agreement with British
Columbia Hydro and Power Authority
(BC Hydro) covering the design and
construction of facilities by BC Hydro to
supply construction phase hydro-sourced
electricity to the KSM project.
KSM will connect to BC Hydro’s existing
Northwest Transmission Line (NTL) at BC
Hydro’s Treaty Creek Switching Station
(TCT). This TCT, located where KSM’s
Treaty Creek access road meets Highway
37, is scheduled to be completed before
the end of 2025. Our KSM project team
has completed its design for a 30 km long
287 KV transmission line to interconnect
the TCT and the KSM plant site.
Previous
studies
at
KSM
originally
incorporated
diesel
power
for
construction
activities,
with
hydro
power, for operations, to be supplied
later from BC Hydro’s NTL. Connecting
to BC Hydro’s NTL earlier than previously
CEO'S REPORT TO STAKEHOLDERS
CEO'S REPORT TO STAKEHOLDERS
KSM Mitchell Deposit
CEO’S REPORT TO STAKEHOLDERS:
TOWARDS A SUBSTANTIALLY STARTED KSM
After 17 years of patient exploration, engineering and
permitting, our KSM, the world’s largest undeveloped gold-
copper project by reserves and resources, is now more
ready than ever for a joint venture. This has not been a
linear process. Many steps were required to get to this
point including two major redesigns of the mine plans and
hundreds of changes, large and small, that have de-risked the
asset, improved its economic parameters and made it more
attractive to potential partners.
The story of how we got here explains a lot about the mining
business.
We bought KSM in 2001 when copper was US$0.60 a pound
and gold was under US$300 per ounce. Although it already
had a substantial gold and copper resource, the project
was uneconomic at those metal prices but we made the
calculation that time and markets would change that. When
they did, by 2006, we started to spend money exploring KSM.
The results exceeded all our expectations.
KSM's 2012 Preliminary Feasibility Study (PFS) formed the
basis for our successful application for an Environmental
Assessment Certificate and more in-depth engagement with
our local Indigenous groups and regulators. Subsequent
major improvements were made in response to the feedback
we received. A further PFS was completed in 2016 and
the current one mid-2022. Each reflected more of what
prospective partners said they wanted and more of what
we thought would improve the value of the project, its
attractiveness to prospective partners and the joint venture
terms we could therefore expect for our shareholders.
The 2022 PFS resolved an important issue that has opened the
joint venture (JV) process to a much wider set of prospects
than the 2016 iteration. The issue was underground mining.
The 2016 PFS proposed a combination of open pit and block
cave operations which provided optimum access to the four
KSM deposits. However, only two suitable JV candidates have
had success at block caving (a serious limitation) and capital
requirements in the early years to develop the underground
workings added capital expenditures.
In 2020, we addressed this issue when we acquired the
Snowfield deposit (now named East Mitchell) right next door,
which we incorporated into the 2022 PFS for a new, open-pit-
only, mine plan. This step has potentially opened up a much
larger universe of possible bidders while also reducing life of
mine capital expenditures, despite inflationary pressures.
In 2021, we also decided to address a second issue which was
constraining our JV negotiations, namely the risk of expiry of
our Provincial Environmental Assessment Certificate (EAC).
To avoid expiry of the KSM EAC, it is necessary to undertake
sufficient permanent physical improvements to KSM to be
considered to have “substantially started” construction of the
KSM Project prior to July 29, 2026. Attaining “substantially
started” from the BC government before that date results in
the EAC lasting for the life of the project. Potential partners
did not want to undertake the expenditures required to
achieve Substantially Started status before completing a
feasibility study and making a production decision. We
therefore took on the work necessary to achieve the
Substantially Started designation.
In February 2022, we secured US$225 million in funding from
Sprott Resource Streaming and Royalty Corp. and Ontario
Teachers’ Pension Plan to fund Substantially Started activities.
We immediately started an aggressive program to construct
permanent infrastructure at KSM to mitigate the EAC expiry
risk, allowing a now expanding field of prospective partners to
concentrate on the project opportunity. This work, described
in detail below, accelerates the time frame to production,
facilitates the work of completing a FS in a timely manner and
greatly strengthens our hand in the negotiations to come.
We have also provided considerable work for the Tahltan
Nation and the Nisga’a Nation, further cementing the strong
relationship we have formed with them over the years.
With the elimination of these two issues, we are pleased
to report that our JV discussions have taken on a new life,
with more companies engaged than ever before. Recent
improvements in metal prices (see our Gold Market update
below), coupled with a much more vibrant M&A environment
for gold and copper projects, have further enhanced our
position in JV discussions. Let’s also not forget that the
gold industry is running short on reserves while the copper
industry will require new projects to meet the growing
copper demand emanating from green energy initiatives. In
recognition of these facts, we have engaged a leading mining
industry bank to assist with advancing JV negotiations.
Could we have done a joint venture deal along the way? We
received proposals but they would have meant leaving far too
much value on the table. Projects like KSM are very rare. We
think the final terms of a JV will be well worth the wait.
BC Hydro's power will transfer to Seabridge at this switching station
KSM Development History (2000 to Present)
2012 PFS used
for EAC
application
2016 PFS and PEA
Open Pit with
UG at Mitchell
and Iron Cap
PEA included UG
at Kerr
First drilling
campaign
Deep Kerr drilled
Discovered down
plunge extension of
Iron Cap
Schedule 2 amendment
for tailings management
facility (TMF) received
East Mitchell Data
Collection, Resource
Model Update
Concept Cases to integrate
East Mitchell
Substantial Start
Feasibility Study
Early Works
Access Roads, Camps,
Powerline
Started Early
Construction Works
Building
Projects Team
BC Environmental
Assessment Certificate
Extended to July 2026
US$225 raised for
SS activities.
BC Environmental
Assessment Certificate
Extended to July 2024
Deep Kerr Exploration
Adit permit and key
permit for water storage
facilities received
B.C. and Federal Environmental
Assessment approvals received
with early stage construction
permits
Acquisition
of KSM
2001
2006
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Discovered Deep Kerr and
Lower Iron Cap
Down plunge extension of
Iron Cap drilled
Acquired
East Mitchell
2020 PFS and PEA
Open Pit with
UG at Mitchell
and Iron Cap
PEA included UG at
Iron Cap and Kerr
2022 PFS and PEA
All Open Pit PFS
with Mitchell, East
Mitchell, Sulphurets
Expansion PEA
including Iron Cap
and Kerr
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ANNUAL REPORT 2022
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ANNUAL REPORT 2022
planned provides a number of significant ESG and economic
advantages including:
(i) Green hydro power will replace significant diesel power
generation over the multi-year construction phase, with a
corresponding large reduction in greenhouse gas emissions;
(ii) Hydro power is less than 25 percent of the cost of diesel-
generated power with consequent capital and operating cost
savings; and
(iii) The TCT and transmission line will eventually be required
for operations and moving this infrastructure forward in the
project schedule de-risks construction.
During 2022, site development by BC Hydro on the
TCT continued as planned with the station pad nearing
completion.
Camps
During KSM’s construction and operations,
12 camps will be utilized to support activities
on the mine side and the process and tailings
management areas of the project. Camp
capacities will be sized to accommodate
between 40 to 700 people.
During the operation phase of the Project,
four permanent camps will be utilized. Two
of the camps will be on the Treaty Creek side
of the project, servicing the mill and tailings
facility area of the project. The other two permanent camps
will be on the mine side of the project. Camp site locations
have been chosen and designed to ensure minimal land
requirements, avoid geohazards, and reduce potential for
adverse environmental effects.
During 2022, permanent accommodations at Camp 11 were
commissioned, providing 120 beds to support construction
and eventual operations on the Treaty Creek side of the
property, just off Highway 37. Earthworks for the Camp
11 area were accelerated to help de-risk construction and
operations activities which include support facilities, laydown
areas and centralized infrastructure. In 2023, Camp 11 will be
expanded to 210 beds.
During 2022, earthworks at Camp 9 in the Mitchell Valley
were completed following a successful heavy lift program.
Permanent Camp 9 will house 140 people on the mine side of the project
The 34 kilometer Coulter Creek Access Road will connect
the mine to Highway 37 via the Eskay Creek Road
The 29 kilometer Treaty Creek Access Road will
connect Highway 37 to the mill and tailings facility
CEO'S REPORT TO STAKEHOLDERS
Roads
At KSM there are two major roads planned. The Treaty Creek Access
Road will connect Highway 37 to KSM’s planned tailings facility and
mill as well as a spur to the saddle area. The Coulter Creek Access
Road will connect the mine side of the project to the existing Eskay
Creek access road to the north.
In 2022, construction of the Treaty Creek Access Road reached the
planned milestone of 17 kilometers; the remainder of which will be
completed over the next two construction seasons.
Higher than average snowpack resulted in a compressed
construction season on the Coulter Creek Access Road, which
translated into less than planned progress in 2022.
Permanent Camp 11 will eventually provide living quarters for 210 people
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ANNUAL REPORT 2022
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ANNUAL REPORT 2022
Real economic growth has ground to a halt, smothered by
debt. Public policy now dominates private markets. Trillions
of dollars in precious capital are being diverted to counteract
global warming which is inflationary and intrinsically anti-
growth. The global economy can’t meet carbon objectives
without more debt and even slower growth.
Across the Western world, governments’ huge unfunded
liabilities likely cannot be honored. The Cost of Living
Adjustment to social expenditures is itself inflationary. We
think ‘creative' default is imminent as the government loses
control of the deficit in the coming recession which even the
Fed admitted is coming in its April 12 FOMC Minutes.
The US dollar is slowly losing its status as the world’s reserve
currency. The US is no longer the world’s only superpower.
New trade alliances are working to displace the dollar as the
primary instrument of trade, particularly for energy. Financial
sanctions have made it less desirable to hold dollar reserves.
In 2022, official gold reserves went up a record 1,136 tonnes
while dollar reserves fell a record $950B.
Confidence in banks is weakening. As banks lose their
depositor base to Money Market Funds and Treasury Bills
that pay higher interest, more bank failures are very likely as
the Oracle of Omaha Warren Buffet noted recently on CNBC.
The bail-in of Credit Suisse lenders has raised the question of
whether or not bank liabilities are a reliable form of wealth.
Real assets, including gold, energy and other commodities are
ascending as stores of wealth in a world of shortages.
In an age of such profound change, with unparalleled volatility
and uncertainty, we are confident the price of gold is going
to rise. The next bull market appears to be at hand. What is
more, gold’s role is changing. We expect gold’s stability and
reliability and its universal acceptability will warrant a more
central part for it to play in the global financial system of the
future.
We are extremely thankful for the support and patience of
our shareholders over the past 23+ years as we continue
to advance and de-risk the KSM project. We are confident
that with the work we have accomplished to date, we will
soon be successful in finally securing a JV partner on terms
advantageous to Seabridge.
On Behalf of the Board of Directors,
Rudi P. Fronk
Chairman and Chief Executive Officer
April 28, 2023
CEO'S REPORT TO STAKEHOLDERS
CEO'S REPORT TO STAKEHOLDERS
Bridges
KSM has two major river crossings: one from Highway 37
across the Bell Irving River to connect with the Treaty Creek
Access Road, and a second bridge across the Unuk River along
the Coulter Creek Access Road.
In 2022, installation of the Bell-Irving River Bridge was
completed and placed into service. The bridge provides
permanent access to, what will be, KSM’s process plant and
tailings facility areas.
We are now working closely with the TCLP to open up
additional opportunities for their participation in our ongoing
Substantially Started activities.
To assist in executing its Substantially Started activities,
Seabridge has also partnered with Fluor Corporation, a
globally recognized EPCM firm, to develop an integrated KSM
project team and leverage industry best project management
processes and systems. The involvement of Fluor could prove
useful in transitioning KSM into a JV once a deal has been
signed.
The Gold Market
The world for which Seabridge was created in 1999 has
arrived. We think our original strategy of maximizing metal
ownership per share is about to pay off in a big way.
The world is fundamentally changing. Many of the most
important trends that have long characterized the world’s
financial system and economy have turned or are beginning to
turn, all at the same time. 40+ years of falling interest rates (to
5,000 year lows) is over. 4+ decades of disinflation has ended.
The pandemic added $6 trillion (T) in US debt in two years.
A $31T debt is too big for a $25T economy. A debt-to-GDP
ratio above 120% could work in an era of zero interest rates
but rising rates are driving annual interest expense to an
estimated $1T by the end of this year. The Treasury Statement
for the first 6 months of the fiscal year ended March 31,
2023 shows gross revenues down 4% to $2.048T from a year
earlier while spending soared $358B to $3.149T over the same
period. This is clearly not sustainable.
We are predicting an imminent US sovereign debt crisis
requiring a return to Federal Reserve money printing. The US
deficit is now too large to fund from private capital markets
and it continues to grow. Foreign investors and central banks
are now net sellers of Treasuries as well as US commercial
banks. Tax receipts are falling as the economy slows and
capital gains evaporate. Fed QE has already returned in the
form of the Bank Term Funding Program which JP Morgan
thinks could inject up to $2T in new Fed money into the
financial system this year. Inflation will therefore not be
defeated.
The Bell Irving Bridge provides a critical piece of infrastructure to transport
concentrate by truck from the mill to the port and bring supplies into the project
New fish habitats will replace ones disturbed by KSM
Fish Habitat
Under our project approvals, KSM is required by the Federal
Department of Fisheries and Oceans to develop and
implement a fisheries offsetting plan to compensate for
impacts to fish habitat resulting from the construction and
operation of the Project. Four fish compensation sites are
planned for the project.
Bulk earthworks at the Glacier Creek Fish Habitat Offsetting
Ponds were substantially completed by the end of the 2022
construction season, with planned revegetation scheduled for
2023.
Partnering
Wherever possible, Seabridge prioritizes the awarding of
Substantially Started work to Indigenous partners and/or
companies that have formed joint ventures with Indigenous
groups. In 2022, $142 million in contracts were awarded
to Indigenous related companies. In early 2023 the Tahltan
Nation and the Nisga’a Nation announced the formation of
a new joint venture, the Treaty Creek Limited Partnership
(TCLP), specifically designed for joint opportunities at KSM.
Fiscal 2022
Fiscal 2023
US receipts
US spending
$2,122.0
$2,048.2
$2,790.2
$3,148.9
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
US Budget Deficit: Fiscal 2022 vs 2023, first 6 months
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ANNUAL REPORT 2022
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ANNUAL REPORT 2022
Base case total cost (including initial and sustaining capital,
reclamation, and closure costs) estimated at US$601
per ounce of gold produced after copper, silver, and
molybdenum credits
After-Tax NPV (5%) estimated at US$7.9B, after tax IRR at
16.1% and after-tax payback of 3.7 years
The 2022 PFS envisages an open pit mine operation that is
scheduled to operate for 33 years. Ore delivery to the mill is
increased from an initial 130,000 tonnes per day (“tpd”) to
195,000 tpd in year three. Over the entire 33-year mine life,
ore will be fed to a flotation and gold extraction mill. The
flotation plant will produce a gold/copper/silver concentrate
for transport by truck to a nearby seaport at Stewart, B.C. for
shipment to Pacific Rim smelters. Metallurgical projections
supported by extensive metallurgical testing project a copper
concentrate with an average copper grade of 24% and a high
gold (64 g/t) and silver (177 g/t) content, making it readily
saleable. A separate molybdenum concentrate and gold-silver
doré will be produced at the KSM processing facility. Base case
metal prices used in the 2022 PFS were US$1,742 per ounce
of gold, US$3.53 per pound of copper, US$21.90 per ounce of
silver and US$18.00 per pound of molybdenum.
This objective was accomplished.
OBJECTIVE #3: Continue to strengthen our social license by
responding effectively to the needs and concerns of Treaty
and First Nations and local communities.
At KSM, Seabridge continued to develop and deepen its
relationships with Indigenous and other local communities.
What began more than fifteen years ago as engagement
on the design of the KSM project and an assessment of
community needs KSM could address, has evolved into a
partnership in our large, ‘substantially started’ work programs.
From the beginning, we emphasized preparing Indigenous
businesses to bid successfully on our contracts to maximize
OBJECTIVE #2: Complete an updated PFS incorporating the
East Mitchell deposit into the greater KSM project.
In August, we filed an updated KSM Technical Report
incorporating the East Mitchell deposit. The new Technical
Report that included the 2022 PFS and a Preliminary Economic
Assessment (the “2022 PEA”) provides a complete picture of
KSM’s potential for multi-generational gold, copper, silver,
and molybdenum production. The 2022 PFS lays out a
development option which is simplified and limited to open
pit production with a rapid payback thanks in part to a very
low strip ratio (approximately 1:1) for such a large mine.
Average annual gold production is estimated at more than
1 million ounces. The 2022 PEA defines a robust copper-rich
opportunity from block caving. Both have excellent economics
at current metal prices and share innovative environmental
enhancements including substantial electrification from hydro
sources.
The 2022 PFS shows a considerably more sustainable and
profitable mining operation than its 2016 predecessor.
The primary reasons for the improvement arise from
the acquisition of the East Mitchell open pit resource
and an expansion to planned mill throughput. The many
design improvements over the 2016 PFS include a smaller
environmental footprint, reduced waste rock production,
reduced greenhouse gas emissions by partial electrification
of the mine haul fleet, a 50% increase in mill throughput, and
elimination of capital-intensive block cave mining.
The 2022 PFS has redesigned KSM for an inflationary
environment and achieves significant capital and energy
efficiencies. Although initial capital was negatively impacted
by inflation, the mine plan was simplified to bring total
project capital down below the 2016 estimates by eliminating
sustaining capital associated with block cave development.
Important steps were also taken to make the project
less dependent on oil, especially diesel fuel, which is an
inflationary hot spot and likely to remain so. We have done
this by maximizing the use of low cost, green hydroelectric
energy.
Highlights of the 2022 PFS include:
Proven and Probable Mineral Reserves of 47.3 million
ounces of gold, 7.3 billion pounds of copper, 160 million
ounces of silver and 385 million pounds of molybdenum
Average annual metal production over the 33-year mine
life of 1.03 million ounces of gold, 178 million pounds of
copper, 3.0 million ounces of silver and 4.2 million pounds
of molybdenum
Base case operating costs estimated at US$275 per ounce
of gold produced after copper, silver, and molybdenum
credits
Reporting on Last Year
Since we launched Seabridge in October 1999, we begin
each year with a set of clear objectives focused on enhancing
shareholder value. At year end, our Board of Directors
evaluates how we performed against these objectives and
uses this evaluation in its compensation deliberations. Last
year’s annual report set out nine objectives, eight of which
were achieved. Here is a recap:
OBJECTIVE #1: Complete a joint venture (“JV”) agreement
on the KSM project with a suitable partner on terms
advantageous to Seabridge.
Although a JV has yet to be consummated, we believe that
two very important de-risking events have now been put in
place that we believe will be helpful in getting a transaction
completed over the next 12 months.
First, the new Preliminary Feasibility Study (the “2022 PFS”)
announced last June, not only demonstrates significantly
improved economics with the addition of East Mitchell into
the KSM mine plan, but more importantly, it removes any
block cave mining for the initial 30+ years of production.
Previous mine plans for KSM all involved the integration of
2022 CORPORATE REPORT CARD AND 2023 OBJECTIVES
2022 CORPORATE REPORT CARD AND 2023 OBJECTIVES
2022 Corporate Report Card
and 2023 Objectives
block cave mining into the first 10 years of production. In
the universe of potential JV partners, only two companies
have built and successfully operated large block caves over
a meaningful time period. The new open pit only mine plan
for more than 30 years is one that could be carried out by all
potential partners.
