In a Dec. 9 research note, Canaccord Genuity analyst Dalton Baretto reported that Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) agreed to acquire Pretium Resources Inc.'s (PVG:TSX; PVG:NYSE) Snowfield property and it is a "very sound strategic move for Seabridge," a "Snowfield of opportunity."
The firm raised its target price on the Canadian miner to CA$31 per share from CA$30. In comparison, the Seabridge is now trading at about CA$23.71 per share.
Baretto provided the details of the transaction that is contingent upon the buyer obtaining financing. That is in the works, in the form of an equity offering at US$17.25 per share, which was upsized to US$116 million from US$105, the analyst noted.
The total consideration for Snowfield includes a US$100 million cash payment and a 1.5% net smelter returns (NSR) royalty production from Snowfield. Seabridge has the right of first refusal on the royalty if Pretium opts to sell it.
Also, Seabridge also will pay Pretium US$20 million on a contingent basis, US$15 million of which can be credited against royalty payments. This payment is due within six months of either of these events, whichever comes first: completion of a bankable feasibility study that includes reserves attributable to Snowfield or start of commercial production at Snowfield.
"Including the NSR, we estimate Seabridge paid CA$14 per ounce of Measured and Indicated resources for Snowfield," Baretto noted.
The analyst presented five ways in which the acquisition of Snowfield, which is contiguous to Seabridge's KSM project, benefits Seabridge.
1) It adds to KSM low risk, low cost, open-pittable ore mineable from the Mitchell open pit. Snowfield's Measured and Indicated resource totals 1.37 billion tons of 0.59 grams per ton gold, or 26 million ounces of gold.
2) It provides flexibility to KSM in terms of scaling and sequencing.
3) It makes KSM more attractive to prospective partners.
4) It shortens KSM's estimated preproduction capex payback period to fewer than five years.
5) It delays payment of the "substantial development capex" required for KSM's Iron Cap and Deep Kerr block caves.
"We view the acquisition of Snowfield as extremely positive," Baretto concluded.
Canaccord Genuity has a Buy rating on Seabridge Gold.
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from Cantor Fitzgerald, Seabridge Gold Inc., Raising Target Price, Dec. 9, 2020
Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the authoring analyst's personal, independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analyst's coverage universe and (ii) no part of the authoring analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in the research, and (iii) to the best of the authoring analyst’s knowledge, she/he is not in receipt of material non-public information about the issuer.
Required Company-Specific Disclosures (as of date of this publication)
Seabridge Gold currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During this period, Canaccord Genuity or its affiliated companies provided investment banking services to Seabridge Gold.
In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services from Seabridge Gold.
Canaccord Genuity or one or more of its affiliated companies is a market maker or liquidity provider in the securities of Pretium Resources Inc. or in any related derivatives.
Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Banking services from Seabridge Gold and Pretium Resources Inc. in the next three months