Exhibit 99.2
SEABRIDGE GOLD INC.
CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2023 and 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.
| /s/ Rudi P. Fronk | /s/ Christopher J. Reynolds | |
| Rudi P. Fronk | Christopher J. Reynolds | |
| Chairman & CEO | Vice President, Finance and Chief Financial Officer | |
| March 27, 2024 | March 27, 2024 |
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KPMG LLP Bay Adelaide Centre 333 Bay Street Suite 4600 Toronto ON M5H 2S5 Canada |
Telephone Fax Internet |
(416) 777-8500 (416) 777-8818 www.kpmg.ca
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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, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years then ended, 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, 2023 and 2022, and its financial performance and its cash flows for each of the years then ended, 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, 2023, 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 27, 2024, 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 Matter
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.
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Valuation of secured note liabilities
As discussed in Note 4(ii) to the consolidated financial statements, the Company measures the fair value of its secured note liabilities using a discounted cash flow model with a Monte Carlo simulation. Key assumptions into the models include future precious and base metals prices, discount rates, forecasted metals 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 liabilities. There is significant estimation uncertainty with respect to the application of the key assumptions in determining the fair value of the secured note liabilities. As discussed in Note 12 to the consolidated financial statements, the fair value of the Company’s 2022 secured note liability at December 31, 2023 was $294,363 thousand, the fair value of the Company’s 2023 secured note liability at inception was $198,825 thousand and the fair value at December 31, 2023 was $279,525 thousand.
We identified the determination of the fair value of the secured note liabilities as a critical audit matter. Significant auditor judgment was required to assess the fair value of the secured note liabilities and to assess certain key assumptions of future precious and base metals prices, discount rates, and forecasted metals production used to determine the fair values.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of a certain internal control over the Company’s process to determine the fair values of the secured note liabilities. This included a control over the development and selection of the significant assumptions. We compared forecasted metals production to the Company’s previously filed technical report. We involved valuation professionals with specialized skills and knowledge who assisted in:
| ● | evaluating the estimated future metals 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. |
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
We have served as the Company’s auditor since 2002.
Toronto, Canada
March 27, 2024
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KPMG LLP Bay Adelaide Centre 333 Bay Street Suite 4600 Toronto ON M5H 2S5 Canada |
Telephone Fax Internet |
(416) 777-8500 (416) 777-8818 www.kpmg.ca |
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, 2023, 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, 2023, 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, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively, the consolidated financial statements), and our report dated March 27, 2024 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, 2023. 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.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
March 27, 2024
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SEABRIDGE GOLD INC.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
| December 31, | December 31, | |||||||||
| Note | 2023 | 2022 | ||||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | 5 | $ | $ | |||||||
| Short-term deposits | 5 | |||||||||
| Amounts receivable and prepaid expenses | 6 | |||||||||
| Investment in marketable securities | 7 | |||||||||
| Convertible notes receivable | ||||||||||
| Non-current assets | ||||||||||
| Investment in associate | 7 | |||||||||
| Long-term receivables and other assets | 8 | |||||||||
| Mineral interests, property and equipment | 9 | |||||||||
| Reclamation deposits | 11 | |||||||||
| Total assets | $ | $ | ||||||||
| Liabilities and shareholders’ equity | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable and accrued liabilities | 10 | $ | $ | |||||||
| Flow-through share premium | 13 | |||||||||
| Lease obligations | ||||||||||
| Provision for reclamation liabilities | 11 | |||||||||
| Non-current liabilities | ||||||||||
| Secured note liabilities | 12 | |||||||||
| Deferred income tax liabilities | 18 | |||||||||
| Lease obligations | ||||||||||
| Provision for reclamation liabilities | 11 | |||||||||
| Total liabilities | ||||||||||
| Shareholders’ equity | 13 | |||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||||
Subsequent events (Notes 8, 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:
| /s/ Rudi P. Fronk | /s/ Carol Willson | |
| Rudi P. Fronk | Carol Willson | |
| Director | Director |
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SEABRIDGE GOLD INC.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars except common share and per common share amounts)
| Year ended December 31, | ||||||||||
| Note | 2023 | 2022 | ||||||||
| Remeasurement of secured notes | 12 | $ | ( | ) | $ | |||||
| Corporate and administrative expenses | 16 | ( | ) | ( | ) | |||||
| Impairment of investment in associate | 7 | ( | ) | |||||||
| Equity loss of associate | 7 | ( | ) | ( | ) | |||||
| Other income - flow-through shares | 13 | |||||||||
| Environmental rehabilitation expense | 11 | ( | ) | |||||||
| Unrealized loss on convertible notes receivable | 7 | ( | ) | ( | ) | |||||
| Foreign exchange gain (loss) | ( | ) | ||||||||
| Finance costs and other | ( | ) | ( | ) | ||||||
| Interest income (expense) | ( | ) | ||||||||
| Earnings (loss) before income taxes | ( | ) | ||||||||
| Income tax recovery (expense) | 18 | ( | ) | |||||||
| Net loss for the year | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss) | ||||||||||
| Items that will not be reclassified to net income or loss | ||||||||||
| Remeasurement of secured notes | $ | ( | ) | $ | ||||||
| Change in fair value of marketable securities | ||||||||||
| Tax impact | ( | ) | ||||||||
| Total other comprehensive income (loss) | ( | ) | ||||||||
| Comprehensive loss for the year | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding | ||||||||||
| Basic | 13 | |||||||||
| Diluted | 13 | |||||||||
| Loss per common share | ||||||||||
| Basic | 13 | $ | ( | ) | $ | ( | ) | |||
| Diluted | 13 | $ | ( | ) | $ | ( | ) | |||
The accompanying notes form an integral part of these consolidated financial statements.