The second de-risking involves Seabridge taking on the
responsibility of ensuring that our Provincial Environmental
Assessment (“EA”) certificate does not expire by securing
funding and implementing early construction activities
designed to meet the criteria for achieving “substantially
started”. In our previous JV discussions, we had requested as
part of the earn-in that our partner not only fund a bankable
feasibility but also complete the work necessary to keep the
EA certificate in good standing. As time elapsed, this became
a difficult ask as partners were reluctant to fund such work in
advance of a construction decision.
With the new PFS and PEA in hand, we have reengaged
with all potential partners and due diligence is ongoing on a
number of fronts. In addition, we have engaged a leading
mining industry bank to assist with advancing JV negotiations.
As of now, this objective has not been met.
Our Taryn Cutler and Elizabeth Miller sharing information about job opportunities
in the Seabridge Gold booth at the Nisga’a Lisim’s Business Forum
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ANNUAL REPORT 2022
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ANNUAL REPORT 2022
2022 CORPORATE REPORT CARD AND 2023 OBJECTIVES
2022 CORPORATE REPORT CARD AND 2023 OBJECTIVES
opportunities for Indigenous workers. Years spent patiently building relationships
based on mutual respect and understanding with the Nisga’a Lisims Government
(NLG), the Tahltan Central Government (TCG), Tahltan Band Council, Iskut Band
Council and TCG Board of Directors were rewarded in 2022.
Our established communication channels with TCG and NLG flagged upcoming
contracting opportunities and the procedures for Nisga’a and Tahltan businesses
to submit RFPs. A Joint Steering Committee assessed these RFPs and their
requirements, assisted with bids, monitored awards and compliance issues
and ensured allocations to Tahltan and Nisga’a businesses were in line
with their Impact Benefit Agreements. These efforts resulted in all onsite
substantially started contracts being awarded to Indigenous businesses in
2022… a remarkable achievement. The work met our expectations, and the
job site atmosphere met the expectations of the Steering Committee.
Our Seabridge Gold bursary and Community sponsorship programs
had another successful year. Seventy students were awarded student
bursaries in 2022 and $100,000 was donated to support community
programs in Northwest BC. Two training programs were implemented
in cooperation with the NLG: a driver training program in each of the
four Nisga’a communities, and an online business proposal writing
workshop for Nisga’a entrepreneurs.
Additionally, Seabridge participated in the Gitxsan Development
Corporation and Vancouver Island University Environmental
Monitor Program, including one day in the classroom and a
2-day field school for ten students. Six of the students were
later employed by KSM contractors.
Seabridge was nominated by the Smithers District Chamber
of Commerce for “Business of the Year” in their community.
At 3 Aces, we are in the early stages of establishing
a social license to operate. Our new Watson Lake
office provided project updates and support to local
community residents, and we were awarded the
Class 4 Quarts Permit we needed for exploration.
The existing camp was upgraded to prepare for an
expanded program in 2023. The ongoing process of
listening and working with Indigenous leadership
was begun.
This objective was accomplished.
OBJECTIVE #4: Advance substantial start
activities at KSM to ensure that the project’s
Environmental
Assessment
Certificate
remains in good standing for the life of the
project.
As presented elsewhere in this annual
report, significant progress has been
made advancing early construction
activities at KSM.
This objective was accomplished.
OBJECTIVE #5: Continue exploration activities at Snowstorm.
The goals of the 2022 summer exploration program at Snowstorm were (i) to
define new drill targets across the western part of the property based on the
structural controls recognized in holes CC-23 and CC-24; and (ii) define and
prioritize drill targets on the Goldstorm claim group.
Exploration activities conducted at Snowstorm in 2022 included geological
mapping and sampling of Goldstorm, and an expanded magnetotellurics
(“MT”) survey to evaluate structures along with extensive relogging of
historical drill holes that penetrated the Paleozoic rocks at Snowstorm.
The Tertiary section, paleo-soil and Paleozoic units were investigated to
determine the timing of the soil development, concluding that it pre-
dates mineralization. A comprehensive program was then undertaken
to test pathfinder geochemistry and mineralogy of the paleo-soil,
to determine if these paleo-soils had been exposed to mineralizing
fluids. That evaluation showed elevated pathfinder elements and
crystalline clay minerals concentrated on the west side of the
Snowstorm Property coincident with MT structures analogous to
the Getchell Fault system.
As a result of the 2022 field program at Snowstorm, drill targets
have been identified that are consistent with the multiple
deposits along the Getchell Fault. Additionally, exploration
activities at the adjacent Goldstorm property have identified
drill targets. A follow up drill program is planned for 2023.
This objective was accomplished.
OBJECTIVE #6: Conduct additional drilling at Iskut focused
on the discovery of a new gold/copper porphyry deposit.
In 2022, a 10 hole, 10,600-meter core drill program
was completed at Iskut resulting in the discovery of
a large, well-mineralized breccia pipe beneath the
historical Bronson Slope skarn deposit. Represented
in the breccia pipe are multiple hydrothermal
eruptive events believed to have originated from
a deeper mineralized intrusive source. Hole SBS-
22-05 intersected 174 meters of 0.86 grams
per tonne (“gpt”) gold and 0.34% copper,
an enticing indication of the strength of the
mineralizing events that created the Bronson
Pipe.
The complexly brecciated pipe-like body,
with an indicated diameter of about 320
meters, contains varying size clasts of wall
rock, chiefly porphyritic monzonite, and
Triassic sedimentary rocks in a matrix of
quartz-magnetite. Irregular clast size
in the breccia displays intense textural
destruction
and
hydrothermal
alteration. Matrix to the breccia
consists
of
massive
magnetite,
massive quartz, and ribbon-banded
Advancing “substantially started” activities including building construction
camps at the beginning of the Coulter Creek Access Road
Soil Sampling at the Snowstorm Project in Nevada
SNOWSTORM
KSM - SUBSTANTIALLY
STARTED
15
ANNUAL REPORT 2022
14
ANNUAL REPORT 2022
OBJECTIVE #7: Continue the reclamation and closure of the
Johnny Mountain Mine in cooperation with the Tahltan Nation
and British Columbia regulators.
A summary of the progress in 2022 towards reclaiming the old
Johnny Mountain Mine included:
• Successfully deconstructing the Johnny Mountain mill
building.
• Continuing with the in-situ hydrocarbon remediation
program and progressive re-vegetation.
• Completing environmental field sampling and reporting
requirements.
• Continuing long-term monitoring programs to ensure the
stability of the Tailings Management Facility and protection
of the environment, including annual Independent Technical
Review Board meetings, annual Engineer of Record
inspections and monthly internal dam safety investigations.
• Dewatering the tailings storage facility (“TSF”) and moving
approximately 41,000m3 of potentially acid generating
waste rock with lime application into the TSF with no
negative impacts to water quality, although not all portal
pad waste was relocated to the TSF due to a late snow
season and frequent equipment breakdowns.
The work that is completed is a result of a cooperative
planning process involving the Tahltan Nation and British
Columbia regulators, which in 2022 included:
• Hosting Tahltan Central Government, Tahltan Nation
Development Corporation and various BC regulators at JMM
to view the reclamation progress.
• Contracting the largest number of Tahltan partners to date
for work at Johnny Mountain including: TNDC, Northern
Labour Services, Progressive Ventures, Inner City Diesel,
RTEC and Obsidian Matrix.
• Co-Chairing the BC Technical and Research Committee on
Reclamation conference.
• Meeting with regulators in Victoria to review reclamation
progress and ensure regulators were kept apprised of
reclamation activities in 2022 and plans for future years.
As a result of our ongoing reclamation activities at Johnny
Mountain, Seabridge was the recipient of the Jake McDonald
award for reclamation excellence in 2022, awarded by the
BC Technical and Research Committee on Reclamation. The
award received wide media coverage including various social
media posts, Smithers Interior News, Terrace Standard, and
CIM magazine, Canadian Mining Journal, Yahoo Finance,
Mining News North, Junior Mining Network, Benzinga.com,
NationTalk.ca, among others. Information on the award was
also forwarded to Alaska regulators and ENGOs.
This objective was accomplished.
Seabridge was the recipient of the Jake
McDonald award for reclamation excellence
in 2022, awarded by the BC Technical and
Research Committee on Reclamation
2022 CORPORATE REPORT CARD AND 2023 OBJECTIVES
quartz-magnetite veins. Veins of quartz-magnetite, quartz-
sulfide and magnetite are observed cutting the breccia clasts
and matrix. The scale and intensity of this breccia pipe are
unusual and a trait of many large, productive oceanic-arc
porphyry mineral systems including Grasberg (Indonesia),
Cadia Ridgeway (Australia) and Ok Tedi (Papua New Guinea).
A follow up drill program planned for 2023 is expected to
increase the gold and copper resources already defined at
Bronson Slope (measured and indicated resources of 187Mt of
0.36 gpt gold and 0.12% copper). This program will also search
for the intrusive source that is believed to exist beneath the
breccia pipe and test three other copper-gold porphyry
targets.
This objective was accomplished.
2022 CORPORATE REPORT CARD AND 2023 OBJECTIVES
ISKUT
JOHNNY MOUNTAIN
Drilling at our Iskut project
focused on the discovery
of a new gold/copper
porphyry deposit
17
ANNUAL REPORT 2022
16
ANNUAL REPORT 2022
2.10 ounces of gold per share (1.23 ounces in the measured
and indicated categories plus 0.87 in the inferred category).
Additionally, with KSM’s increase in proven and probable gold
reserves, as at KSM December 31, 2022 we had 0.66 ounces
of proven and probable reserves per common share.
In summary, year over year, proven and probable reserves
per share increased from 0.57 to 0.66 ounces (about
16%), measured and indicated increased from 1.12 to 1.23
ounces per share (about 10%) and total resources per share
increased from 2.01 to 2.10 ounces per share (about 4%). In
terms of resource quality, it is also important to report that
approximately 57% of our reported reserves are now in the
proven category (compared to 25% at year-end 2021).
This objective was accomplished.
Now for 2023…
Our primary objective continues to be completion of a joint
venture agreement on the KSM Project with a suitable partner
on terms advantageous to Seabridge. Our goals in a joint
venture are to: (1) retain a significant interest in a producing
mine; (2) minimize our capital exposure; and (3) ensure that
our partner must build a mine in order to keep its interest.
We have reported for some time that due to the size and
complexity of the KSM Project, the number of potential
partners is probably limited to fewer than 10 major gold
and base metal companies. We continue to believe that the
combination of KSM’s size, location, economics and permit
status represent one of the most compelling development
opportunities on the planet. The addition of East Mitchell
into KSM’s design has greatly improved KSM’s economics
as well as eliminated the need for block caving for the initial
three decades of production. Additionally, our ability to fund
and undertake site capture activities to achieve substantially
started status mitigates the risk of KSM’s environmental
approvals expiring in 2026. Finally, major mining companies
are finally returning to M&A activities as a necessary step to
replace their depleting reserves. New projects are needed
just to sustain current production levels for gold companies,
while copper companies need to find new projects to meet
the expected increase in copper demand due to green energy
initiatives. We think all the factors needed for a joint venture
on favorable terms to Seabridge are coming together at
this time and we are more confident than ever that we will
achieve this long-standing objective.
Here are 13 other objectives we have set for 2023:
Corporate Objectives:
1. Secure a minimum of $150 million in additional funding
that minimizes equity dilution for early construction
spending at KSM.
2. Increase gold ownership per common share by way of
accretive resource additions from acquisitions and/or
continued exploration at our projects.
Project Objectives:
3. Continue to advance work at KSM to enable us to satisfy
the requirement that we have “Substantially Started” the
project prior to the EA Certificate expiring in July 2026.
4. Continue to collect data at KSM that will be required for a
final feasibility study.
5. Substantially complete the next phase of the Johnny
Mountain Mine reclamation and closure in cooperation
with the Tahltan Nation and British Columbia regulators.
6. Complete an internal study for Courageous Lake focusing
on a smaller, less capital intensive and more robust design
to determine what the next PFS iteration should be for the
project.
ESG Objectives:
7. Continue to strengthen our social license by responding
effectively to the needs and concerns of Treaty and First
Nations and local communities.
8. Continue to implement our ESG commitments as set out
in our Sustainability Report and update our sustainability
strategy by capturing 2-3 year climate change, diversity
and governance targets.
9. Continue to build our risk management system by
capturing climate risks.
10. Promote a positive culture of Health and Safety through
continuous improvement in key leading indicators and
initiatives.
Exploration Objectives:
11. Complete a drill program of at least 12,000 meters at Iskut
to expand the Bronson Slope copper/gold resource and
test for additional porphyry occurrences on the property.
12. Complete at least 7,500 meters of drilling at 3 Aces to
test our geologic model and prioritize areas for resource
definition.
13. Complete a drill program of at least 3,500 meters at
Snowstorm to test the potential for mineralized faults
along a zone of uplifted host stratigraphy.
We look forward to reporting in 2024 on how we did against
these 14 objectives and our new goals for 2024.
OBJECTIVE #8: Subject to receipt of permits, conduct an initial
drill program at 3 Aces to confirm our geologic model.
The Class 4 Exploration Permit for 3 Aces was finally
received on September 9. Upon receipt, a drill program was
immediately initiated. Two holes were completed in the main
Hearts target area. The first hole successfully encountered
the high-grade mineralization expected for that target. The
second hole encountered mineralization over a much broader
zone than anticipated, intercepting the predicted stratigraphy
but with significantly more structural intervals than expected.
Multiple hypotheses are proposed for this difference. We
think surface geochemistry can tell us if zones are repeated,
dismembered, or change character with lateral variation in
stratigraphy which will help us design the next drill program.
Two holes were also completed on the eastern extension
of the Hearts zone. In this area a number of deformed
sandstone units were identified with extensive anomalies of
gold and arsenic in soils. A significant low-angle fault was also
identified, suggesting this untested area had characteristics of
the main Hearts zones. These holes provide further evidence
that our geologic model is correct providing us a better
understanding of gold distribution within the F2 fold hinges
and limbs and suggesting the potential of multiple stacked
gold zones. Drill holes testing this area should provide a
broader view of the fold systems and refine the interaction
between early F1 and mineralizing F2 folds before advancing
to the Spades zone.
With the Class 4 Exploration Permit now in hand, a large drill
program is planned for 2023 designed to refine the 3 Aces
geological model and create a target priority list for resource
delineation.
This objective was accomplished.
OBJECTIVE #9: Increase gold ownership per common share by
way of accretive resource additions from acquisitions and/or
continued exploration at our projects.
We ended 2021 with 79.0 million shares outstanding,
88.2 million ounces of gold in the measured and indicated
categories plus 70.8 million ounces in the inferred category.
Thus, on December 31, 2021, we reported 2.01 ounces
of gold per share (1.12 ounces were in the measured and
indicated categories plus 0.89 in the inferred category). Of
the 1.12 ounces of gold per common share in the measured
and indicated categories, 45.3 million ounces were classified
as proven and probable reserves (0.57 ounces of reserves per
common share).
To fund our 2022 programs, through November we issued
approximately 2.66 million shares comprised of:
(i)
540,834 shares in option exercises;
(ii)
148,800 shares in RSUs vesting;
(iii) 998,629 shares through the ATM; plus
(iv) 675,400 shares in a flow through financing.
Thus, as of December 31, 2022, we had 81.3 million shares
outstanding.
As part of the new KSM Technical Report completed in 2022,
we updated the resource models at KSM by incorporating
drilling from previous years that had not been incorporated
into the models. The 2022 KSM PFS also restated proven
and probable reserves for the project, with gold reserves
increasing from 38.8 million ounces to 47.3 million ounces.
Accordingly, we now have 100.2 million ounces in the
measured and indicated categories plus 70.6 million ounces
in the inferred category. Thus, at December 31, 2022 we had
Aerial shot of the 3 Aces 2022 drill
program testing the Hearts Zone
2022 CORPORATE REPORT CARD AND 2023 OBJECTIVES
3 ACES
19
ANNUAL REPORT 2022
18
ANNUAL REPORT 2022
Mineral Reserves and Resources
December 2022
The following tables provide a breakdown of Seabridge’s most recent National Instrument 43-101 compliant estimates of
mineral reserves and resources by project. Seabridge notes that mineral resources that are not mineral reserves do not have
demonstrated economic viability.
Proven and Probable Mineral Reserves
Project
Zone
Reserve
Category
Tonnes
(millions)
Average Grades
Contained Metal
Gold
(gpt)
Copper
(%)
Silver
(gpt)
Moly
(ppm)
Gold
(million
ounces)
Copper
(million
pounds)
Silver
(million
ounces)
Moly
(million
pounds)
KSM
Mitchell
Proven
483
0.74
0.20
3.3
49
11.5
2,161
51
53
Probable
452
0.59
0.15
2.5
74
8.6
1,458
36
74
East
Mitchell
Proven
814
0.69
0.11
1.8
91
18.1
2,043
47
163
Probable
392
0.46
0.09
1.7
84
5.8
784
21
73
Sulphurets
Probable
151
0.68
0.26
1.0
70
3.3
874
5
23
KSM Totals
Proven
1,297
0.71
0.15
2.4
75
29.6
4,203
98
215
Probable
995
0.55
0.14
1.9
77
17.7
3,116
62
170
Total
2,292
0.64
0.14
2.2
76
47.3
7,320
160
385
Courageous Lake
Proven
12
2.41
n/a
n/a
n/a
1.0
n/a
n/a
n/a
Probable
79
2.17
5.5
Total
91
2.20
6.5
Seabridge Totals
53.8
7,320
160
385
Mineral Resources (Includes Mineral Reserves as stated above)
Measured Resources
Project
Cut Off
Grade (g/t)
Tonnes
(000)
Gold
Copper
Silver
Molybdenum
Grade
(g/t)
Ounces
(millions)
Grade
(%)
Pounds
(millions)
Grade
(g/t)
Ounces
(millions)
Grade
(ppm)
Pounds
(millions)
KSM:
Mitchell
NSR: $10.75
$11.25
692,000
0.68
15.1
0.19
2,876
3.3
72.8
52
79
East Mitchell
1,013,000
0.65
21.1
0.11
2,514
1.8
59.2
89
198
KSM Total
1,705,000
0.66
36.2
0.14
5,390
2.4
132.0
74
277
Bronson Slope
$9 NSR
84,150
0.42
1.1
0.15
280
2.2
6.0
n/a
n/a
Courageous Lake
0.83
13,401
2.53
1.1
n/a
n/a
n/a
n/a
n/a
n/a
Quartz Mountain*
0.34
3,480
0.98
0.1
n/a
n/a
n/a
n/a
n/a
n/a
Total Measured Resources
38.6
5,670
138.1
277
SEABRIDGE GOLD
Indicated Resources
Project
Cut Off
Grade (g/t)
Tonnes
(000)
Gold
Copper
Silver
Molybdenum
Grade
(g/t)
Ounces
(millions)
Grade
(%)
Pounds
(millions)
Grade
(g/t)
Ounces
(millions)
Grade
(ppm)
Pounds
(millions)
KSM:
$10.75-
$11.25
NSR
Pits
Mitchell
1,667,000
0.48
25.9
0.14
5,120
2.8
149.2
66
241
East Mitchell
746,200
0.42
10.0
0.08
1,390
1.7
41.8
79
130
Sulphurets
446,000
0.55
7.9
0.21
2,064
1.0
14.3
53
52
Kerr
C$16
NSR
UG
374,000
0.22
2.7
0.41
3,405
1.1
13.7
5
4
Iron Cap
423,000
0.41
566
0.22
2,051
4.6
62.6
41
38
KSM Total
3,656,000
0.44
52.1
0.17
14,030
2.4
281.6
58
465
Bronson Slope
$9 NSR
102,740
0.31
1.0
0.10
222
2.2
7.2
n/a
n/a
Courageous Lake
0.83
93,914
2.28
6.9
n/a
n/a
n/a
n/a
n/a
n/a
Quartz Mountain*
0.34
54,330
0.91
1.6
n/a
n/a
n/a
n/a
n/a
n/a
Total Indicated Resources
61.6
14,252
288.8
465
Measured plus Indicated Resources
Project
Cut Off
Grade (g/t)
Tonnes
(000)
Gold
Copper
Silver
Molybdenum
Grade
(g/t)
Ounces
(millions)
Grade
(%)
Pounds
(millions)
Grade
(g/t)
Ounces
(millions)
Grade
(ppm)
Pounds
(millions)
KSM:
$10.75-
$11.25 NSR
Pits
Mitchell
2,359,000
0.54
41.1
0.15
7,996
2.9
222.0
62
320
East Mitchell
1,759,000
0.55
31.2
0.10
3,904
1.8
101.0
85
328
Sulphurets
446,000
0.55
7.9
0.21
2,064
1.0
14.3
53
52
Kerr
C$16
NSR
UG
370,000
0.22
2.7
0.41
3,405
1.1
13.7
5
4
Iron Cap
423,000
0.41
5.6
0.22
2,051
4.6
62.6
41
38
KSM Total
5,357,000
0.51
88.4
0.16
19,420
2.4
413.7
63
742
Bronson Slope
$9 NSR
186,890
0.36
2.1
0.12
502
2.2
13.2
n/a
n/a
Courageous Lake
0.83
107,315
2.31
8.0
n/a
n/a
n/a
n/a
n/a
n/a
Quartz Mountain*
0.34
57,810
0.92
1.7
n/a
n/a
n/a
n/a
n/a
n/a
Total Measured plus Indicated Resources
100,2
19,922
426.9
742
Inferred Resources
Project
Cut Off
Grade (g/t)
Tonnes
(000)
Gold
Copper
Silver
Molybdenum
Grade
(g/t)
Ounces
(millions)
Grade
(%)
Pounds
(millions)
Grade
(g/t)
Ounces
(millions)
Grade
(ppm)
Pounds
(millions)
KSM:
$10.75
NSR
Pits
Mitchell
1,283,000
0.29
11.8
0.14
3,832
2.5
102.3
47
133
East Mitchell
281,000
0.37
3.3
0.07
403
2.3
21.1
61
38
Sulphurets
223,000
0.44
3.2
0.13
639
1.3
9.3
30
15
Kerr
C$16
NSR
UG
1,999,000
0.31
19.8
0.40
17,720
1.8
114.4
23
103
Iron Cap
1,899,000
0.45
27.5
0.30
12,556
2.6
158.7
30
126
KSM Total
5,685,000
0.36
65.6
0.28
35,150
2.2
405.8
33
415
Courageous Lake:
FAT Deposit
0.83
48,963
2.18
3.4
n/a
n/a
n/a
n/a
n/a
n/a
Walsh Lake
0.60
4,624
3.24
0.5
n/a
n/a
n/a
n/a
n/a
n/a
Quartz Mountain*
0.34
44,800
0.72
1.0
n/a
n/a
n/a
n/a
n/a
n/a
Total Inferred Resources
70.6
35,150
405.8
415
* As of December 2022 the Quartz Mountain project was subject to an option agreement under which a 100% interest in the project may be acquired from Seabridge
by the optionee.
