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Summary

  • Seabridge Gold continues to develop the KSM Project as the environmental assessment was approved by the British Colombian Government.
  • Seaboard's management has become near-term bullish on gold which is a primary topic in the company's Q2 Report to Shareholders.
  • These developments fit my October investment thesis, which is that Seabridge is a gold leverage play; the first point in particular eliminates a great deal of regulatory risk.
  • The stock has been strong since BC's environmental assessment approval, and it might be time for a pullback.

Seabridge Gold (NYSE:SA) accomplished a great deal in the second quarter. The primary development was that British Columbia approved the company's environmental assessment for its flagship KSM Project. This is a significant accomplishment for a large project as large projects are likely to be subjected to community disapproval.

Regarding financial developments the company reported a loss of $3.8 million for the quarter versus a loss of $5.7 million last year. The company's investments in its two properties (Courageous Lake being the other one) totaled $6.3 million, which is down from $8.2 million last year. The company's weak share price over the past year makes financing exploration and development more difficult and the fact that the company's working capital position has declined to $18.7 million from over $30 million at the beginning of the year indicates that the company will need to raise capital in the not too distant future. Given management's bullish stance on gold - as evidenced in the company's Report to Shareholders - it is likely expecting to see shares move higher, making financing easier.

Investors who read my October article know that I doubt that the KSM Project is going to go into production any time soon as the company wants to wait for the gold price to rise in order to maximize shareholders' leverage to the gold price. The company is still moving forward with some capital intensive initiatives such as regulatory matters and exploration but we shouldn't expect to see management move forward with construction unless the gold price rises. Readers of my October article know that the project is hardly economic at the current gold price given the massive initial capex expense. But the project's value skyrockets in a higher gold price environment. For instance I calculated that at a 5% discount rate and at a $2,000/oz. gold price the project is worth over $11 billion, or over 20 times the current valuation. This incredible leverage is the impetus behind an investment in Seabridge Gold.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: Seabridge Gold's Q2 Earnings Support The Long-Term Investment Thesis