The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
North of 60 Mining News - May 12, 2023
Seabridge geologists investigate the Mitchell deposit where mining is slated to begin at the KSM copper-gold-silver project.
KSM is within 20 miles (30 kilometers) of BC Hydro's Northwest Transmission Line, which delivers clean industrial hydroelectricity deep into BC's Golden Triangle.
Seabridge Gold Inc. May 11 announced that it has raised US$150 million (C$201 million) to carry out the work required to elevate KSM to the "substantially started" status, which will ensure the longevity of the environmental assessment certificate for this copper-gold-silver mine project in British Columbia's Golden Triangle.
Once a certain threshold has been achieved, the BC Minister of Environment and Climate Change Strategy can designate KSM as substantially started, a status that will keep the previously approved environmental assessment certificate (EAC) in effect for the life of the project.
The EAC for KSM is currently valid through July 2026.
To make the EAC permanent, the environment minister must determine that enough physical work has been completed to surpass a certain threshold. Other mining projects in Northern BC, including Newmont Corp. and Teck Resources Ltd.'s Galore Creek copper-gold project, have been granted the substantially started designation.
Gaining the substantially started designation and securing the environmental certificate for the life of the project would further de-risk and enhance the value of KSM as Seabridge negotiates with potential joint venture partners for developing a mine at the world-class project. The tasks completed to achieve this status would also shorten the mine development timeline once a partner is secured and the decision to initiate full-scale construction is made.
Among the tasks to be completed with the money raised is a switching station and other work needed to connect KSM to BC Hydro's Northern Transmission Line.
"Access to this green energy will substantially enhance KSM's sustainability and carbon profile," said Seabridge Gold Chairman and CEO Rudi Fronk. "Proceeds from the royalty agreement will also allow us to continue providing significant work for companies owned and managed by our Indigenous partners in the KSM project, an important ESG objective."
The US$150 million cash infusion comes under a royalty agreement between Seabridge subsidiary, KSM Mining ULC and Sprott Resource Streaming and Royalty Corp.
In exchange for the funds, KSM Mining is granting Sprott a 1.2% net smelter royalty (NSR) on the metals produced at KSM. Given the size of KSM, this could result in a substantial payback to Sprott over the coming decades.
A 2022 prefeasibility study (PFS) detailed plans for a financially robust open-pit mine at KSM that would produce more than 178 million lb of copper, 1 million oz of gold, 3 million oz of silver, and 4.2 million lb of molybdenum annually for 33 years.
A supplemental preliminary economic assessment (PEA) outlines plans for underground block-cave mining that would extend the life of the KSM for 39 years beyond the operation outlined in the PFS.
This second underground phase contemplated in the PEA would average 366 million lb of copper, 368,000 oz of gold, 1.8 million oz of silver, and 400,000 lb of molybdenum annually.
The terms of the royalty agreement would likely encourage major mining companies interested in partnering with Seabridge to make a move fairly soon.
First off, the royalty can be reduced to 1% by paying Sprott US$21.5 million over the next 30 months. Additionally, the royalty increases if commercial production is not achieved by 2032. Under this scenario, the new royalty would be 1.5% if KSM Mining does not exercise its buydown right or 1.25% if it does.
KSM Mining also has the royalty down to 0.5% NSR (or 0.625% if the royalty rate increase occurs) on or before three years after commercial production has been achieved, for an amount that provides Sprott a minimum guaranteed annualized return.
"KSM's estimated low operating costs mean that the royalty is expected to have a minimal impact on the project's projected financial returns," said Fronk. "Furthermore, this funding does not require share dilution and therefore furthers our long-standing strategy of providing the industry's best leverage to gold as measured by ounces of gold reserves and resources per share."
The US$150 million royalty deal with Sprott is the second major funding Seabridge has received for advancing early construction activities at KSM.
Last February, Sprott and Ontario Teachers' Pension Plan purchased a US$225 secured note from KSM Mining that can be exchanged for a 60% gross silver royalty for the KSM project.
While a 60% silver royalty seems steep, this precious metal accounts for only a small portion of the expected revenue from mining at KSM, and Seabridge has the option to buy back 50% of the royalty for an amount that provides Sprott and Ontario Teachers' a minimum guaranteed annualized return.
"Since our original investment last year, we continue to be impressed by the significant progress the Seabridge team is making at KSM. The quality of the engineering and early works is excellent, and their strong relationships with the local indigenous peoples is truly best-in-class," said Michael Harrison, managing partner at Sprott. "We are very pleased to expand our partnership with Seabridge and further accelerate KSM's development into a world-class mine."
With the new cash infusion, Seabridge will continue to advance work that will elevate KSM to the substantially started status and shorten the development timetable for the world-class copper-gold-silver project.
"This new US$150 million in financing, coupled with the US$225 million we raised from Sprott and Ontario Teachers' Pension Plan last year, provide the capital we believe is needed to achieve substantially started status well before July 2026," said Fronk. "It also has the added advantage of cutting time from the construction schedule once a construction decision has been made."
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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