Note: United States investors are cautioned that the requirements and terminology of NI 43-101 differ significantly from the requirements of the SEC, including Industry
Guide 7 under the US Securities Act of 1933. Accordingly, the Issuer’s disclosures regarding mineralization may not be comparable to similar information disclosed
by companies subject to the SEC’s Industry Guide 7. Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability. It is reasonably
expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.
SEABRIDGE GOLD
21
ANNUAL REPORT 2022
20
ANNUAL REPORT 2022
Management’s Discussion And Analysis
For the year ended December 31, 2022
The following is a discussion of the results of operations and
financial condition of Seabridge Gold Inc. and its subsidiary
companies for the years ended December 31, 2022 and
2021. This report is dated March 30, 2023 and should be
read in conjunction with the audited consolidated financial
statements for the years ended December 31, 2022 and 2021,
the Company’s 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. Other corporate
documents are also available on SEDAR and EDGAR as well
as the Company’s website www.seabridgegold.com. As the
Company has no operating project at this time, its ability to
carry out its business plan rests with its ability to sell projects
or to secure equity or other financings. All amounts contained
in this document are stated in Canadian dollars unless
otherwise disclosed.
The consolidated financial statements for the year ended
December 31, 2022 and the comparative year ended
December 31, 2021 have been prepared by the Company in
accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards
Board.
Company Overview
Seabridge Gold Inc. is a company engaged in the acquisition
and exploration of mineral properties, with an emphasis on
gold resources, located in North America. The Company’s
objective is to provide its shareholders with exceptional
leverage to a rising gold price and the returns from significant
copper resources it has acquired. The Company’s business
plan is to increase its mineral resources in the ground,
through exploration, but not to go into production on its own.
The Company intends to sell projects or participate in joint
ventures towards production with major mining companies.
Since inception in 1999, Seabridge has acquired interests in
numerous advanced-stage gold projects situated in North
America and its principal projects include the KSM property
located in British Columbia and the Courageous Lake property
located in the Northwest Territories. The Company also holds
a 100% interest in the Iskut Project in British Columbia and
the Snowstorm Project in Nevada. In 2020, the Company
purchased its 100% interest in the 3 Aces gold project in
Yukon and acquired the East Mitchell property, adjacent to
the KSM project, in British Columbia. Although focused on
gold exploration, the Company has made significant copper
discoveries, in particular, at KSM. Seabridge’s common shares
trade in Canada on the Toronto Stock Exchange under the
symbol “SEA” and in the United States on the New York Stock
Exchange under the symbol “SA”.
During the third quarter of 2022, the Company announced Jay
Layman retired as President and COO. Mr. Layman, however,
will continue to serve as a Director of the Company and will
assist in the transitioning and mentoring of two new officer
appointments: Ryan Hoel, P.E., as Senior VP, Chief Operating
Officer and Melanie Miller as VP, Chief Sustainability Officer.
Mr. Hoel joined the Company in September 2021 as VP,
Projects and since that time has led the Substantially Started
activities at KSM. Ms. Miller joined the Company, as a
Director, in June 2019, and has served as the Chairperson of
the Company’s Sustainability Committee since its inception.
Selected Annual Information
Summary Operating Results ($000s – except per share amounts)
2022
2021
2020
Remeasurement of secured note
36,967
-
-
Gain on disposition of mineral interests
-
21,943
-
Corporate and administrative expenses
(16,090)
(13,379)
(16,530)
Foreign exchange gain (loss)
(12,874)
22
(616)
Environmental rehabilitation expense
(6,722)
(5,377)
-
Finance expense and other
(3,471)
(116)
(199)
Impairment of investment in associate
(873)
-
-
Equity loss of associate
(207)
(221)
(187)
Other income - flow-through shares
1,366
2,373
1,676
Unrealized gain (loss) on convertible notes receivable
(16)
104
-
Interest income
2,794
176
114
Income tax recovery (expense)
(8,268)
(4,630)
800
Net income (loss)
(7,394)
895
(14,942)
Basic earnings (loss) per share
$ (0.09)
$ 0.01
$ (0.23)
Summary Statement of Financial Position ($000s)
2022
2021
2020
Current assets
140,387
54,159
46,229
Non-current assets
955,232
693,583
601,588
Total assets
1,095,619
747,742
647,817
Current liabilities
51,993
17,301
10,194
Non-current liabilities
303,093
28,108
22,905
Equity
740,533
702,333
614,718
Total liabilities and equity
1,095,619
747,742
647,817
Inputs and Assumption
March 24, 2022
December 31, 2022
Weighted Average Life1
23.5 years
44.9 years
Forecast silver production, in thousands of ounces
105,778
166,144
Future silver price
US$28.96 to US$35.42
US$29.38 to US$110.51
Risk-free rate
2.5%
3.4%
Credit spread
5.2%
5.3%
Volatility
60%
60%
Silver royalty discount factor
7.1%
8.6%
MANAGEMENT’S DISCUSSION AND ANALYSIS
Results of Operations, 2022 Compared to 2021
The Company recorded net loss of $7.4 million or $0.09 per
share for the year ended December 31, 2022 compared to net
income of $0.9 million or $0.01 per share for the year ended
December 31, 2021.
During the year ended December 31, 2022, the most
significant items contributing to the net loss included
corporate
and
administrative
expenses,
environmental
rehabilitation expense, foreign exchange loss, finance costs,
and income taxes, partially offset by unrealized gain due
to change in the fair value of the Company’s secured note
liability and interest income. These items are discussed
further below.
Since the issuance on March 24, 2022, the fair value of the
secured note liability decreased by $39.9 million of which the
Company recorded $37.0 million gain through profit or loss,
and $2.9 million through other comprehensive income (loss).
The Company measures the fair value of its secured note
liability using a discounted cash flow model with a Monte
Carlo simulation. Key assumptions into this model are
summarized in the following table.
MANAGEMENT’S DISCUSSION AND ANALYSIS
1) Weighted average life reflects the revised silver forecast production schedule contained in the recently filed KSM updated Preliminary Feasibility Study (PFS) and
Preliminary Economic Assessment (PEA) for the KSM project, discussed below.
The fair value of the secured note was estimated using Level
3 inputs and is most sensitive to changes in silver prices and
forecasted silver production.
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
cash proceeds of US$18 million and recorded a gain of
$21.9 million through the statement of operations and
comprehensive earnings (loss) in that period. The capitalized
costs incurred and accumulated while the Company held the
project had previously been recovered through option and
acquisition payments and the residual interest in the project
had no carrying value.
Corporate and administrative expenses for 2022 were $16.1
million, up $2.7 million or 20% from prior year. The increase
was mainly due to higher cash compensation, and higher
professional fees and other general and administrative
expenses, partially offset by lower stock-based compensation
(discussed below).
Cash compensation increased by $1.7 million, from $5.8
million in 2021 to $7.5 million in 2022. The increased
cash compensation mainly related to an increase in non-
project headcount. Professional fees and other general and
administrative expenses increased by $0.8 million, from $1.8
million in 2021 to $2.6 million in 2022. The increase mainly
related to the costs associated with the implementation of a
23
ANNUAL REPORT 2022
22
ANNUAL REPORT 2022
compensation expense, related to RSUs, decreased by $0.4
million, from $3.5 million in 2021, to $3.1 million in 2022. The
decrease was mainly due to the fact that the RSUs granted
in December 2020 and expensed in 2021, had a higher grant
date fair value when compared to the RSUs granted during
2021 and expensed in 2022.
To the year ended December 31, 2021, the Company had
expensed all accumulated fair value associated with stock
options as the service period related to the remaining
outstanding options ended in that year. The Company’s stock-
based compensation expense related to stock options and
restricted share units are illustrated on the following tables:
new ERP system, the Company wide risk assessment review,
and sustainability reporting. Other general and administrative
expenses increased by $0.6 million, from $2.3 million in 2021
to $2.9 million in 2022. The increase was mainly related to
increased external consulting costs and travel. The Company
anticipates that personnel numbers and related remuneration
will continue to increase slightly but not as significantly as has
been the case in 2022.
The Company has, since 2019, refocused the compensation
practices away from issuing a combination of stock options
and RSUs to only issuing restricted share units (RSUs).
During the year ended December 31, 2022, stock-based
MANAGEMENT’S DISCUSSION AND ANALYSIS
The $12.9 million foreign exchange loss recognized in 2022
was the net result of $21.2 million of foreign exchange loss
associated with the secured note, partially offset by $8.3
million of foreign exchange gain recognized mainly on the
US dollar denominated cash and short-term investments
translated to Canadian dollars during the period. During the
comparative year, the Company recognized a foreign exchange
gain of $0.02 million.
The finance costs incurred during 2022 amounted to $3.5
million and were primarily related to the secured note
financing. During the comparative year, $0.1 million of finance
costs were incurred.
In 2022, the Company recognized $1.4 million of other income
related to the flow-through share premium recorded primarily
on the financings completed in June 2021 (discussed below).
During the comparative year, the Company recognized $2.4
million of other income related to the flow-through share
premium recorded on the financings completed in June 2020
and in June 2021 (discussed below).
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. In 2022, the
Company recognized an increase in fair value of investments
of $0.3 million, net of income taxes. During the comparative
year, the Company recognized a decrease in fair value of
investments, net of income taxes, of $0.4 million. The change
in the fair value of these investments was recorded within
comprehensive income (loss) on the consolidated statement
of operations and comprehensive income (loss).
The Company holds one investment in an associate that is
accounted for on the equity basis. In 2022, the Company
recognized $0.2 million loss in investment in associate. During
the comparative year, the Company recognized $0.2 million
loss in investment in associate. Also, during the second
quarter of 2022, the Company reviewed the recoverability of
the investment in the associate and recorded an impairment
of $0.9 million in the consolidated statement of operations
and comprehensive income (loss).
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 income (loss).
The Johnny Mountain Mine site was acquired, along with
the Iskut Project, during the Snip Gold acquisition in 2016.
Expenditures were expected to be incurred between 2018
and 2022 and included 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.
The Company’s reclamation activities were somewhat
curtailed during 2020 while non-essential activities were
halted, and the Company strived to reduce the numbers of
personnel in any camp at any one-time. In 2021, the Company
reassessed the closure plan for the Johnny Mountain Mine
and charged $5.4 million of rehabilitation expenses to the
consolidated statements of operations and comprehensive
income (loss). Also, in 2022, the Company reassessed the
closure plan for the Johnny Mountain Mine and charged
an additional $6.6 million of rehabilitation expenses to the
consolidated statements of operations and comprehensive
income (loss). Additional reclamation costs were mainly
the result of weather-related events that delayed 2022
reclamation activities until 2023. Costs are now expected to
be incurred until 2025.
In 2022, the Company incurred $4.5 million of environmental
rehabilitation expenditures (2020 - $3.3 million) that were
recorded as a reduction to the provision for reclamation
liabilities on the consolidated statements of financial position.
- Reclamation activities at Johnny Mountain focused on four
areas in 2022:
• Deconstruction of the mill building
• Complete the relocation of potential acid generating
waste into the tailings storage facility
• Continuing in-situ hydrocarbon remediation
• Conducting permit compliance monitoring activities
In 2022, the Company recognized income tax expense of
$8.3 million, primarily due to the deferred tax liability arising
from the gain recognized on remeasurement of the fair value
of the secured note liability, and from the renouncement
of expenditures related to the June 2021 flow-through
shares issued which are capitalized for accounting purposes.
The income tax expense was partially offset by income tax
recovery arising from the losses in the period. The income
tax impact of the revaluation of the secured note liability that
was recorded through other comprehensive income (loss)
during 2022, of $0.1 million, was also recorded through other
comprehensive income (loss).
MANAGEMENT’S DISCUSSION AND ANALYSIS
($000s)
Options granted
Exercise
price ($)
Number of
options
Grant date
fair value
Cancelled prior
to 2021
Expensed
prior to 2021
Expensed
in 2021
Expensed
in 2022
Balance to
be
expensed
December 12, 2018
15.46
568,000
4,719
-
4,711
8
-
-
-
4,711
8
-
-
($000s)
RSUs granted
Number of
RSUs
Grant date
fair value
Expensed
prior to 2021
Expensed
in 2021
Expensed
in 2022
Balance to
be
expensed
December 16, 2020
135,450
3,413
487
2,926
-
-
June 24, 2021
10,000
222
-
-
185
37
September 01, 2021
20,000
454
-
75
304
75
September 07, 2021
10,000
229
-
36
155
38
October 01, 2021
10,000
195
-
24
122
49
December 13, 2021
123,800
2,622
-
437
2,185
-
July 04, 2022
10,000
159
-
-
52
107
December 13, 2022
310,266
5,073
-
-
135
4,938
487
3,498
3,138
5,244
During the second quarter of 2022, 123,800 RSUs granted in
December 2021 vested upon the Company completing the
2021 exploration program at Snowstorm and were exchanged
for common shares of the Company. Of the total fair value
of $2.6 million, $0.4 million was charged to the statement of
operations and comprehensive loss in fourth quarter of 2021,
and the remaining $2.2 million was charged to the statement
of operations and comprehensive loss during the first and
second quarter of 2022.
During the second quarter of 2021, 10,000 RSUs were granted
to a Board member upon their appointment to the Board.
Half of those RSUs vested in the second quarter of 2022, and
the remaining half will vest on the second anniversary of their
appointment. During the third and fourth quarter of 2021,
a total of 40,000 RSUs were granted to three members of
senior management. Half of those RSUs vested during 2022,
and the remaining half will vest on the second anniversary of
their appointment in 2023. During the third quarter of 2022,
10,000 RSUs were granted to a Board member upon their
appointment to the Board. Half of those RSUs will vest on the
first anniversary of the appointment, and the remaining half
will vest on the second anniversary of the appointment.
During the first six months of 2021, 135,450 RSUs, granted in
2020, fully vested to the holders upon the Company attaining
pre-established vesting conditions and $2.9 million of fair
value was expensed through the statement of operations and
comprehensive loss.
25
ANNUAL REPORT 2022
24
ANNUAL REPORT 2022
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.
Mineral Interests and Site Capture Activities
During the year ended December 31, 2022, the Company
added an aggregate of $54.6 million of expenditures that were
attributed to mineral interests. The breakdown of the mineral
interests expenditures by project is illustrated on the following
table:
$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
2022, the loss included $6.6 million of rehabilitation expenses
related to the Johnny Mountain Mine. In the fourth quarter
2021, the loss included $5.4 million of rehabilitation expenses
During the comparative year, the Company recognized income
tax expense of $4.6 million primarily due to the deferred
tax liability arising from the gain recognized on disposition
of the Company’s residual interests in its previously owned
Red Mountain project, and from the renouncement of
expenditures related to the June 2020 and June 2021 flow-
through shares issued, that are capitalized for accounting
purposes but renounced to investors for tax purposes.
The income tax expense was partially offset by income tax
recovery arising from the losses in the year.
Results of Operations, 2021 Compared to 2020
The Company recorded net income of $0.9 million or $0.01
per share for the year ended December 31, 2021 compared
to a net loss of $14.9 million or $0.23 per share for the year
ended December 31, 2020.
During the year ended December 31, 2021, the most
significant items contributing to net income included the gain
on disposition of mineral interests, other income reported
for flow-through shares, and interest income, partially offset
by corporate and administrative expenses, income taxes, and
environmental rehabilitation expense. These and other items
are discussed further below.
During the second quarter 2021, the Company disposed of
its residual interests in its previously owned Red Mountain
project located in northwestern British Columbia, for
cash proceeds of US$18 million and recorded a gain of
$21.9 million through the statement of operations and
comprehensive income (loss). The capitalized costs incurred
and accumulated while the Company held the project had
previously been recovered through option and acquisition
payments and the residual interest in the project had no
carrying value, resulting in the gain.
Corporate and administrative expenses for 2021 were $13.4
million, down $3.2 million or 19% from prior year mainly
due to $5.3 million decrease in stock-based compensation,
partially offset by $1.0 million increase in cash compensation,
$0.7 million increase in professional fees and $0.5 million
increase in other general and administrative expenses.
Increase in cash compensation was due both to increase in
base salary and headcount. Increase in professional fees and
other general and administrative expenses was mainly related
to increase in recruitment costs and the costs associated
with the Company wide risk assessment review and the
preparation and publication of its inaugural sustainability
report. The inaugural sustainability report was prepared
with select disclosures and guidance from the Sustainability
Standards Accounting Board Metals and Mining Industry
Standards and the Global Reporting Initiative Standards, as
well as metrics designed specifically for the Company.