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SEABRIDGE GOLD INC.
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, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||
| Share issuance - At-The-Market offering | ||||||||||||||||||||||||||||||||
| Share issuance - Interest expense paid in shares | ||||||||||||||||||||||||||||||||
| Share issuance - Private placement | ||||||||||||||||||||||||||||||||
| Share issuance - Options exercised | ( | ) | ||||||||||||||||||||||||||||||
| Share issuance - RSUs vested | ( | ) | ||||||||||||||||||||||||||||||
| Share issuance costs | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Deferred tax on share issuance costs | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Expired options | - | ( | ) | |||||||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss for the year | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| As at December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
| As at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
| Share issuance - At-The-Market offering | ||||||||||||||||||||||||||||||||
| Share issuance - Private placement | ||||||||||||||||||||||||||||||||
| Share issuance - Options exercised | ( | ) | ||||||||||||||||||||||||||||||
| Share issuance - RSUs vested | ( | ) | ||||||||||||||||||||||||||||||
| Share issuance costs | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Deferred tax on share issuance costs | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Expired options | - | ( | ) | |||||||||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||||||
| Net loss for the year | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| As at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
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SEABRIDGE GOLD INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment for non-cash items: | ||||||||
| Remeasurement loss (gain) on secured notes | ( | ) | ||||||
| Environmental rehabilitation expense | ||||||||
| Stock-based compensation | ||||||||
| Other income - flow-through shares | ( | ) | ( | ) | ||||
| Income tax (recovery) expense | ( | ) | ||||||
| Unrealized foreign exchange (gain) loss | ( | ) | ||||||
| Other non-cash items | ( | ) | ||||||
| Adjustment for cash items: | ||||||||
| Environmental rehabilitation disbursements | ( | ) | ( | ) | ||||
| Changes in working capital items: | ||||||||
| Amounts receivable and prepaid expenses | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing Activities | ||||||||
| Mineral interests, property and equipment | ( | ) | ( | ) | ||||
| Redemption of short-term deposits | ||||||||
| Investment in short-term deposits | ( | ) | ( | ) | ||||
| Long-term receivables and other assets | ( | ) | ( | ) | ||||
| Interest paid | ( | ) | ||||||
| Redemption of convertible notes receivable | ||||||||
| Investment in security deposits | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Secured notes | ||||||||
| Share issuance net of costs | ||||||||
| Exercise of options | ||||||||
| Payment of lease liabilities | ( | ) | ( | ) | ||||
| Net cash from financing activities | ||||||||
| Effects of exchange rate fluctuation on cash and cash equivalents | ||||||||
| Net increase in cash and cash equivalents during the year | ||||||||
| Cash and cash equivalents, beginning of the year | ||||||||
| Cash and cash equivalents, end of the year | $ | $ | ||||||
The accompanying notes form an integral part of these consolidated financial statements.
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SEABRIDGE GOLD INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
| 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 14, 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 27, 2024.
| 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.
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| (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
| 3. | Summary of material accounting policies |
The material accounting policy information used in the preparation of these consolidated financial statements is 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 “L”, 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. | 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.
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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 the Company’s KSM Project (“KSM”). Costs are not depreciated until the underlying assets are ready for use as intended by management.
| (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 assets that require a significant amount of time to get ready for their intended use, including projects that are in the development or construction stages. Capitalization of borrowing costs ceases when such assets are ready for their intended use.
| D. | Depreciation |
Effective from the point an asset
is available for its intended use, the assets are depreciated using the straight-line method over the estimated economic life of the asset.
