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Mining Co. to Save Money With Switch to Hydro Power
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With a recent agreement for greener electricity, this company has abandoned its previous plan to use diesel-generated power for its mining project, noted a Red Cloud Securities report.

Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) engaged a company to provide grid-based hydro power for construction of its KSM project, and given the estimated savings to result from this change, Red Cloud Securities increased its target price on the company to CA$42.80 per share from CA$40.65. In comparison, Seabridge is trading at around CA$23 per share.

"We view this news very positively as previous studies had incorporated the use of much higher-cost diesel power for construction activities, with grid connection only anticipated later for operations," Talbot commented.

The analyst discussed the perceived benefits of Seabridge's shift to grid-based hydro power, to be provided by BC Hydro, from diesel generated power.

Development capex and share dilution are expected to be lower. Red Cloud estimates development capex will drop by about US$100 million (US$100M) per year in both 2024 and 2025. This equates to a roughly 75% cost savings. Previous estimates for diesel power generation and construction indirect capital costs, including infrastructure for distribution and fuel operating costs, were US$449M.

Hydro power also should decrease KSM opex, Talbot indicated. However, because Seabridge already estimated the cost of grid power (CA$0.062 per kilowatt hour), the switch will mostly affect capex.

Talbot highlighted that hydro power is more environment friendly than diesel generated power and thus, will produce less greenhouse emissions. It also will help ensure the environmental assessment certificate for KSM remains in place for the life of the project.

Pursuant to Seabridge's agreement with Hydro Power, in 2023 a 30-kilometer-long transmission line will be built and the existing switching station upgraded, Talbot relayed. These will cost Seabridge CA$28.9M, along with CA$54.2M in security to make the power available. The company will recoup the security over a maximum of eight years, the time period depending on how much power it consumes.

Seabridge recently entered into a financing agreement for US$225M, expected to close around March 15, 2022, noted Talbot. This funding should cover power line construction and subsequent payments to BC Hydro.

With Seabridge's financing and hydro power agreements, wrote Talbot, "KSM is moving towards the designation of 'substantially started' while derisking it towards a joint venture arrangement, financing and production decision."


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.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Seabridge Gold Inc. Click here for important disclosures about sponsor fees. 
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Disclosures and Disclaimers, Red Cloud Securities Inc., Seabridge Gold Inc., March 2, 2022

Red Cloud Securities Inc. is registered as an Investment Dealer in all Canadian provinces and territories, and is a member of the Investment Industry Organization of Canada (IIROC). Part of Red Cloud Securities Inc.'s business is to connect mining companies with suitable investors. Red Cloud Securities Inc., its affiliates and their respective officers, directors, representatives, researchers and members of their families may hold positions in the companies mentioned in this document and may buy and/or sell their securities. Additionally, Red Cloud Securities Inc. may have provided in the past, and may provide in the future, certain advisory or corporate finance services and receive financial and other incentives from issuers as consideration for the provision of such services.
Red Cloud Securities Inc. has prepared this document for general information purposes only. This document should not be considered a solicitation to purchase or sell securities or a recommendation to buy or sell securities. The information provided has been derived from sources believed to be accurate but cannot be guaranteed. This document does not take into account the particular investment objectives, financial situations, or needs of individual recipients and other issues (e.g. prohibitions to investments due to law, jurisdiction issues, etc.) which may exist for certain persons. Recipients should rely on their own investigations and take their own professional advice before investment. Red Cloud Securities Inc. will not treat recipients of this document as clients by virtue of having viewed this document.
Red Cloud Securities Inc. takes no responsibility for any errors or omissions contained herein, and accepts no legal responsibility for any errors or omissions contained herein, and accepts no legal responsibility from any losses resulting from investment decisions based on the content of this report.
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  3. In the last 12 months preceding the date of issuance of the research report or recommendation, Red Cloud Securities Inc. has performed investment banking services or has been retained under a service or advisory agreement by the issuer.
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