Lower stock-based compensation expense in 2021 when
compared to prior year was primarily due to the fact that the
expense in 2020 was inclusive of fair value recognition for the
non-market performance options granted between 2015 and
2019 that were vested in late 2020.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Quarterly Information
Selected financial information for the last eight quarters ending December 31, 2022 is as follows:
(in thousands of Canadian dollars,
except per share amounts)
2022
2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Revenue
-
-
-
-
-
-
-
-
Earnings (loss) for the period
(25,246)
5,045
19,088
(6,281)
(8,546)
(822)
14,548
(4,285)
Basic earnings (loss) per share
(0.31)
0.06
0.24
(0.08)
(0.11)
(0.01)
0.19
(0.06)
Diluted earnings (loss) per share
(0.31)
0.06
0.24
(0.08)
(0.11)
(0.01)
0.19
(0.06)
($000s)
Amount
Percentage
KSM
39,985
72%
Iskut
8,125
15%
Snowstorm
3,091
6%
3 Aces
3,045
6%
Courageous Lake
823
1%
Total expenditures
55,069
100%
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. During the
fourth quarter of 2022, the unrealized gain loss related to the
change in the fair value of the secured note was $19.5 million.
In the first quarter 2022, the loss for the period included
($000s)
Balance
January 1, 2022
Expenditures
2022
Balance
December 31, 2022
Capital expenditure
25,419
151,500
176,919
Capitalized borrowing costs
-
14,735
14,735
25,419
166,235
191,654
1) Also, upon signing a Facilities Agreement in 2022, the Company paid $28.8 million to the British Columbia Hydro and Power Authority (“BC Hydro”) to supply
construction phase hydro-sourced electricity to the KSM project. Payments made to BC Hydro related to the Facilities Agreement are recorded in long-term
receivables on the statement of financial position.
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, a 50% increase in mill
throughput, and the elimination of capital-intensive block
cave mining. The Company is also studying the use of trolley-
assist technology or how supply of power from BC Hydro
and the possible electrification of the entire mine fleet can
enhance carbon optimization.
During 2022, 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 2022, 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
deadline, the EAC remains in effect for the life of the project.
The 2022 full year plan for site capture was approximately
$150 million and was 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 year ended December 31, 2022 are illustrated below:
27
ANNUAL REPORT 2022
26
ANNUAL REPORT 2022
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The results of the PEA announced during the year 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.
($000s)
Actual
Plan
Payroll
3,452
2,964
Technical and engineering
20,353
12,443
Environmental and social
21,646
23,571
Other holding or property
313
302
Total
45,764
39,280
($000s)
Actual
Plan
Payroll
1,567
886
Exploration
6,135
6,000
Environmental and social
5,121
4,940
Total
12,823
11,826
In addition to exploration work at Iskut, the Company
continued its planned 2022 reclamation and closure activities
at the Johnny Mountain mine site. Work included, among
other items, the dismantling and removal of the historic mill
and mill buildings. Reported within provision for reclamation
liabilities and in support of the reclamation and closure of the
Johnny Mountain Mine, the Company incurred $4.5 million of
costs versus a 12 month estimate of $3.2 million.
At Snowstorm, where the Company’s objective was to
continue exploration activities at Snowstorm, the Company’s
2022 estimated costs and those incurred to December 31,
2022 were:
During the third and fourth quarter of 2022, 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 Company’s 3 Aces project, 2022 estimated costs and
those incurred that supported the current year’s initial drill
program, to December 31, 2022 were:
The lower actual incurred costs when compared to the
plan was due to delay in obtaining permits. The Company
successfully secured a five-year, Class 4 permit for 3 Aces
during the third quarter of 2022 and work immediately
commenced on camp repairs, securing water sources and
the drilling program. Due to the delay in the granting of the
permit, however, the Company 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.
($000s)
Actual
Plan
Payroll
620
595
Exploration
2,162
1,700
Other holding or property
366
367
Total
3,147
2,662
Amounts expressed in US dollars
2016 PFS
Base Case
2022 PFS
Base Case
2022 PFS
Recent Spot Case
2022 PFS
Alternate Case
Metal Prices:
Gold ($/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
Projected economic results of the study compared to the 2016 study and against alternate scenarios are illustrated below.
In order to achieve its objectives and milestones, the
Company estimates annual costs for each of its mineral
interests and tracks costs against those estimates for payroll,
environmental and social, technical engineering, exploration
and other holding or property costs. The below information
describes those costs versus the 2022 estimates.
Advancing the KSM Project and in addition to the substantial
start discussion above, the Company’s 2022 plan and reported
costs to December 31, 2022 were:
Technical and engineering costs include costs related to
the completion of the 2022 PFS and PEA and the continuing
geotechnical data collection for key mine infrastructure.
Significant variance between the actual and planned technical
and engineering costs was due to overruns in direct drilling
costs, related to a change in scope of work, and higher costs
due to inflation including, labour, commodities, logistics and
camp support. Environmental and social endeavors relate to
environmental monitoring baseline studies at KSM.
At Iskut, the Company’s 2022 plan and reported costs to
December 31, 2022 were:
The Company conducted its exploration and drilling program
at Iskut based on the analysis of the 2021 drilling and
geophysical surveying programs. The 2022 program entailed
ten drill holes, totaling 10,162 meters, and was designed
to test the porphyry gold-copper potential at depth on the
Bronson Slope deposit as well as below the Quartz Rise
Lithocap. Work was also planned to consider forming a
drill testing program at an additional site on the SnipGold
claim block.
Drilling in 2022 the Company discovered a large, well-
mineralized breccia pipe beneath the historic Bronson Slope
skarn deposit. The extensive quartz-magnetite pipe, which has
been identified as the source of the Bronson Slope deposit,
holds broadly disseminated gold and copper mineralization
from multiple hydrothermal eruptive events believed to
originate from a major porphyry intrusive source. A 2023 drill
program is being planned to target an increase in the Bronson
gold-copper resource and find the intrusive source of the
breccia pipe. The current resource at Bronson Slope contains
a measured and indicated resource of 187Mt of 0.36 g/t gold
and 0.12% copper.
Regional geophysical surveys and continuous surface geology
work on the property point to a distinct structural feature
that connects the Quartz Rise, Bronson Slope and Snip
North targets. All the prospective gold-copper intrusions
recognized on the property fall along this regional trend
and this observation has led us to envision a cluster of gold-
copper deposits. Prior drilling at the lithocap on Quartz Rise
and historical drilling at the Snip North target has encountered
gold-copper grades that will be explored further in 2023.
($000s)
Actual
Plan
Payroll
919
1,056
Exploration
1,758
5,000
Environmental
332
1,123
Other holding or property
45
45
Total
3,055
7,224
29
ANNUAL REPORT 2022
28
ANNUAL REPORT 2022
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 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.
In 2019, the Company entered into an agreement with two
securities dealers, for an At-The-Market offering program,
entitling the Company, at its discretion, and from time to time,
to sell up to US$40 million in value of common shares of the
Company. In 2020, the Company issued 1,327,046 shares, at
an average selling price of $21.94 per share, for net proceeds
of $28.5 million under the Company’s At-The-Market offering.
During the first quarter of 2021, the Company entered into an
agreement with two securities dealers, for an At-The-Market
offering program, entitling the Company, at its discretion,
and from time to time, to sell up to US$75 million in value of
common shares of the Company. This program was in effect
until the Company’s current US$775 million Shelf Registration
Statement expired in December 2022, and was renewed
subsequent to the year end. In 2021, the Company issued
2,242,112 shares, at an average selling price of $22.71 per
share, for net proceeds of $49.9 million under the Company’s
At-The-Market offering. In 2022, the Company issued 998,626
shares, at an average selling price of $22.82 per share, for
net proceeds of $22.3 million under the Company’s At-The-
Market offering.
Subsequent to December 31, 2022, the Company entered
into a new agreement with two securities dealers, for an
At-The-Market offering program, entitling the Company, at
its discretion, and from time to time, to sell up to US$100
million in value of common shares of the Company. This
program can be in effect until the Company’s US$750 million
Shelf Registration Statement expires in 2025. Subsequent to
December 31, 2022, the Company issued 313,666 shares, at
an average selling price of $18.26 per share, for net proceeds
of $5.6 million under the Company’s At-The-Market offering.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
($000s)
December 31, 2022
December 31, 2021
Assets
Current assets
Cash and cash equivalents
$ 46,150
$ 11,523
Short-term deposits
81,690
29,243
Amounts receivable and prepaid expenses
8,220
10,026
Investment in marketable securities
3,696
3,367
Convertible notes receivable
631
-
Total current assets
140,387
54,159
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities
$ 42,956
$ 12,165
Flow-through share premium
4,183
1,366
Lease obligations
511
90
Provision for reclamation liabilities
4,343
3,680
Total current liabilities
51,993
17,301
Working Capital (1)
88,394
36,858
(1) This is a non-GAAP financial performance measure with no standard definition under IFRS.
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 2022, employees have been working remotely
during ongoing periods of lockdowns in various jurisdictions.
The Company conducted its 2022 programs around social
distancing protocols that include safety and preventative
actions at its camps. The Company executed its 2022
exploration and development work at KSM, Iskut, Snowstorm
and 3 Aces projects under the same successful protocols it
implemented in 2020 and 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 has 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 eliminated, 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 2023 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.
Liquidity and Capital Resources
The Company’s working capital position at December 31,
2022, was $88.4 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
December 31, 2022, is $4.2 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.
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ANNUAL REPORT 2022
30
ANNUAL REPORT 2022
MANAGEMENT’S DISCUSSION AND ANALYSIS
Contractual Obligations
The Company has the following commitments as at December 31, 2022:
Payments due by years
($000s)
Total
2023
2024-25
2026-27
2028-29
Secured note – interest expense
138,656
19,808
39,616
39,616
39,616
Capital expenditure obligations
104,688
98,128
6,560
-
-
Flow-through share expenditures
15,023
15,023
-
-
-
Mineral interests
5,782
826
1,652
1,652
1,652
Lease obligation
1,701
669
834
106
92
265,849
134,454
48,662
41,374
41,360
In 2022, the Company entered into a Facilities Agreement with
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
$32.8 million of which the Company has paid $11.7 million
to BC Hydro and the remaining balance 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 has paid $21.2 million to BC Hydro
and the balance 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. Subsequent to December 31, 2022, $43.7
million was paid to BC Hydro.
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 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. 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 will continue
to 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, 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
MANAGEMENT’S DISCUSSION AND ANALYSIS
During the year ended December 31, 2022, the Company
received $7.3 million upon the exercise of 540,834 stock
options.
In December 2022, the Company issued a total of 675,400
flow-through common shares at an average $22.24 per
common share for aggregate gross proceeds of $15.0 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,
2022. At the time of issuance of the flow-through shares,
$4.2 million premium was recognized as a liability on the
consolidated statements of financial position.
During 2022, operating activities, including working capital
adjustments, used $8.0 million cash compared to $11.7
million cash used by operating activities in 2021. The decrease
in the year-over-year basis was mainly related to $4.0 million
decrease in cash used in working capital, $4.9 million increase
in foreign exchange gain, and $2.6 million increase in interest
income, partially offset by $3.1 million increase in general and
administrative expenses, $3.4 million increase in financing
fees, and $1.2 million increase in environmental rehabilitation
disbursements. Higher general and administrative expenses
in 2022 was mainly related to higher cash compensation, new
ERP implementation costs, and the costs associated with the
risk assessment review and sustainability programs. Operating
activities in the near-term are expected to remain stable or
increase marginally given the growth in project and corporate
activity in the Company.
As previously disclosed in the Company’s prior years financial
statements, in 2019 the Company received a notice from the
CRA that it proposed to reduce the amount of expenditures
reported as Canadian Exploration Expenses (CEE) for the
three-year period ended December 31, 2016. The Company
has funded certain of its exploration expenditures, from time-
to-time, with the proceeds from the issuance of flow-through
shares and renounced, to subscribers, the expenditures
which it determined to be CEE. The notice disputes the
eligibility of certain types of expenditures previously audited
and approved as CEE by the CRA. The Company strongly
disagrees with the notice and responded to the CRA auditors
with additional information for their consideration. In 2020,
the CRA auditors responded to the Company’s submission
and, although accepting additional expenditures as CEE,
reiterated that their position remains largely unchanged and
subsequently issued reassessments to the Company reflecting
the additional CEE expenditures accepted and $2.3 million of
Part Xll.6 tax owing. The Company has been made aware that
the CRA has reassessed certain investors who subscribed for
flow-through shares in 2013 and will reassess other investors
with reduced CEE deductions. Notice of objections to the
Company’s and investors’ reassessments have and will be filed
as received and will be appealed to the courts, should the
notice of objections be denied. The Company has indemnified
the investors that subscribed for the flow-through shares. The
potential tax indemnification to the investors is estimated
to be $10.8 million, plus $2.9 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 December 31, 2022, the
Company has recognized $3.9 million of long-term receivable
from the CRA, including $2.3 million of HST credit due to the
Company. The amount recorded in long-term receivables
as of December 31, 2022 of $3.9 million includes the initial
reassessment of $3.6 million, plus accrued interest.
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.
33
ANNUAL REPORT 2022
32
ANNUAL REPORT 2022
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. In the 2022 report, we will be disclosing
Scope 1, 2 and 3 emissions and will be compliant with the
Task Force on Climate-Related Financial Disclosures. The
Company will also make submissions for CDP scoring that
will provide a snapshot of the Company’s disclosure and
environmental performance.
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.
Management
evaluated
the
effectiveness of the Company’s internal controls over
financial reporting as of December 31, 2022 based on criteria
established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on that evaluation of
the internal controls at December 31, 2022, management
has concluded that the Company’s internal controls and
procedures are appropriately designed and operating
effectively. The registered public accounting firm that audited
the Company’s consolidated financial statements has issued
their attestation report on management’s assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2022.
Changes to Internal Controls Over Financial
Reporting
As previously disclosed in Management’s Discussion and
Analysis for the second quarter ended June 30, 2022, the
Company implemented a new enterprise resource planning
(ERP) system during that quarter. The Company implemented
additional controls during the transition period following
the new ERP system implementation and also hired a new
Director, Information Technology. Other than these changes,
there was no change in the Company’s internal controls over
financial reporting that occurred during the period beginning
October 1, 2022 and ended on December 31, 2022 that has
materially affected or is reasonably likely to materially affect,
the Company’s internal controls over financial reporting.
Disclosure Controls and Procedures
Disclosure controls and procedures have been designed
to ensure that information required to be disclosed by
the Company is recorded, processed, summarized and
reported within the time periods specified in the rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure
that information required to be disclosed by the Company
is accumulated and communicated to management as
appropriate, to allow timely decisions regarding required
disclosure. The Company’s Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation
of the design of the disclosure controls and procedures as
of December 31, 2022, that they are appropriately designed
and effective.
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
The early construction work the Company is considering
for completion in 2024 and 2025 includes completing
construction of the Taft Creek fish habitat offsetting ponds,
constructing the powerline from the Treaty Creek switching
station to the area of the proposed processing plant and
MTT portals in the North Treaty Creek valley, constructing
the power substation at the area of the processing plant,
constructing the Coulter Creek Access Road to the 8.6
km mark and clearing of many of the sites for location
of proposed KSM Project infrastructure. The Company
anticipates submitting an application to the EAO for a decision
that the KSM Project has been “substantially started” well
before the deadline and believes it is keeping itself on course
for a positive decision.
The Company has only prepared preliminary estimates for
the cost of all of this work and certain of the work requires
further engineering before reasonable cost estimates can
be established. The Company may elect not to complete
some or many elements of this work and may elect to
engage in construction of other elements of the KSM Project
infrastructure instead, including in respect of the work for
2023. However, it is anticipating that its budget for 2023
early construction activities will be in the range of $100 -
$180 million.
At Iskut, the Company will conduct a planned 2023
exploration program that is focused on the Bronson Slope
copper-gold resource and test porphyry occurrences in
other targets on the property Environmental work will also
continue on the reclamation and closure plan for the Johnny
Mountain mine.
At the Company’s 3 Aces project, the Company will conduct a
2023 exploration program that will include drill testing of the
exploration model for extrapolation across the entire property.
Additionally, the work program will provide a prioritized list
of targets and drill plans to initiate resource definition on the
identified target areas. The overall program is focused on the
discovery of a high grade mineralized deposit.
At Snowstorm, the Company will continue exploration
efforts to determine the potential for mineralized faults. Past
exploration efforts have identified the geophysical signature of
several parallel structures on the eastern margin of an uplifted
formation block. This setting is consistent with the large
mines and the projected structures are orientated parallel
with mineralizing faults in the Getchell Trend. The exploration
program is to test across two of these structures.
At Courageous Lake, the Company plans to commence a
preliminary feasibility study for an alternative development
plan for the project and determine the best path forward to
unlock value.
The Company is exploring various alternatives for raising the
funding necessary to pay for these construction activities
and other business objectives. Possible financing options
include the sale of a royalty or streaming interest in the
KSM Project, funding from a joint venture partner as part of
earning into an interest in the KSM Project, the sale of all or
some form of interest in one of the Company’s other projects
or the sale of shares or debt issued by the Company, including
a possible financing under a Prospectus Supplement. The
Company also has an At-the-Market Offering in the United
States which has been an effective source of meaningful
funding for the Company.
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.
During the third quarter of 2022, 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
35
ANNUAL REPORT 2022
34
ANNUAL REPORT 2022
Management’s Responsibility
for Financial Statements
The
accompanying
consolidated
financial
statements
have been prepared by management in accordance with
International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board. Financial
statements include certain amounts based on estimates and
judgments. When an alternative method exists under IFRS,
management has chosen a policy it deems most appropriate
in the circumstances in order to ensure that the consolidated
financial statements are presented fairly, in all material
respects, in accordance with IFRS.
The Company maintains adequate systems of internal
controls. Such systems are designed to provide reasonable
assurance that transactions are properly authorized and
recorded, the Company’s assets are appropriately accounted
for and adequately safeguarded and that the financial
information is relevant and reliable.
The Board of Directors of the Company is responsible for
ensuring that management fulfills its responsibilities for
financial reporting and is ultimately responsible for reviewing
and approving the consolidated financial statements and the
accompanying management’s discussion and analysis. The
Board of Directors carries out this responsibility principally
through its Audit Committee.
The Audit Committee is appointed by the Board of Directors
and all of its members are non-management directors. The
Audit Committee meets periodically with management and
the external auditors to discuss internal controls, auditing
matters and financial reporting issues, and to satisfy itself
that each party is properly discharging its responsibilities.
The Audit Committee also reviews the consolidated
financial statements, management’s discussion and analysis,
the external auditors’ reports, examines the fees and
expenses for audit services, and considers the engagement
or reappointment of the external auditors. The Audit
Committee reports its findings to the Board of Directors for
its consideration when approving the consolidated financial
statements for issuance to the shareholders. KPMG LLP,
the external auditors, have full and free access to the Audit
Committee.
Rudi P. Fronk
Chairman & CEO
March 30, 2023
Christopher J. Reynolds
Vice President, Finance and Chief Financial Officer
March 30, 2023
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 March 30, 2023, the issued and outstanding common
shares of the Company totaled 81,643,678. In addition, there
were 477,500 stock options, and 354,266 RSUs. Assuming
the conversion of all of these instruments outstanding, there
would be 82,475,444 common shares issued and outstanding.
Related Party Transactions
During year ended December 31, 2022 and 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.
Recent Accounting Pronouncements
Refer to Note 3 (N) in the Company’s audited consolidated
financial statements for the year ended December 31, 2022.
Critical Accounting Estimates
Refer to Note 3 (C) in the Company’s audited consolidated
financial statements for the year ended December 31, 2022.
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS
37
ANNUAL REPORT 2022
36
ANNUAL REPORT 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent
Registered Public Accounting Firm
To the Shareholders and Board of Directors of Seabridge
Gold Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements
of financial position of Seabridge Gold Inc. (the Company) as
of December 31, 2022 and 2021, the related consolidated
statements of operations and comprehensive income (loss),
changes in shareholders’ equity, and cash flows for each of
the years in the two-year period ended December 31, 2022,
and the related notes (collectively, the consolidated financial
statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2022 and 2021,
and its financial performance and its cash flows for each of
the years in the two-year period ended December 31, 2022, in
conformity with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over
financial reporting as of December 31, 2022, based on criteria
established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission, and our report dated March 30, 2023
expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial
statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements.
Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter
arising from the current period audit of the consolidated
financial statements that was communicated or required
to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the
consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any
way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on
the critical audit matter or on the accounts or disclosures to
which it relates.
and resources, including the industry and regulatory standards
they applied. We compared forecasted silver production to
the Company’s filed technical report. We involved valuation
professionals with specialized skills and knowledge who
assisted in:
• evaluating the method and model used to determine the
fair value by comparing the method and model applied to
generally acceptable methods for similar instruments and
recalculating the fair value using the Company’s model;
• evaluating the estimated future silver prices by performing
an independent recalculation using data obtained from
third party estimates and sources;
• evaluating the discount rate by comparing the Company’s
assumption to information derived from publicly available
third party sources.
Chartered Professional Accountants,
Licensed Public Accountants
We have served as the Company’s auditor since 2002.
Toronto, Canada
March 30, 2023
Valuation of secured note liability
As discussed in Note 12 to the consolidated financial
statements, the Company signed a definitive agreement to
sell a secured note for US$225 million. As discussed in Note
3(c)(ii) to the consolidated financial statements, the Company
measures the fair value of its secured note liability using a
discounted cash flow model with a Monte Carlo simulation.
Key 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. There is significant estimation uncertainty
with respect to the application of the key assumptions in
determining the fair value of the secured note liability. As
discussed in Note 12 to the consolidated financial statements,
the fair value of the Company’s secured note liability at
inception was $282.3 million and the fair value at December
31, 2022 was $263.5 million.
We identified the determination of the fair value of the
secured note liability as a critical audit matter. Significant
auditor judgment was required to assess the method and
model used to determine the fair value of the secured note
liability and to assess certain key assumptions of forecasted
silver production, future silver prices and the discount rate
used to determine the fair value.
The following are the primary procedures we performed to
address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls
over the Company’s process to determine the fair value of
the secured note liability. This included controls over the
selection of the method and model and over the development
and selection of the significant assumptions. We assessed the
competence, capabilities and objectivity of the Company’s
personnel who prepared the estimates of mineral reserves
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
39
ANNUAL REPORT 2022
38
ANNUAL REPORT 2022
Report of Independent
Registered Public Accounting Firm
To the Shareholders and Board of Directors of Seabridge
Gold Inc.
Opinion on Internal Control Over Financial
Reporting
We have audited Seabridge Gold Inc.’s (the Company) internal
control over financial reporting as of December 31, 2022,
based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion,
the Company maintained, in all material respects, effective
internal control over financial reporting as of December
31, 2022, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated statements of financial position of
the Company as of December 31, 2022 and 2021, the related
consolidated statements of operations and comprehensive
income (loss), changes in shareholders’ equity, and cash flows
for each of the years in the two-year period ended December
31, 2022, and the related notes (collectively, the consolidated
financial statements), and our report dated March 30, 2023
expressed an unqualified opinion on those consolidated
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining
effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over
financial reporting, appearing under the heading Internal
Control over Financial Reporting in Management’s Discussion
and Analysis for the year ended December 31, 2022. Our
responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards
of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting
was maintained in all material respects. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control
Over Financial Reporting
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being
made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Chartered Professional Accountants,
Licensed Public Accountants
Toronto, Canada
March 30, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Note
December 31, 2022
December 31, 2021
Assets
Current assets
Cash and cash equivalents
4
$
46,150
$
11,523
Short-term deposits
4
81,690
29,243
Amounts receivable and prepaid expenses
5
8,220
10,026
Investment in marketable securities
6
3,696
3,367
Convertible notes receivable
7
631
-
140,387
54,159
Non-current assets
Investment in associate
6
1,389
2,429
Convertible notes receivable
7
-
606
Long-term receivables and other assets
8
51,703
13,038
Mineral interests, property and equipment
9
881,497
662,279
Reclamation deposits
11
20,643
15,231
955,232
693,583
Total assets
$
1,095,619
$
747,742
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities
10
$
42,956
$
12,165
Flow-through share premium
13
4,183
1,366
Lease obligations
511
90
Provision for reclamation liabilities
11
4,343
3,680
51,993
17,301
Non-current liabilities
Secured note
12
263,541
-
Deferred income tax liabilities
18
31,934
23,164
Lease obligations
1,115
182
Provision for reclamation liabilities
11
6,503
4,762
303,093
28,108
Total liabilities
355,086
45,409
Shareholders’ equity
13
740,533
702,333
Total liabilities and shareholders’ equity
$
1,095,619
$
747,742
CONSOLIDATED FINANCIAL STATEMENTS
Subsequent events (Notes 4, 6, 7, 13, and 19), commitments and contingencies (Note 19)
The accompanying notes form an integral part of these consolidated financial statements.
These financial statements were approved by the Board of Directors and were signed on its behalf:
Rudi P. Fronk
Carol Willson
Director
Director
Consolidated Statements of
Financial Position
(Expressed in thousands of Canadian dollars)
41
ANNUAL REPORT 2022
40
ANNUAL REPORT 2022
Consolidated Statements of
Operations and Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars except common share and per common share amounts)
Note
Year Ended
December 31, 2022
Year Ended
December 31, 2021
Remeasurement of secured note
12
$
36,967
$
-
Gain on disposition of mineral interests
13
-
21,943
Corporate and administrative expenses
16
(16,090)
(13,379)
Impairment of investment in associate
6
(873)
-
Equity loss of associate
6
(207)
(221)
Other income - flow-through shares
13
1,366
2,373
Environmental rehabilitation expense
11
(6,722)
(5,377)
Unrealized gain (loss) on convertible notes receivable
7
(16)
104
Foreign exchange gain (loss)
(12,874)
22
Finance costs, interest expense and other income
(3,471)
(116)
Interest income
2,794
176
Earnings before income taxes
874
5,525
Income tax expense
18
(8,268)
(4,630)
Net earnings (loss) for the year
$
(7,394)
$
895
Other comprehensive income (loss)
Items that will not be reclassified to net income or loss
Remeasurement of secured note
$
2,912
$
-
Change in fair value of marketable securities
329
(459)
Tax impact
(831)
61
Total other comprehensive income (loss)
2,410
(398)
Comprehensive income (loss) for the year
$
(4,984)
$
497
Weighted average number of common shares outstanding
Basic
13
$
80,058,861
$
76,413,554
Diluted
13
$
80,058,861
$
77,600,688
Earnings (loss) per common share
Basic
13
$
(0.09)
$
0.01
Diluted
13
$
(0.09)
$
0.01
The accompanying notes form an integral part of these consolidated financial statements.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of
Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars except number of shares)
Number
of Shares
Share
Capital
Warrants
Stock-based
Compensation
Contributed
Surplus
Deficit
Accumulated
Other
Comprehensive
Gain (Loss)
Total
Equity
As at December 31, 2021
78,975,349
$ 809,269
$
-
$
8,697
$ 36,126
$ (149,983)
$ (1,776) $ 702,333
Share issuance - At-The-
Market offering
998,629
22,793
-
-
-
-
-
22,793
Share issuance - Private
placement
675,400
10,840
-
-
-
-
-
10,840
Share issuance - Options
exercised
540,834
11,295
-
(3,974)
-
-
-
7,321
Share issuance - RSUs
vested
148,800
3,172
-
(3,172)
-
-
-
-
Share issuance costs
-
(1,237)
-
-
-
-
-
(1,237)
Deferred tax on share
issuance costs
-
330
-
-
-
-
-
330
Stock-based compensation
-
-
-
3,138
-
-
-
3,138
Expired options
-
-
-
(34)
34
-
-
-
Other comprehensive
income
-
-
-
-
-
-
2,409
2,409
Net loss for the year
-
-
-
-
-
(7,394)
-
(7,394)
As at December 31, 2022
81,339,012
$ 856,462
-
$
4,655
$ 36,160
$ (157,377)
$
633
$ 740,533
As at December 31, 2020
74,162,286
$ 704,599
$ 3,275
$
23,011
$ 36,089
$ (150,878)
$ (1,378) $ 614,718
Share issuance - At-The-
Market offering
2,242,112
50,929
-
-
-
-
-
50,929
Share issuance - Private
placement
350,000
8,358
-
-
-
-
-
8,358
Share issuance - Options
exercised
1,585,501
32,077
-
(14,370)
-
-
-
17,707
Share issuance - Other
500,000
11,100
(3,275)
-
-
-
-
7,825
Share issuance - RSUs
vested
135,450
3,413
-
(3,413)
-
-
-
-
Share issuance costs
-
(1,645)
-
-
-
-
-
(1,645)
Deferred tax on share
issuance costs
-
438
-
-
-
-
-
438
Stock-based compensation
-
-
-
3,506
-
-
-
3,506
Expired options
-
-
-
(37)
37
-
-
-
Other comprehensive loss
-
-
-
-
-
-
(398)
(398)
Net income for the year
-
-
-
-
-
895
-
895
As at December 31, 2021
78,975,349
$ 809,269
$
-
$
8,697
$ 36,126
$ (149,983)
$ (1,776) $ 702,333
The accompanying notes form an integral part of these consolidated financial statements.
CONSOLIDATED FINANCIAL STATEMENTS
43
ANNUAL REPORT 2022
42
ANNUAL REPORT 2022
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
The accompanying notes form an integral part of these consolidated financial statements.
Year Ended
December 31, 2022
Year Ended
December 31, 2021
Operating Activities
Net income (loss)
$
(7,394)
$
895
Adjustment for non-cash items:
Remeasurement gain on secured note
(36,967)
-
Gain on disposition of mineral interests
-
(21,943)
Environmental rehabilitation expense
6,722
5,377
Stock-based compensation
3,138
3,506
Other income - flow-through shares
(1,366)
(2,373)
Income tax expense
8,268
4,630
Unrealized foreign exchange loss
21,158
-
Other non-cash items
(2,044)
457
Adjustment for cash items:
Environmental rehabilitation disbursements
(4,499)
(3,320)
Changes in working capital items:
Amounts receivable and prepaid expenses
(845)
(5,056)
Accounts payable and accrued liabilities
5,846
6,090
Net cash used in operating activities
(7,983)
(11,737)
Investing Activities
Investment in short-term deposits
(401,825)
(24,349)
Redemption of short-term deposits
349,378
15,011
Mineral interests, property and equipment
(183,296)
(73,611)
Interest paid
(14,735)
-
Long-term receivables and other assets
(30,545)
(9,172)
Investment in reclamation deposits
(5,412)
(8,465)
Cash proceeds from disposition of mineral interests
-
21,943
Net cash used in investing activities
(286,435)
(78,643)
Financing Activities
Secured note
282,263
-
Share issuance net of costs
36,579
59,104
Exercise of options
7,321
17,707
Exercise of warrants
-
7,825
Payment of lease liabilities
(334)
(77)
Net cash from financing activities
325,829
84,559
Effects of exchange rate fluctuation on cash and cash equivalents
3,216
(184)
Net increase (decrease) in cash and cash equivalents during the year
34,627
(6,005)
Cash and cash equivalents, beginning of the year
11,523
17,528
Cash and cash equivalents, end of the year
$
46,150
$
11,523
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended December 31, 2022 and 2021
1. Reporting entity
Seabridge Gold Inc. is comprised of Seabridge Gold Inc.
(“Seabridge” or the “Company”) and its subsidiaries, KSM
Mining ULC, Seabridge Gold (NWT) Inc., Seabridge Gold
(Yukon) Inc., Seabridge Gold Corp., SnipGold Corp. and
Snowstorm Exploration (LLC), and is a company engaged
in the acquisition and exploration of gold properties
located in North America. The Company was incorporated
under the laws of British Columbia, Canada on September
4, 1979 and continued under the laws of Canada on
October 31, 2002. Its common shares are listed on the
Toronto Stock Exchange trading under the symbol “SEA”
and on the New York Stock Exchange under the symbol
“SA”. The Company is domiciled in Canada, the address
of its registered office is 10th Floor, 595 Howe Street,
Vancouver, British Columbia, Canada V6C 2T5 and the
address of its corporate office is 106 Front Street East, 4th
Floor, Toronto, Ontario, Canada M5A 1E1.
2. Basis of preparation
A. Statement of compliance
These consolidated financial statements have been
prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). These financial
statements were authorized for issuance by the Board of
Directors of the Company on March 30, 2023.
B. Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities over which the Company
has control. Control over an entity exists when the
Company is exposed or has rights to returns from its
involvement with the entity and has the ability to
affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on
which control is transferred to the Company. They are
deconsolidated from the date on which control ceases.
Business acquisitions are accounted for using the
acquisition method whereby acquired assets and
liabilities are recorded at fair value as of the date
of acquisition with the excess of the purchase
consideration over such fair value being recorded as
goodwill and allocated to cash generating units. Non-
controlling interest in an acquisition may be measured
at either fair value or at the non-controlling interest’s
proportionate share of the fair value of the acquiree’s
net identifiable assets.
If the fair value of the net assets acquired exceeds the
purchase consideration, the difference is recognized
immediately as a gain in the consolidated statement of
operations and comprehensive income (loss).
Where a business combination is achieved in stages,
previously held non-controlling equity interests in
the acquiree are re-measured at acquisition-date
fair value and any resulting gain or loss is recognized
in the consolidated statement of operations and
comprehensive income (loss) or other comprehensive
income, as appropriate. Acquisition related costs are
expensed during the period in which they are incurred,
except for the cost of debt or equity instruments
issued in relation to the acquisition which is included
in the carrying amount of the related instrument.
Certain fair values may be estimated at the acquisition
date pending confirmation or completion of the
valuation process. Where provisional values are used
in accounting for a business combination, they may
be adjusted retrospectively during the measurement
period. However, the measurement period will not
exceed one year from the acquisition date.
(ii) Associates
An associate is an entity over which the Company has
significant influence but not control nor joint control.
Significant influence is presumed to exist where the
Company has between 20% and 50% of the voting
rights but can also arise where the Company has less
than 20% if influence is exerted over policy decisions
that affect the entity. The Company’s share of the
net assets and net income or loss of associates is
accounted for in the consolidated financial statements
using the equity method of accounting.
45
ANNUAL REPORT 2022
44
ANNUAL REPORT 2022
3. Significant accounting policies
The significant accounting policies used in the preparation
of these consolidated financial statements are described
below.
A. Basis of measurement
The consolidated financial statements have been prepared
on the historical cost basis, except certain financial
instruments described in note “M”, which are measured at
fair value.
B. Translation of foreign currencies
These consolidated financial statements are presented in
Canadian dollars, which is the Company’s, and each of its
subsidiaries’, functional currency.
Foreign currency transactions are translated into Canadian
dollars using the exchange rates prevailing at the dates
of the transactions or valuation where items are re-
measured. Foreign exchange gains and losses resulting
from the settlement of such transactions are recognized
in the consolidated statement of operations and
comprehensive income (loss).
Monetary
assets
and
liabilities
of
the
Company
denominated in a foreign currency are translated into
Canadian dollars at the rate of exchange at the statement
of financial position date. Non-monetary assets and
liabilities are translated at historical rates. Revenues
and expenses are translated at average exchange rates
prevailing during the period. Exchange gains and losses are
included in the determination of profit or loss for the year.
C. Critical
accounting
judgments
and
estimation
uncertainty
In applying the Company’s accounting policies in
conformity with IFRS, management is required to make
judgments, estimates and assumptions about the carrying
amounts of certain assets and liabilities. These estimates
and judgments are continually evaluated and are based
on historical experience and other factors, including
expectations of future events that are believed to be
reasonable under the circumstances. Actual results may
differ from these estimates.
(i) Critical accounting judgments
The following are the critical judgments that the
Company has made in the process of applying the
Company’s accounting policies and that have the most
significant effect on the amounts recognized in the
consolidated financial statements (refer to appropriate
accounting policies for details).
Mineral reserves and resources
To calculate reserves and resources, the Company uses
assumptions and evaluates technical, economic and
geological conditions for each ore body. Measured
grade of the ore and geotechnical considerations
can have a significant effect on the carrying value of
mineral properties and therefore the recoverability of
costs. Future market prices for gold and copper and
other commodities are also factored into valuation
models. Changes to these factors can affect the
recoverability of mineral properties and impairment.
Impairment of mineral interests
Mineral interests are tested for impairment when
events or changes in circumstances indicate that
the carrying amount may not be recoverable. When
an indication of impairment exists, and the carrying
amount of the mineral interest exceeds its estimated
recoverable amount, the carrying value is written down
to the recoverable amount and the loss is recognized
in the statement of operations and comprehensive
income (loss).
Reclamation Liabilities
The Company records legal and constructive obligations
required to restore locations in the period in which the
obligation is incurred with a corresponding increase in
the carrying amount of the related property. For closed
mines, changes to obligations are charged directly
to the statement of operations and comprehensive
income (loss).
(ii) Key sources of estimation uncertainty
Mineral properties
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Secured note liability
The Company measures the fair value of its secured
note liability using a discounted cash flow model with
a Monte Carlo simulation. Key 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. There is significant
estimation uncertainty with respect to the application
of the key assumptions in determining the fair value of
the secured note liability. Refer to Note 12 for further
information.
Reclamation Liabilities
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 changes in the status of the site from
time-to-time. The timing and cost of the rehabilitation
is also subject to uncertainty. For the closed sites,
these changes, if any, and changes in discount rates
are charged directly to the consolidated statement
of operations and comprehensive income (loss). The
periodic unwinding of the discount is recognized
in income as accretion expense included in finance
costs in the consolidated statement of operations and
comprehensive income (loss).
Contingencies
The Company funds certain of its exploration
expenditures, from time-to-time, with the proceeds
from the issuance of flow-through shares and
renounces, to subscribers, the expenditures which
it determines to be Canadian Exploration Expenses
(“CEE”). The Canada Revenue Agency (“CRA”) has
disputed the eligibility of certain types of expenditures
within the years 2014 to 2016. The Company strongly
disagrees with their position and intends to fully
defend the Company’s tax filings. No provision has
been recorded related to the contingent taxes as the
Company does not consider it probable that there will
ultimately be an amount payable.
D. Mineral interests, property and equipment
(i) Mineral interests
Mineral resource properties are carried at cost. The
Company considers exploration and development
costs and expenditures to have the characteristics of
property and equipment and, as such, the Company
capitalizes
all
exploration
costs,
which
include
acquisition costs, advance royalties, holding costs, field
exploration and field supervisory costs and all costs
associated with exploration and evaluation activities
relating to specific properties as incurred, until those
properties are determined to be economically viable
for mineral production. General and administrative
costs are only included in the measurement of
exploration and evaluation costs where they are related
directly to activities in a particular area of interest.
The fair value of any recoveries from the disposition
or optioning of a mineral property is credited to the
carrying value of mineral properties.
Once a project has been established as commercially
viable and technically feasible, related development
expenditures are capitalized. This includes costs
incurred in preparing the site for mining operations.
Capitalization ceases when the mine is capable of
operating as intended by management.
The
actual
recoverable
value
of
capitalized
expenditures for mineral properties and deferred
exploration costs will be contingent upon the discovery
of economically viable reserves and the Company’s
financial ability at that time to fully exploit these
properties or determine a suitable plan of disposition.
When a decision is made to proceed with development
in respect of a particular area of interest, the relevant
exploration and evaluation asset is tested for
impairment, reclassified to development properties,
and then amortized over the life of the reserves
associated with the area of interest once mining
operations have commenced.
(ii) Construction in progress
Construction in progress includes power infrastructure,
camps,
bridges,
and
roads
related
to
early
infrastructure development at KSM. Costs are not
depreciated until the underlying assets are ready for
use as intended by management.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
47
ANNUAL REPORT 2022
46
ANNUAL REPORT 2022
(iii) Equipment
Equipment located at project site are earth moving
equipment, vehicles and other equipment used in
the early infrastructure development at KSM. To the
extent that the Company utilizes its own equipment
for the activities which are capitalized for the mineral
properties or the construction in progress, the
associated depreciation is capitalized to those assets.
(iv) Capitalized borrowing costs
Borrowing
costs
are
capitalized
and
allocated
specifically to qualifying assets when funds have been
borrowed, either to specifically finance a project or for
general borrowings during the period of construction.
Qualifying assets are defined as assets that require
more than 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.
E. Depreciation
Effective from the point an asset is available for its
intended use, property and equipment are depreciated
using the straight-line method over the estimated
economic life of the asset. Estimated useful lives
normally vary from three to fifteen years for equipment
to a maximum of forty years for buildings. During the
development phase, depreciation expense related to
the right of use assets and property and equipment is
recapitalized to the construction in progress pool.
Residual values, useful lives and depreciation methods are
reviewed at least annually and adjusted if appropriate.
The impact of changes to the estimated useful lives,
depreciation method or residual values is accounted for
prospectively.
F. Leasing arrangements
Leases are recognized as a right-of-use (“ROU”) asset and
a corresponding liability at the date at which the leased
asset is available for use by the Company. Each lease
payment is allocated between the liability and finance cost.
The finance cost is charged to profit or loss over the lease
period. The ROU asset is depreciated over the shorter of
the asset's useful life and the lease term on a straight-line
basis. Payments associated with short-term leases and
leases of low-value assets are recognized on a straight-line
basis as an expense in profit or loss. Short-term leases are
leases with a lease term of 12 months or less.
G. Impairment and reversal of impairment
(i) Financial assets
Financial assets measured at amortized cost are
reviewed for impairment at each reporting date to
determine whether there is any objective evidence
of impairment. A financial asset is considered to be
impaired if objective evidence, that can be estimated
reliably, indicates that one or more events have had a
negative effect on the estimated future cash flows of
that asset.
An impairment charge in respect of a financial asset
measured at amortized cost is calculated as the
difference between its carrying amount and the
present value of the estimated future cash flows
discounted at the original effective interest rate.
A prior period impairment charge is reviewed for
possible reversal of impairment whenever an event
or change in circumstance indicates the impairment
may have reversed. If it has been determined that
the impairment has reversed, the carrying amount
of the asset is increased to its recoverable amount
to a maximum of the carrying amount that would
have been determined had no impairment charge
been recognized in prior periods. Impairment charge
reversals are recognized in the Consolidated statement
of operations and comprehensive income (loss).
(ii) Non-financial assets
The carrying value of the Company's mineral interests
is assessed for impairment when indicators of such
impairment exist. Indicators may include the loss of the
right to explore in the area; the Company deciding not
to continue exploring or incur substantial additional
expenditures on the project; or it is determined that
the carrying amount of the project is unlikely to be
recovered by its development or sale. If any indication
of impairment exists, an estimate of the asset's
recoverable amount is calculated to determine the
extent of the impairment loss, if any. The recoverable
amount is determined as the higher of the fair value
less costs of disposal for the asset and the asset's value
in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a
discount rate that reflects current market assessments
of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have
not been adjusted.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment is determined on an asset by asset
basis, whenever possible. If it is not possible to
determine impairment on an individual asset basis,
then impairment is considered on the basis of a cash
generating unit (“CGU”). CGUs represent the lowest
level for which there are separately identifiable cash
inflows that are largely independent of the cash flows
from other assets or other group of assets.
If the carrying amount of the asset exceeds its
recoverable amount, the asset is impaired, and
an impairment loss is charged immediately to
comprehensive loss within the consolidated statements
of operations and comprehensive income (loss) so as to
reduce the carrying amount to its recoverable amount.
An assessment is made at each reporting date as
to whether there is any indication that previously
recognized impairment losses may no longer exist
or may have decreased. If such indication exists,
the Company makes an estimate of the recoverable
amount.
A previously recognized impairment loss is reversed
only if there has been a change in the estimates used
to determine the asset's recoverable amount since
the last impairment loss was recognized. If this is the
case, the carrying amount of the asset is increased to
its recoverable amount. The increased amount cannot
exceed the carrying amount that would have been
determined had no impairment loss been recognized
for the asset in prior years. Such reversal is recognized
in the consolidated statements of operations and
comprehensive income (loss).
H. Reclamation liabilities
Provisions for environmental restoration are recognized
when: (i) the Company has a present legal or constructive
obligation as a result of past exploration, development
or production events; (ii) it is probable that an outflow
of resources will be required to settle the obligation; and
(iii) the amount can be reliably estimated. Provisions do
not include obligations which are expected to arise from
future disturbance.
Provisions are measured at the present value of the
expenditures expected to be required to settle the
obligation incorporating risks specific to the obligation
using a pre-tax rate that reflects current market
assessments of the time value of money. When estimates
of obligations are revised, the present value of the
changes in obligations is recorded in the period by a
change in the obligation amount and a corresponding
adjustment to the carrying amount of the related
property. For locations where mining activities have
ceased, the changes to obligations are charged directly
to the consolidated statements of operations and
comprehensive income (loss).
The amortization or ‘unwinding’ of the discount applied in
establishing the net present value of provisions due to the
passage of time is charged to the consolidated statements
of operations and comprehensive income (loss) in each
accounting period.
The ultimate cost of environmental remediation is
uncertain and cost estimates can vary in response to
many factors including changes to the relevant legal
requirements,
the
emergence
of
new
restoration
techniques or experience at other mine sites. The
expected timing of expenditure can also change, for
example in response to changes in ore reserves or
production rates. As a result, there could be significant
adjustments to the provisions for restoration and
environmental cleanup, which would affect future
financial results.
Funds on deposit with third parties provided as security
for future reclamation costs are included in reclamation
deposits on the statement of financial position.
I. Income taxes
Income tax expense comprises current and deferred
tax. Current and deferred tax are recognized in profit
or loss except to the extent that it relates to a business
combination or items recognized directly in equity. Current
tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantively enacted
at the reporting date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is recognized using the asset and liability
method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation
purposes.
Deferred tax is measured at the rates that are expected
to be applied to temporary differences when they
reverse, based on the laws that have been enacted or
substantively enacted by the reporting date. Deferred
tax is not recognized for the following temporary
differences; the initial recognition of assets or liabilities
in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss,
and differences relating to investments in subsidiaries and
jointly controlled entities to the extent that it is probable
that they will not reverse in the foreseeable future where
the timing of the reversal of the temporary differences can
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
49
ANNUAL REPORT 2022
48
ANNUAL REPORT 2022
share-based instrument holders. The Company uses
historical data to determine volatility in accordance with
appropriate fair value methodology. However, the future
volatility is uncertain, and the model has its limitations.
K. Flow-through shares
The Company finances a portion of its exploration
activities through the issuance of flow-through common
shares. The tax deductibility of qualifying expenditures
is transferred to the investor purchasing the shares.
Consideration for the transferred deductibility of the
qualifying expenditures is often paid through a premium
price over the market price of the Company’s shares.
The Company reports this premium as a liability on
the statement of financial position and the balance is
reported as share capital. At each reporting period,
and as qualifying expenditures have been incurred, the
liability is reduced on a proportionate basis and income is
recognized in the consolidated statements of operations
and comprehensive income (loss).
L. Net earnings (loss) per common share
Basic earnings (loss) per common share is computed
based on the weighted average number of common
shares outstanding during the year. The Company uses the
treasury stock method for calculating diluted earnings per
share which assumes that stock options with an exercise
price lower than the average quoted market price were
exercised at the later of the beginning of the year, or time
of issue and Restricted Share Units (“RSU”s). Stock options
with an exercise price greater than the average quoted
market price of the common shares are not included in the
calculation of diluted earnings (loss) per share as the effect
is anti-dilutive.
M. Financial instruments
The Company recognizes financial assets and financial
liabilities on the date the Company becomes a party to the
contractual provisions of the instruments. A financial asset
is derecognized either when the Company has transferred
substantially all the risks and rewards of ownership of
the financial asset or when cash flows expire. A financial
liability is derecognized when the obligation specified in
the contract is discharged, canceled or expired. Certain
financial instruments are recorded at fair value in the
consolidated statement of financial position.
be controlled by the parent. In addition, deferred tax is not
recognized for taxable temporary differences arising on
the initial recognition of goodwill which is not deductible
for tax purposes.
A deferred tax asset is recognized only to the extent that
it is probable that future taxable profits will be available
against which the asset can be utilized. Deferred tax assets
are reviewed at each reporting date and are reduced to
the extent that it is no longer probable that the related tax
benefit will be realized.
The Company has certain non-monetary assets and
liabilities for which the tax reporting currency is different
from its functional currency. Any translation gains or losses
on the remeasurement of these items at current exchange
rates versus historic exchange rates that give rise to a
temporary difference is recorded as a deferred tax asset or
liability.
J. Stock-based compensation (options and restricted
share units)
The Company applies the fair value method for stock-
based compensation and other stock-based payments.
The fair value of options is valued using the Black Scholes
option-pricing model and other models for the two-tiered
options and restricted share units as may be appropriate.
The grant date fair value of stock-based payment awards
granted to employees is recognized as an employee
expense, with a corresponding increase in equity, over
the period that the employees unconditionally become
entitled to the awards. The amount recognized as an
expense is adjusted to reflect the number of awards
for which the related service and non-market vesting
conditions are expected to be met, such that the amount
ultimately recognized as an expense is based on the
number of awards that meet the related service and non-
market performance conditions at the vesting date (Note
13). The Company reviews estimated forfeitures of options
on an ongoing basis.
The factors affecting stock-based compensation include
estimates of when stock options might be exercised share
price volatility and the assessment of the probability
and timing of those instruments that have non-market
performance vesting criteria. 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N. Accounting pronouncements
New accounting standards and interpretations issued and
effective:
Amendments to IAS 16 - Property, Plant and Equipment:
Proceeds before Intended Use
Amendments to IAS 16 were issued by the IASB in May
2020. The amendments prohibit deducting from the
cost of an item of property, plant and equipment any
proceeds from selling items produced while bringing
that asset to the location and condition necessary for it
to be capable of operating in the manner intended by
management. Instead, an entity recognizes the proceeds
from selling such items, and the cost of producing those
items, in the Consolidated Statements of Operations
and Comprehensive Income. The Company adopted the
amendments effective January 1, 2022. The application
of these amendments did not have an impact on the
Company’s consolidated financial statements.
Accounting pronouncements issued but not yet effective:
Certain pronouncements have been issued by the IASB
that are mandatory for accounting periods after December
31, 2022:
• Deferred Tax related to Assets and Liabilities arising
from a Single Transaction (Amendments to IAS 12
Income Taxes) effective for annual periods beginning on
or after January 1, 2023
• Definition of Accounting Estimates (Amendments to
IAS 8) effective for annual periods beginning on or after
January 1, 2023
• Presentation of Financial Statements (Amendments to
IAS 1 and IFRS Practice Statement 2) effective for annual
periods beginning on or after January 1, 2023
• Classification of Liabilities as Current or Non-current
(Amendments to IAS 1) effective for annual periods
beginning on or after January 1, 2024
• Lease Liability in a Sale and Leaseback (Amendments to
IFRS 16 Leases) effective for annual periods beginning
on or after January 1, 2024.
None of these pronouncements are expected to have a
significant impact on the Company's consolidated financial
statements upon adoption.
Non-derivative financial instruments
Non-derivative financial instruments are recognized
initially at fair value plus attributable transaction costs,
where applicable for financial instruments not classified as
fair value through profit or loss (“FVTPL”). Subsequent to
initial recognition, non-derivative financial instruments are
classified and measured as described below.
Financial assets at FVTPL
Cash and cash equivalents and short-term deposits are
classified as financial assets at FVTPL and are measured at
fair value. Cash equivalents are short-term deposits with
maturities of up to 90 days at the date of purchase. Short-
term deposits consist of investments with maturities from
91 days to one year at the date of purchase. Convertible
notes receivable are recorded at FVTPL.
Financial assets at amortized cost
Trade and other receivables are classified as and measured
at amortized cost using the effective interest rate method,
less impairment losses, if any.
Financial assets at fair value through other comprehensive
income
The Company’s investments in equity marketable
securities are designated as financial assets at fair value
through other comprehensive income and are recorded
at fair value on the trade date with directly attributable
transaction costs included in the recorded amount.
Subsequent changes in fair value are recognized in other
comprehensive income.
Non-derivative financial liabilities
Accounts payable and accrued liabilities are accounted for
at amortized cost, using the effective interest rate method.
Secured note
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).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
51
ANNUAL REPORT 2022
50
ANNUAL REPORT 2022
in whole or in part with interest at any time to maturity.
Subsequent to December 31, 2022, the Company redeemed
$80.4 million of short-term deposits.
5. Amounts receivable and prepaid expenses
4. Cash and cash equivalents
and short-term deposits
All of 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
of 0.91%, 1.75 years expected remaining life of the
convertible note, volatility of 47% based on Paramount
stock price volatility, forfeiture rate of nil, and dividend
yield of nil.
During 2022, the Company received 55,322 common
shares of Paramount for payment of interest on the
secured convertible notes accrued between July 2021 and
June 2022. During 2021, the Company received 30,086
common shares of Paramount for payment of interest on
the secured convertible notes accrued between July 2020
and June 2021. Subsequent to December 31, 2022, the
Company received 43,928 common shares of Paramount
for payment of interest on the secured convertible notes
accrued and receivable as at December 31, 2022. The
accrued interest is classified as receivable from a related
party as of December 31, 2022.
8. Long-term Receivables
1) The Company has paid $38.5 million to British Columbia Hydro and Power
Authority ("BC Hydro") as advance payments made pursuant to the
Company signing a facilities agreement with BC Hydro covering the design
and construction of facilities to supply construction phase hydro-sourced
electricity to the KSM project.
2) During 2016, upon the completion of an audit of the application by
tax authorities of the British Columbia Mineral Exploration Tax Credit
(“BCMETC”) program, the Company was reassessed $3.6 million, including
accrued interest for expenditures that the tax authority has categorized
as not qualifying for the BCMETC program. The Company recorded a $3.6
million provision within non-trade payables and accrued expenses on the
consolidated statements of financial position as at December 31, 2016
with a corresponding increase in mineral interests. In 2017 the Company
filed an objection to the reassessment with the appeals division of the tax
authorities and paid one-half of the accrued balance to the Receiver General
and reduced the provision by $1.8 million. In 2019, the Company received a
decision from the appeals division that the Company’s objection was denied,
and the Company filed a Notice of Appeal with the British Columbia Supreme
Court. The Attorney General of Canada replied to the facts and arguments in
the Company’s Notice of Appeal and stated its position that the Company’s
expenditures did not qualify for the BCMETC program. During the first quarter
2022, 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. Based
on the facts and circumstances of the Company’s objection, the Company
concludes that it is more likely than not that it will be successful in its
objection. As at December 31, 2022, the Company has paid $1.6 million to
the Receiver General, and the Canada Revenue Agency (CRA) has withheld
$2.3 million of HST credits due to the Company that would fully cover the
residual balance, including interest, should the Company be unsuccessful in
its challenge. The amount recorded in long-term receivables as of December
31, 2022 of $3.9 million includes the initial reassessment of $3.6 million, plus
accrued interest.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company holds common shares of several mining
companies that were received as consideration for
optioned mineral properties and other short-term
investments,
including
one
gold
exchange
traded
receipt. These financial assets are recorded at fair value
of $3.7 million (December 31, 2021 - $3.4 million) in
the consolidated statements of financial position. At
December 31, 2022, the Company revalued its holdings in
its investments and recorded a fair value increase of $0.3
million in the statement of operations and comprehensive
income (loss).
Investment in associate relates to Paramount. As
at December 31, 2022, the Company holds a 5.6%
(December 31, 2021 – 6.4%) interest in Paramount for
which it accounts using the equity method on the basis
that the Company has the ability to exert significant
influence through its representation on Paramount’s
board of directors. During 2022, the Company recorded its
proportionate share of Paramount’s net loss of $0.2 million
(2020 – $0.2 million) within equity loss of associate on the
consolidated statements of operations and comprehensive
income (loss). As at December 31 2022, the carrying value
of the Company’s investment in Paramount was $1.4
million (December 31, 2021 - $2.4 million).
7. Convertible notes receivable
In September 2019, the Company participated in a
private placement to purchase US$410,000, at face
value, of secured convertible notes issued by Paramount.
Each convertible note had an issue price of US$975
per US$1,000 face value with a four-year maturity. The
Company purchased 410 convertible notes for a total
of $0.5 million (US$399,750). The convertible notes
bear interest at a rate of 7.5% per annum, payable semi-
annually. At any time after the issuance of the convertible
notes, the Company can convert all or any portion of the
outstanding amount into common shares of Paramount
at a price of US$1.00 per common share. The convertible
notes receivable are recorded at fair value through profit
or loss. The fair value of the convertible notes receivable
is determined by using the Binomial Option Pricing model.
As at December 31, 2022, the fair value of the convertible
notes receivable was $0.6 million (December 31, 2021
- $0.6 million). The fair value was determined using
the binomial option pricing model using the following
assumptions: risk-free rate of 2.96%, 0.75 years expected
remaining life of the convertible note, volatility of 52.6%
based on Paramount stock price volatility, forfeiture rate of
nil, and dividend yield of nil.
As at December 31, 2021, the fair value of the convertible
notes was determined using the binomial option pricing
model using the following assumptions: risk-free rate
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000s)
December 31,
2022
December 31,
2021
BC Hydro 1
38,500
-
Canadian Exploration Expenses
(Note 18)
9,337
9,172
British Columbia Mineral
Exploration Tax Credit 2
3,866
3,866
51,703
13,038
($000s)
January 1, 2022
Fair value
through other
comprehensive
income (loss)
Loss of
associate
Impairment
Additions
December 31, 2022
Current assets:
Investments in marketable securities
3,367
329
-
-
-
3,696
Non-current assets:
Investment in associate
2,429
-
(206)
(873) (a)
39 (b)
1,389
($000s)
January 1,
2021
Fair value
through other
comprehensive
income (loss)
Loss of
associate
Impairment
Additions
December 31, 2021
Current assets:
Investment in marketable securities
3,826
(459)
-
-
-
3,367
Non-current assets:
Investment in associate
2,611
-
(221)
39 (c)
2,429
6. Investments
(a) The Company accounts for its investment in Paramount, a publicly listed company, using the equity method. During the second quarter of 2022, the Company
concluded that the fair value of its investment in Paramount, determined based on the closing share price on June 30, 2022, had declined significantly and
recorded an impairment of $0.9 million (December 31, 2021- nil) in the consolidated statements of operations and comprehensive income (loss).
(b) In 2022, the Company received 55,322 common shares of Paramount for payment of interest on the secured convertible notes accrued between July 1, 2021 and
June 30, 2022. Subsequent to December 31, 2022, the Company received 43,928 common shares of Paramount for payment of interest on the secured convertible
notes accrued between July 1, 2022 and December 31, 2022. The accrued interest is classified as receivable from a related party as of December 31, 2022.
(c) During the year ended December 31, 2021, the Company received 30,086 common shares of Paramount for payment of interest on the secured convertible notes
accrued between July 1, 2020 and June 30, 2021. Refer to note 7 for details on convertible notes receivable.
($000s)
December 31,
2022
December 31,
2021
Cash and cash equivalents
46,150
11,523
Short-term deposits
81,690
29,243
127,840
40,766
($000s)
December 31,
2022
December 31,
2021
HST
4,247
1,698
Prepaid expenses and other
receivables
3,973
8,328
8,220
10,026
53
ANNUAL REPORT 2022
52
ANNUAL REPORT 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 2022
($000s)
January 1,
2022
Mineral
interests
Construction in
progress
Property &
equipment
Right-of-use
assets
Total
Additions
December 31,
2022
Additions
KSM 1
502,015
39,985
120,287
43,177
1,726
205,175
707,190
Courageous Lake
77,176
823
-
-
-
823
77,999
Iskut
41,779
8,125
-
-
-
8,125
49,904
Snowstorm
31,471
3,091
-
-
-
3,091
34,562
3 Aces
9,034
3,045
-
-
-
3,045
12,079
Grassy Mountain
771
-
-
-
-
-
771
Corporate
307
-
-
-
304
304
611
662,553
55,069
120,287
43,177
2,030
220,563
883,116
Year ended December 31, 2022
($000s)
January 1,
2021
Mineral
interests
Construction in
progress
Property &
equipment
Right-of-use
assets
Total
Additions
December 31,
2021
Additions
KSM 2
444,167
27,607
27,061
3,080
100
57,848
502,015
Courageous Lake
76,522
654
-
-
-
654
77,176
Iskut
37,949
3,830
-
-
-
3,830
41,779
Snowstorm
24,924
6,547
-
-
-
6,547
31,471
3 Aces
7,113
1,921
-
-
-
1,921
9,034
Grassy Mountain
771
-
-
-
-
-
771
Corporate
307
-
-
-
-
-
307
591,753
40,559
27,061
3,080
100
70,800
662,553
1) Depreciation expense related to camps, equipment, and right-of-use assets associated with the KSM construction is capitalized to construction in progress.
Mineral interests, property and equipment additions by project are as follows.
1) Construction in progress additions at KSM includes $14.7 million of capitalized borrowing costs.
2) $3.9 million of costs related to the BCMETC audit (refer to Note 8) were reclassified from mineral interests to amounts receivable.
Continued exploration of the Company’s mineral properties is
subject to certain lease payments, project holding costs, rental
fees and filing fees.
a) KSM
In 2001, the Company purchased a 100% interest in
contiguous claim blocks in the Skeena Mining Division,
British Columbia. The vendor maintains a 1% net smelter
royalty interest on the project, subject to maximum
aggregate royalty payments of $4.5 million. The Company
is obligated to purchase the net smelter royalty interest
for the price of $4.5 million in the event that a positive
feasibility study demonstrates a 10% or higher internal
rate of return after tax and financing costs.
In 2011 and 2012, the Company completed agreements
granting a third party an option to acquire a 2% net
smelter royalty on all gold and silver production sales from
KSM for a payment equal to the lesser of $160 million or
US$200 million. The option is exercisable for a period of 60
days following the announcement of receipt of all material
approvals and permits, full project financing and certain
other conditions for the KSM Project.
In December 2020, the Company purchased the Snowfield
(renamed East Mitchell) property from Pretium Resources
Inc. The East Mitchell property, located in the same
valley that hosts KSM's Mitchell deposit, was purchased
for US$100 million ($127.5 million) in cash, a 1.5% net
smelter royalty on East Mitchell property production,
and a conditional payment of US$20 million, payable
following the earlier of (i) commencement of commercial
production from East Mitchell property, and (ii)
announcement by the Company of a bankable feasibility
study which includes production of reserves from the
East Mitchell property. US$15 million of the conditional
payment can be credited against future royalty payments.
Additions to mineral interests of $40 million (2021 -
$27.6 million) consisted of costs incurred to carry out the
Company’s environmental, technical support, exploration
and drilling programs at KSM.
Additions to construction in progress consisted of
$104.6 million (2021- $27.0 million) of KSM assets
under construction costs, $14.7 million (2021- nil) of
capitalized borrowing costs related to the secured note
interest expense, and $0.9 million (2021- $0.1 million) of
capitalized depreciation expense.
Additions to property and equipment consisted of $37.8
million (2021- nil) of commissioned camp costs, $4.5
million (2021- $3.1 million) of equipment costs, and $0.7
million (2021- nil) of leasehold improvements.
b) Courageous Lake
In 2002, the Company purchased a 100% interest in the
Courageous Lake gold project from Newmont Canada
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000s)
Mineral interests
Construction in progress
Property & equipment 1
Right-of-use assets 1
Total
Cost
As at January 1, 2021
591,446
-
-
307
591,753
Additions
40,559
27,061
3,080
100
70,800
As at December 31, 2021
632,005
27,061
3,080
407
662,553
Additions
55,069
120,287
43,177
2,030
220,563
As at December 31, 2022
687,074
147,348
46,257
2,437
883,116
Accumulated Depreciation
As at January 1, 2021
-
-
-
72
72
Depreciation expense
-
-
117
85
202
As at December 31, 2021
-
-
117
157
274
Depreciation expense 1
-
-
953
392
1,345
As at December 31, 2022
-
-
1,070
549
1,619
Net Book Value
As at December 31, 2021
632,005
27,061
2,963
250
662,279
As at December 31, 2022
687,074
147,348
45,187
1,888
881,497
9. Mineral Interests, Property and Equipment
Limited and Total Resources (Canada) Limited. The
Courageous Lake gold project consists of mining leases
located in Northwest Territories of Canada.
c) Iskut
On June 21, 2016, the Company purchased 100% of the
common shares of SnipGold Corp. which owns the Iskut
Project, located in northwestern British Columbia.
In 2022, total mineral interests additions at Iskut
were $8.1 million, of which $6.1 million was related
to exploration activities, $1.0 million was related to
environmental costs, and $0.9 million was related to
project payroll costs.
Additions to mineral interests in 2022 consisted of costs to
carry out the Company’s exploration and drilling program
at Iskut.
d) Snowstorm
In 2017, the Company purchased 100% of the common
shares of Snowstorm Exploration LLC which owns the
Snowstorm Project, located in northern Nevada. In
connection with the acquisition, the Company has agreed
to make a conditional cash payment of US$2.5 million
if exploration activities at the Snowstorm Project result
in defining a minimum of five million ounces of gold
resources compliant with National Instrument 43-101
and a further cash payment of US$5.0 million on the
delineation of an additional five million ounces of gold
resources.
In 2022, total mineral interests additions at Snowstorm
were $3.1 million, which consisted of costs incurred to
carry out the Company’s exploration and drill program.
e) 3 Aces
In 2020, the Company acquired a 100% interest in the
3 Aces gold project in the Yukon, Canada from Golden
Predator Mining Corp. through the issuance of 300,000
common shares valued at $6.6 million. Should the project
attain certain milestones, including the confirmation of a
National Instrument 43-101 compliant mineral resource
of 2.5 million ounces of gold, the Company will pay
an additional $1 million, and upon confirmation of an
aggregate mineral resource of 5 million ounces of gold, the
Company will pay an additional $1.25 million.
In 2022, total mineral interests additions at 3 Aces were
$3.0 million, which consisted of costs incurred to carry out
the Company’s exploration and drill program.
f) Grassy Mountain
In 2013, the Company sold 100% of its interest in the
Grassy Mountain Project with a net book value of $0.8
million retained within mineral properties, related to the
55
ANNUAL REPORT 2022
54
ANNUAL REPORT 2022
option to either receive, at the discretion of the Company,
a 10% net profits interest royalty or a $10 million cash
payment. Settlement is due four months after the later
of: the day that the Company receives a feasibility study
on the project; and the day that the Company is notified
that permitting and bonding for the mine is in place.
The current owner of the Grassy Mountain Project is
Paramount who completed a feasibility study in 2020 but
they have not notified the Company that permitting and
bonding for the mine is in place.
1) Non-trade payables and accrued expenses include $26.3 million of accrued
expenses related to construction at KSM.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
present value of the reclamation obligations was 4.07%
at December 31, 2022 (0.9% - December 31, 2021).
For the year ended December 31, 2022, reclamation
disbursements amounted to $4.5 million (2021 - $3.3
million).
In 2021, the Company updated the closure plan for the
Johnny Mountain mine site and charged an additional
$5.4 million of rehabilitation expenses to the consolidated
statements of operations and comprehensive income
(loss). In 2022, the Company updated the closure plan for
the Johnny Mountain mine site and charged an additional
$6.6 million of rehabilitation expenses to the consolidated
statements of operations and comprehensive income
(loss). Expenditures include the estimated costs for the
closure of all adits and vent raises, removal of the mill
and buildings, treatment of landfills and surface water
management as well as ongoing logistics, freight and fuel
costs.
In 2022, the Company placed $5.4 million on deposit
as security for the reclamation obligations at KSM. As
at December 31, 2022, the Company has placed a total
of $20.6 million (December 31, 2021 - $15.2 million) on
deposit with financial institutions or with government
regulators that are pledged as security against reclamation
liabilities. The deposits are recorded on the consolidated
statements of financial position as reclamation deposit.
As at December 31, 2022, the Company had $7.9 million
(December 31, 2021, $3.0 million) of uncollateralized
surety bond, issued pursuant to arrangements with an
insurance company, in support of environmental closure
costs obligations related to the KSM project.
12. Secured note liability
On February 25, 2022, the Company, through its wholly-
owned subsidiary, KSM Mining ULC (“KSMCo”) signed
a definitive agreement to sell a secured note (“secured
note”) that is to be exchanged at maturity for a silver
royalty on its 100% owned KSM Project (“KSM”) to
institutional investors (“Investors”) for US$225 million.
The transaction closed on March 24, 2022. The key terms
of the secured note include:
• When the secured note matures, the Investors will
use all of the principal amount repaid on maturity
to purchase a 60% gross silver royalty (the “Silver
Royalty”) maturity occurs upon the first to occur of:
a) Commercial production being achieved at KSM; and
b) Either
the
10-year
anniversary,
or
if
the
Environmental
Assessment
Certificate
(“EAC”)
expires and the Investors do not exercise their right
to put the secured note to the Company, the 13-year
anniversary of the issue date of the secured note.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• Prior to its maturity, the secured note bears interest
at 6.5% per annum, payable quarterly in arrears. The
Company can elect to satisfy interest payments in cash
or by delivering common shares.
• The Company has the option to buyback 50% of the
Silver Royalty, once exchanged on or before 3 years
after commercial production has been achieved, for
an amount that provides the Investors a minimum
guaranteed annualized return.
• If project financing to develop, construct and place
KSM into commercial production is not in place by
the fifth anniversary from closing, the Investors
can put the secured note back to the Company for
US$232.5 million, with the Company able to satisfy
such amount in cash or by delivering common shares
at its option. This right expires once such project
financing is in place. If the Investors exercise this put
right, the Investors’ right to purchase the Silver Royalty
terminates.
• If KSM’s EAC expires at anytime while the secured note
is outstanding, the Investors can put the secured note
back to the Company for US$247.5 million at any time
over the following nine months, with the Company able
to satisfy such amount in cash or by delivering common
shares at its option. If the Investors exercise this put
right, the Investors’ right to purchase the Silver Royalty
terminates.
• If commercial production is not achieved at KSM prior
to the tenth anniversary from closing, the Silver Royalty
payable to the Investors will increase to a 75% gross
silver royalty (if the EAC expires during the term of the
secured note and the corresponding put right is not
exercised by the Investors, this uplift will occur at the
thirteenth anniversary from closing).
• No amount payable shall be paid in common shares
if, after the payment, any of the Investors would own
more than 9.9% of the Company’s outstanding shares.
• The Company’s obligations under the secured note are
secured by a charge over all of the assets of KSMCo
and a limited recourse guarantee from the Company
secured by a pledge of the shares of KSMCo.
A number of the above noted options within the
agreement represent embedded derivatives. Management
has elected to not separate these embedded derivatives
from the underlying host secured note, and instead
account for the entire secured note as a financial liability
at fair value through profit or loss.
The Company entered into the loan commitment within
the scope of IFRS 9 ‘Financial Instruments’ on February
25, 2022 related to the secured note, as at that date,
the Company and the Investors were committed under
pre-specified terms and conditions to complete the
transaction. The loan commitment was initially recognized
at a fair value of US$225 million. Upon funding of the
secured note on March 24, 2022, the loan commitment
was settled with no gain or loss recognized.
The secured note was recognized at its estimated fair
value at initial recognition of $282.3 million (US$225
million) using a discounted cash flow model with a Monte
Carlo simulation. This incorporated several scenarios and
probabilities of the EAC expiring, achieving commercial
production and securing project financing, forecasted
silver prices and the discount rates. During the year ended
December 31, 2022, the fair value of the secured note
decreased, and the Company recorded $36.7 million gain
on the remeasurement.
The following inputs and assumptions were used in the
determination of fair value:
11. Provision for reclamation liabilities
The estimate of the provision for reclamation obligations,
as at December 31, 2022, was calculated using the
estimated discounted cash flows of future reclamation
costs of $10.8 million (December 31, 2021 - $8.4 million)
and the expected timing of cash flow payments required
to settle the obligations between 2022 and 2026. As
at December 31, 2022, the undiscounted future cash
outflows are estimated at $11.5 million (December
31, 2021 - $8.6 million) primarily over the next three
years. The nominal discount rate used to calculate the
($000s)
December 31,
2022
December 31,
2021
Trade payables
15,686
10,190
Non-trade payables and
accrued expenses
27,270
1,975
42,956
12,165
10. Accounts payable and accrued liabilities
($000s)
December 31,
2022
December 31,
2021
Beginning of the period
8,442
6,164
Disbursements
(4,519)
(3,320)
Environmental rehabilitation
expense
6,851
5,515
Accretion
72
83
End of the period
10,846
8,442
Provision for reclamation
liabilities – current
4,343
3,680
Provision for reclamation
liabilities – long-term
6,503
4,762
10,846
8,442
Inputs and assumptions
March 24, 2022
December 31, 2022
Weighted Average Life 1
23.5 years
44.9 years
Forecast silver production, in thousands of ounces
105,778
166,144
Future silver price
US$28.96 to US$35.42
US$29.38 to US$110.51
Risk-free rate
2.5%
3.4%
Credit spread
5.2%
5.3%
Volatility
60%
60%
Silver royalty discount factor
7.1%
8.6%
1) Weighted average life reflects the revised silver forecast production schedule contained in the recently filed KSM updated Preliminary Feasibility Study (“PFS”)
and Preliminary Economic Assessment (“PEA”) for the KSM project filed in the second quarter of 2022
57
ANNUAL REPORT 2022
56
ANNUAL REPORT 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sensitivity Analysis:
For the fair value of the secured note, reasonably possible changes at the reporting date to one of the significant inputs, holding
other inputs constant, would have the following effects:
13. Shareholders’ equity
The Company is authorized to issue an unlimited number
of preferred shares and common shares with no par value.
No preferred shares have been issued or were outstanding
at December 31, 2022 or December 31, 2021.
The Company manages its capital structure and makes
adjustments to it, based on the funds available to the
Company, in order to support the acquisition, exploration
and development of mineral properties. The Board
of Directors does not establish quantitative return on
capital criteria for management, but rather relies on the
expertise of the Company's management to sustain future
development of the business.
The properties in which the Company currently has an
interest are in the exploration stage, as such the Company
is dependent on external financing to fund its activities.
In order to carry out the planned exploration and pay for
administrative costs, the Company will spend its existing
working capital and raise additional amounts as needed.
Management reviews its capital management approach
on an ongoing basis and believes that this approach, given
the relative size of the Company, is reasonable. There
were no changes in the Company's approach to capital
management during 2022. The Company considers its
capital to be share capital, stock-based compensation,
warrants, contributed surplus and deficit. The Company is
not subject to externally imposed capital requirements.
a) Equity financings
During the first quarter of 2021, the Company entered
into an agreement with two securities dealers, for an At-
The-Market offering program, entitling the Company, at
its discretion, and from time to time, to sell up to US$75
million in value of common shares of the Company. This
program was in effect until the Company’s US$775 million
Shelf Registration Statement, that expired in December
2022, was replaced with a new US$750 million the same
month. Subsequent to the year end, a US$100 million
prospectus supplement was filed and the program was
renewed at that time.In 2021, the Company issued
2,242,112 shares, at an average selling price of $22.71
per share, for net proceeds of $49.9 million under the
Company’s At-The-Market offering. In 2022, the Company
issued 998,629 shares, at an average selling price of
$22.82 per share, for net proceeds of $22.3 million under
the Company’s At-The-Market offering.
Subsequent to December 31, 2022, the Company entered
into a new agreement with two securities dealers, for an
At-The-Market offering program, entitling the Company, at
its discretion, and from time to time, to sell up to US$100
million in value of common shares of the Company. This
program can be in effect until the Company’s US$750
million Shelf Registration Statement expires in 2025.
Subsequent to December 31, 2022, the Company issued
313,666 shares, at an average selling price of $18.26
per share, for net proceeds of $5.6 million under the
Company’s At-The-Market offering.
In December 2022, the Company issued a total of 675,400
flow-through common shares at an average $22.24 per
common share for aggregate gross proceeds of $15.0
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, 2022. At the
time of issuance of the flow-through shares, $4.2 million
premium was recognized as a liability on the consolidated
statements of financial position.
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 2022, the Company incurred $8.7
million of qualifying exploration expenditures and the
remaining $1.3 million of the premium was recognized
through other income on the consolidated statements of
operations and comprehensive income (loss).
In June 2020, the Company issued 345,000 flow-through
common shares at $32.94 per common share for
aggregate gross proceeds of $11.4 million. The Company
committed to renounce its ability to deduct qualifying
exploration expenditures for the equivalent value of
the gross proceeds of the flow-through financing and
transfer the deductibility to the purchasers of the flow-
through shares. The effective date of the renouncement
was December 31, 2020. In accordance with draft
legislation released on December 16, 2020 in relation
to the COVID-19 pandemic, a 12-month extension was
provided to the normal timelines in which the qualifying
exploration expenditures should be incurred. At the
time of issuance of the flow-through shares, $3.9 million
premium was recognized as a liability on the consolidated
statements of financial position. During 2020, the
Company incurred $4.7 million of qualifying exploration
expenditures and $1.6 million of the premium was
recognized through other income on the consolidated
statements of operations and comprehensive income
(loss). During 2021, the Company incurred $6.5 million
of qualifying exploration expenditures and $2.2 million
of the premium was recognized through other income
on the consolidated statements of operations and
comprehensive income (loss). During the first quarter
of 2022, the Company incurred $0.2 million of qualifying
exploration expenditures and the remaining $0.1 million of
the premium was recognized through other income on the
consolidated statements of operations and comprehensive
income (loss).
b) Stock options and restricted share units
The Company provides compensation to directors
and employees in the form of stock options and RSUs.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000s)
Secured Note
Fair value at inception
282,263
Add (deduct):
Unrealized change in fair value
(39,879)
Foreign currency translation loss
21,157
Carrying value and fair value on December 31, 2022
263,541
Key Inputs
Inter-relationship between significant inputs and fair value measurement
Increase (decrease) (millions)
Key observable inputs
The estimated fair value would increase (decrease) if:
• Silver price forward curve
• Future silver prices were 10% higher
$9.7
• Future silver prices were 10% lower
($9.8)
• Discount rates (7.6% - 9.6%)
• Discount rates were 1% higher
($16.1)
• Discount rates were 1% lower
$18.7
Key unobservable inputs
263,541
• Forecasted silver production
• Silver production indicated silver ounces were 10% higher
$9.7
• Silver production indicated silver ounces were 10% lower
($9.8)
The carrying amount for the secured note is as follows:
59
ANNUAL REPORT 2022
58
ANNUAL REPORT 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
employees of the Company. The fair value of the grants,
of $5.1 million, was estimated as at the grant date to be
amortized over the expected service period of the grants.
The expected service period ranges from six months to
three years from the date of the grant and is dependent
on certain corporate objectives being met. Of the $5.1
million fair value of the grants, $0.1 million was amortized
during the fourth quarter of 2022, and the remaining $5.0
million will be amortized over the remaining estimated
service periods of the respective tranches.
During the third quarter of 2022, 10,000 RSUs were
granted to a Board member. Half of the RSUs vest on the
During the year ended December 31, 2022, 540,834
options were exercised (2021 - 1,585,501) for proceeds
of $3.9 million (2021 - $17.7 million) and 148,800 RSUs
vested (2021 - 135,400). In total, 689,634 common shares
were issued (2021 - 1,720,951). The weighted average
share price at the date of exercise of options exercised
during the year ended December 31, 2022 was $18.74
(2021 - $22.39).
In December 2022, 310,266 RSUs were granted. Of these,
37,500 RSUs were granted to Board members, 232,266
RSUs were granted to members of senior management,
and the remaining 40,500 RSUs were granted to other
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
remaining half will vest on the second anniversary. The fair
value of the grants, of $0.2 million, was estimated as at
the grant date to be amortized over the expected service
period of the grants. During the second quarter of 2022,
5,000 RSUs were vested, and as at December 31, 2022,
$0.2 million of the fair value of the grants was amortized.
c) Basic and diluted net income (loss) per common share
Basic and diluted net loss attributable to common
shareholders of the Company for the year ended
December 31, 2022 was $7.4 million (2021 - $0.9 million
net income).
Earnings per share has been calculated using the weighted
average number of common shares and common share
equivalents issued and outstanding during the period.
Stock options are reflected in diluted earnings per share
by application of the treasury method. The following
table details the weighted average number of outstanding
common shares for the purpose of computing basic and
diluted earnings per common share for the following
periods:
For the year ended December 31, 2022, 427,500 stock
options and 345,266 RSUs were not included in the
calculation of diluted earnings per share since to include
them would be anti-dilutive.
first anniversary of the appointment and the remaining
half on the second anniversary. The fair value of the
grants, of $0.2 million, was estimated as at the grant date
to be amortized over the expected service period of the
grants. As at December 31, 2022, $0.1 million of the fair
value of the grants was amortized.
In December 2021, 123,800 RSUs were granted. Of these,
28,000 RSUs were granted to Board members, 75,200
RSUs were granted to members of senior management,
and the remaining 20,600 RSUs were granted to other
employees of the Company. The fair value of the grants,
of $2.6 million, was estimated as at the grant date to be
amortized over the expected service period of the grants.
The expected service period of approximately four months
from the date of the grant was dependent on certain
corporate objectives being met. Of the $2.6 million fair
value of the grants, $0.4 million was amortized during
the fourth quarter 2021, and the remaining $2.2 million
was amortized during the first quarter of 2022. During the
second quarter of 2022, 128,800 RSUs were vested and
119,800 RSUs were exchanged for common shares of the
Company.
During the third and fourth quarter of 2021, 40,000
RSUs were granted to three new members of senior
management. Half of the RSUs vest on the first anniversary
of employment and the remaining half on the second
anniversary. The fair value of the grants, of $0.9 million,
was estimated at the grant date to be amortized over the
expected service period of the grants. In 2022, 20,000
RSUs were vested, and as at December 31, 2022, $0.7
million of the fair value of the grants was amortized.
During the second quarter of 2021, 10,000 RSUs were
granted to a Board member. Half of the RSUs vested
on the first anniversary of the appointment and the
Options Outstanding
Options Exercisable
Exercise price
Number outstanding
Remaining contractual life
Number Exercisable
$16.94
50,000
10 months
50,000
$15.46
377,500
1 year
377,500
$17.72
50,000
1 year 6 months
50,000
477,500
477,500
($000s)
December 31,
2022
December 31,
2021
Weighted average number of
common shares outstanding
80,058,861
76,413,554
Dilutive effect of options
-
1,023,334
Dilutive effect of RSUs
-
163,800
80,058,861
77,600,688
Year Ended
($000s)
Notes
December 31, 2022
December 31, 2021
Impairment of investment in associate
6
873
-
Equity loss of associate
6
207
221
Unrealized gain on convertible notes receivable
7
(25)
(104)
Accrued interest income on convertible notes receivable
7
(39)
(39)
Depreciation
9
84
85
Finance costs, net
72
110
Effects of exchange rate fluctuation on cash and cash equivalents
7
(3,216)
184
(2,044)
457
Options
RSUs
Total
Number of
Options
Weighted
Average
Exercise
Price ($)
Amortized
Value of
options
($000s)
Number
of RSUs
Amortized
Value
of RSUs
($000s)
Stock-based
Compensation
($000s)
Outstanding January 1, 2021
2,611,691
12.51
22,524
135,450
487
23,011
Granted
-
-
-
173,800
573
573
Exercised option or vested RSU
(1,585,501)
11.17
(14,370)
(135,450)
(3,413)
(17,783)
Expired
(2,856)
6.30
(37)
-
-
(37)
Amortized value of stock-based compensation
-
-
8
-
2,925
2,933
Outstanding at December 31, 2021
1,023,334
14.61
8,125
173,800
572
8,697
Exercisable at December 31, 2021
1,023,334
The outstanding share options at December 31, 2022 expire at various dates between October 2023 and June 2024. A summary
of options outstanding, their remaining life and exercise prices as at December 31, 2022 is as follows:
14. Cash flow items
Adjustment for other non-cash items within operating activities:
Options
RSUs
Total
Number of
Options
Weighted
Average
Exercise
Price ($)
Amortized
Value of
options
($000s)
Number
of RSUs
Amortized
Value
of RSUs
($000s)
Stock-based
Compensation
($000s)
Outstanding January 1, 2022
1,023,334
14.61
8,125
173,800
572
8,697
Granted
-
-
-
320,266
187
187
Exercised option or vested RSU
(540,834)
13.54
(3,974)
(148,800)
(3,172)
(7,146)
Expired
(5,000)
13.14
(34)
-
-
(34)
Amortized value of stock-based compensation
-
-
-
-
2,951
2,951
Outstanding at December 31, 2022
477,500
15.85
4,117
345,266
538
4,655
Exercisable at December 31, 2022
477,500
Stock option and RSU transactions were as follows:
61
ANNUAL REPORT 2022
60
ANNUAL REPORT 2022
($000s)
December 31, 2022
Carrying
Amount
Level 1
Level 2
Level 3
Total Fair
Value
Assets
Cash and cash equivalents
46,150
46,150
-
-
46,150
Short-term deposits
81,690
81,690
-
-
81,690
Amounts receivable
6,260
6,260
-
-
6,260
Investment in marketable securities
3,696
3,696
-
-
3,696
Convertible notes receivable
631
-
-
631
631
Long-term receivables
51,703
51,703
-
-
51,703
190,130
189,499
-
631
190,130
Liabilities
Accounts payable and accrued liabilities
42,956
42,956
-
-
42,956
Secured note
263,541
-
-
263,541
263,541
306,497
42,956
-
263,541
306,497
(000s)
Less than 1 year
1-3 years
3-5 years
Greater than 5 years
Total
Secured note including interest
19,808
39,616
39,616
164,501
263,541
Flow-through share expenditures
15,023
-
-
-
15,023
Lease obligation
669
834
106
92
1,701
35,500
40,450
39,722
164,593
280,265
($000s)
December 31, 2021
Carrying
Amount
Level 1
Level 2
Level 3
Total Fair
Value
Assets
Cash and cash equivalents
11,523
11,523
-
-
11,523
Short-term deposits
29,243
29,243
-
-
29,243
Amounts receivable and prepaid expenses
5,229
5,229
-
-
5,229
Investment in marketable securities
3,367
3,367
-
-
3,367
Convertible notes receivable
606
-
-
606
606
Long-term receivables
13,038
13,038
-
-
13,038
63,006
62,400
-
606
63,006
Liabilities
Accounts payable and accrued liabilities
12,165
12,165
-
-
12,165
12,165
12,165
-
-
12,165
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
The Company’s fair values of financial assets and liabilities were as follows:
The carrying value of cash and cash equivalents, short-term
deposits, amounts receivable and accounts payable and
accrued liabilities approximate their fair values due to the
short-term maturity of these financial assets and liabilities.
The Company's financial risk exposures and the impact on the
Company's financial instruments are summarized below:
Credit Risk
The Company's credit risk is primarily attributable to short-
term deposits, convertible notes receivable, and receivables
included in amounts receivable and prepaid expenses. The
Company has no significant concentration of credit risk arising
from operations. The short-term deposits consist of Canadian
Schedule I bank guaranteed notes, with terms up to one
year but are cashable in whole or in part with interest at any
time to maturity, for which management believes the risk of
loss to be remote. Management believes that the risk of loss
with respect to financial instruments included in amounts
receivable and prepaid expenses to be remote.
Liquidity Risk
The Company's approach to managing liquidity risk is to
ensure that it will have sufficient liquidity to meet liabilities
when due. As at December 31, 2022, the Company had cash
and cash equivalents of $46.2 million and short-term deposits
of $81.7 million (December 31, 2021 - $11.5 million and
$29.2 million, respectively) for settlement of current financial
liabilities of $47.3 million (December 31, 2021 - $12.2 million).
Except for the secured note liability and the reclamation
obligations, 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.
The following tables detail the Company’s expected remaining
contractual cash flow requirements for its financial liabilities
on repayment or maturity periods. The amounts presented
are based on the contractual undiscounted cash flows and
may not agree with the carrying amounts in the Consolidated
Statements of Financial Position.
As the Company does not generate cash inflows from
operations, the Company is dependent upon external
sources of financing to fund its exploration projects and on-
going activities. If required, the Company will seek additional
sources of cash to cover its proposed exploration and
development programs at its key projects, in the form of
equity financing and from the sale of non-core assets. Refer to
Note 13 for details on equity financing.
Market Risk
(a) Interest Rate Risk
Interest rate risk is the risk that the future cash flows of a
financial instrument or its fair value will fluctuate because
of changes in market interest rates. The secured note
liability (Note 12) bears interest at a fixed rate of 6.5% per
annum. The Company's current policy is to invest excess
cash in Canadian bank guaranteed notes (short-term
deposits). The short-term deposits can be cashed in at any
time and can be reinvested if interest rates rise.
(b) Foreign Currency Risk
The Company's functional currency is the Canadian
dollar and major purchases are transacted in Canadian
and US dollars. The secure note liability and the related
interest payments are denominated in US dollars. The
Company has the option to pay the interest either in cash
or in shares. The Company also funds certain operations,
exploration and administrative expenses in the United
States on a cash call basis using US dollar cash on hand
or converted from its Canadian dollar cash. Management
believes the foreign exchange risk derived from currency
conversions is not significant to its operations and has not
entered into any foreign exchange hedges. As at December
31, 2022, the Company had cash and cash equivalents,
investment in associate, convertible notes receivable,
loan receivable, reclamation deposits, accounts payable,
accrued liabilities and secured note that are in US dollars.
15. 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).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
63
ANNUAL REPORT 2022
62
ANNUAL REPORT 2022
(c) Unrecognized Deferred Tax Assets
The company has not recognized deferred income tax
assets in respect of the following tax effected deductible
temporary differences:
Deferred tax has not been recognized on the deductible
temporary difference of $2.1 million (2021 - $3.2 million)
relating to investments in subsidiaries as these amounts
will not be distributed in the foreseeable future.
The tax losses not recognized expire as per the amount
and years noted below. The deductible temporary
differences do not expire under the current tax legislation.
Deferred tax assets have not been recognized in respect of
these items because it is not probable that future taxable
profit would be available against which the Company can
utilize the benefits there from.
(d) Income Tax Attributes
As at December 31, 2022, the Company had the following
income tax attributes to carry forward.
(c) Investment Risk
The Company has investments in other publicly listed
exploration companies which are included in investments.
These shares were received as option payments on
certain exploration properties the Company owns or
has sold. In addition, the Company holds $3.6 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.
16. Corporate and administrative expenses
17. Related party disclosures
Compensation to key management personnel of the
Company:
(a) Rate Reconciliation
The provision for income taxes differs from the amount
that would have resulted by applying the combined
Canadian Federal, Ontario, British Columbia, Northwest
Territories and Yukon statutory income tax rates of 26.68%
(2021 - 26.63%).
During year ended December 31, 2022 and 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.
18. Income taxes
In 2022, the Company recognized income tax expense
of $8.3 million, primarily due to the deferred tax liability
arising from the gain recognized on remeasurement
of the fair value of the secured note liability, and from
the renouncement of expenditures related to the June
2021 flow-through shares issued which are capitalized
for accounting purposes. The income tax expense was
partially offset by income tax recovery arising from
the losses in the period. The income tax impact of the
revaluation of the secured note liability that was recorded
through other comprehensive income (loss) during
2022, of $0.05 million, was also recorded through other
comprehensive income (loss).
(b) Deferred Income Tax
The
following
table
summarizes
the
significant
components of deferred income tax assets and liabilities:
($000s)
2022
2021
Compensation of directors:
Directors fees
560
431
Stock-based compensation
675
704
1,235
1,135
Compensation of key management personnel:
Salaries and consulting fees
7,892
5,773
Stock-based compensation
2,026
2,226
9,918
7,999
11,153
9,134
($000s)
2022
2021
Deferred tax expense (recovery)
8,268
4,630
8,268
4,630
Tax expense (recovery) recognized in other
comprehensive income or directly in equity
($000s)
2022
2021
Financing costs - recognized in
statement of equity
(330)
(438)
Unrealized gain or loss on marketable
securities - recognized in OCI
831
(61)
501
(499)
($000s)
2022
2021
Earnings before income taxes
874
5,525
26.68%
26.63%
Tax expense calculated
Using statutory rates
233
1,471
Non-deductible items
2,280
303
Difference in foreign tax rates
103
(8)
Change in deferred tax rates
(116)
(132)
Movement in tax benefits not recognized
2,996
949
Impact of true-up of prior year balances
124
1
Renouncement of flow-through expenditures
2,525
2,020
Other
123
24
Income tax expense
8,268
4,630
($000s)
December
31, 2022
December
31, 2021
Deferred income tax assets:
Property and equipment
565
292
Provision for reclamation liabilities
1,235
595
Financing costs
2,487
2,080
Non-capital loss carryforwards
38,255
33,098
Deferred income tax liabilities:
Mineral interests
(63,710)
(59,229)
Secured note
(10,766)
-
Net deferred income tax liabilities
(31,934)
(23,164)
($000s)
December
31, 2022
December
31, 2021
Marketable securities
137
182
Loss carryforwards
834
798
Investment tax credits
1,481
1,481
Foreign tax credits
268
268
Mineral properties
437
140
Provision for reclamation liabilities
1,091
1,083
($000s)
Expiry date
Canadian non-capital losses
143,103
2042
Canadian capital losses
2,571
Indefinite
Canadian tax basis of mineral interest
406,278
Indefinite
U.S. non-capital losses
480
2042
U.S. tax basis of mineral interest
23,201
Indefinite
($000s)
2022
2021
Employee compensation
7,479
5,781
Stock-based compensation
3,138
3,506
Professional fees
2,591
1,828
Other general and administrative
2,882
2,264
16,090
13,379
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
65
ANNUAL REPORT 2022
64
ANNUAL REPORT 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIRECTORS
Rudi P. Fronk
Chairman of the Board
Trace J. Arlaud
Eliseo Gonzalez-Urien
Richard C. Kraus
Jay S. Layman
Melanie R. Miller
Clement A. Pelletier
John W. Sabine
(Lead Director)
Gary A. Sugar
Carol T. Willson
OFFICERS
Rudi P. Fronk
Chief Executive Officer
William E. Threlkeld
Senior Vice President, Exploration
Peter D. Williams
Senior Vice President, Technical Services
Christopher J. Reynolds
Vice President, Finance and Chief Financial Officer
R. Brent Murphy
Senior Vice President, Environmental Affairs
C. Bruce Scott
Senior Vice President, General Counsel and
Corporate Secretary
Elizabeth F. Miller
Vice President, Environment and
Social Responsibility
Julie A. Rachynski
Vice President, Human Resources
Ryan C. Hoel
Senior Vice President,
Chief Operating Officer, Projects
Tracey D. Meintjes
Vice President, Engineering Studies
Neggar Shafai
Assistant Corporate Secretary
STOCK EXCHANGE LISTINGS
Toronto Stock Exchange, symbol “SEA”
New York Stock Exchange, symbol “SA”
CUSIP Number 811916105
HEAD OFFICE
Seabridge Gold Inc.
106 Front Street East, Suite 400
Toronto, Ontario M5A 1E1 Canada
Tel: 416 367 9292 Fax: 416 367 2711
info@seabridgegold.com
www.seabridgegold.com
www.ksmproject.com
INVESTOR RELATIONS
Rudi P. Fronk
Tel: 416 367 9292
info@seabridgegold.com
LEGAL COUNSEL
Blake, Cassels & Graydon LLP
595 Burrard Street, Suite 2600
P.O. Box 49314
Vancouver, British Columbia V7X 1L3 Canada
Carter Ledyard & Milburn LLP
28 Liberty Street, 41st Foor
New York, NY 10005 USA
DuMoulin Black LLP
10th Floor, 595 Howe Street
Vancouver, British Columbia V6C 2T5 Canada
REGISTRAR AND
TRANSFER AGENT
Computershare Investor Services Inc.
100 University Avenue
8th Floor, North Tower
Toronto, Ontario M5J 2Y1 Canada
Toll free (North America): 1 800 564 6253
International Direct Dial: 514 982 7555
Computershare Investor Services Inc.
250 Royall Street
Canton, Massachusetts 02021 USA
Toll free (North America): 1 800 564 6253
International Direct Dial: 514 982 7555
AUDITORS
KPMG LLP
333 Bay Street, Suite 4600
Toronto, Ontario M5H 2S5
Canada
Corporate Information
19. Commitments and contingencies
Payments due by years
($000s)
Total
2023
2024-25
2026-27
2028-29
Secured note – interest
138,656
19,808
39,616
39,616
39,616
Capital expenditure obligations
104,688
98,128
6,560
-
-
Flow-through share expenditures
15,023
15,023
-
-
-
Mineral interests
5,782
826
1,652
1,652
1,652
Lease obligation
1,701
669
834
106
92
265,850
134,454
48,662
41,374
41,360
In 2022, the Company entered into a Facilities Agreement
with 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
$32.8 million of which the Company has paid $11.7 million
to BC Hydro and the remaining balance 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 has paid $21.2 million to
BC Hydro and the balance 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. Subsequent to December 31,
2022, $43.7 million was paid to BC Hydro.
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. Refer
to Note 12 for details on the secured note.
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 the
flow-through shares, reducing CEE deductions. Notice of
objections to the Company’s and investors’ reassessments
have been filed for all those that have been received
and will be appealed to the courts, should the notice of
objections be denied. The Company has indemnified the
investors that subscribed for the flow-through shares. The
potential tax indemnification to the investors is estimated
to be $10.8 million, plus $2.9 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 2021 and 2022, the Company deposited $9.3
million into the accounts of certain investors with the
Receiver General, in return for their agreement to object
to their respective assessments and agreement to repay
the Company the full amount deposited on their behalf
upon resolution of the Company’s appeal. The deposits
made has been recorded as long-term receivables on the
statement of financial position as at December 31, 2022.
Seabridge Gold Inc.
106 Front Street East, Suite 400
Toronto, Ontario M5A 1E1 Canada
Phone: 416 367 9292 Fax: 416 367 2711
info@seabridgegold.com
www.seabridgegold.com
www.ksmproject.com