Estimated useful lives normally vary from
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.
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| E. | 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.
| F. | Impairment of 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.
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).
| G. | 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.
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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.
| H. | 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 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.
Page 14
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.
| I. | Stock-based compensation options and restricted share units (“RSUs”) |
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 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 models share their limitations.
| J. | 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).
| K. | 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 RSUs. 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.
| L. | 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.
Page 15
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 liabilities
The Company has elected to account for its secured note liabilities and all embedded derivatives as a single financial liability. The change in fair value of the secured note liabilities 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).
| M. | Accounting pronouncements |
New accounting standards and interpretations issued and effective:
IAS 1 - Presentation of financial statements: disclosure of material accounting policy information
On January 1, 2023, the Company adopted amendments to IAS 1 that requires companies to disclose material accounting policies instead of significant accounting policies. The adoption of these amendments resulted in certain changes to the Company’s accounting policy disclosures. The Company’s material accounting policies are disclosed in Note 3 – Summary of material accounting policies herein.
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IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors
In February 2021, the IASB issued Definition of Accounting Estimates, which made amendments to IAS 8. The amendments replaced the definition of a change in accounting estimates with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. Accounting estimates are developed if accounting policies require items in financial statements to be measured in a way that involves measurement uncertainty. The amendments clarify that a change in an accounting estimate that results from new information or new developments is not the correction of an error. In addition, the effects of a change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates if they do not result from the correction of prior period errors. A change in an accounting estimate may affect only the current period’s Consolidated Statements of Operations and Comprehensive Income, or the Consolidated Statements of Operations and Comprehensive Income of both the current period and future periods. The effect of the change relating to the current period is recognized as income or expense in the current period. The effect, if any, on future periods is recognized as income or expense in those future periods. The amendments apply for annual periods beginning on or after January 1, 2023 and early adoption was permitted. The Company adopted the amendments effective January 1, 2023. The application of these amendments did not have a material impact on the Company’s consolidated financial statements.
IAS 12 - Deferred Tax
In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities Arising from a Single Transaction which amended IAS 12, Income Taxes (“IAS 12”). Prior to the amendments, IAS 12 contained a recognition exemption whereby deferred income tax assets and liabilities were not recognized for temporary differences arising on initial recognition of assets and liabilities, other than in business combinations, that affect neither accounting nor taxable income. The amendments narrowed the scope of the recognition exemption in IAS 12 so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences.
The Company applied the amendments to IAS 12 to its consolidated financial statements for the annual reporting period beginning on January 1, 2023. The application of these amendments did not have an impact on the Company’s consolidated financial statements.
IAS 12 - International Tax Reform - Pillar Two Model Rules
On May 23, 2023, the IASB issued amendments to IAS 12 which introduce a temporary exception from accounting for deferred taxes arising from the implementation of the Organization for Economic Co-operation and Development (“OECD”) Pillar Two model rules. The amendments provide relief from recognizing deferred taxes related to the OECD Pillar two income taxes as well as any related disclosure. The Company has applied the exception immediately upon issuance of the amendment and retrospectively in accordance with IAS 8 for the 2023 fiscal year.
Accounting pronouncements issued but not yet effective:
On January 23, 2020 and October 31, 2022, the IASB issued amendments to IAS 1 to clarify that the classification of liabilities as current or non-current should be based on rights that exist at the end of the reporting period and that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability. For liabilities with covenants, the amendments clarify that only covenants with which an entity is required to comply on or before the reporting date affect the classification as current or non-current. The Company will adopt the amendments to IAS 1 effective January 1, 2024. These amendments are not expected to have a significant impact on the Company’s statement of financial position on the date of adoption.
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On September 22, 2022, the IASB issued amendments to IFRS 16 to add subsequent measurement requirements for sale and leaseback transactions, particularly those with variable lease payments. The amendments require the seller-lessee to subsequently measure lease liabilities in a way such that it does not recognize any gain or loss relating to the right of use it retains. The amendments are effective on January 1, 2024 and are not expected to have a significant impact on the Company’s financial statements.
On May 25, 2023, the IASB issued amendments to IAS 7 requiring entities to provide qualitative and quantitative information about their supplier finance arrangements. In connection with the amendments to IAS 7, the IASB also issued amendments to IFRS 7 requiring entities to disclose whether they have accessed, or have access to, supplier finance arrangements that would provide the entity with extended payment terms or the suppliers with early payment terms. These amendments are effective on January 1, 2024, and are not expected to have a significant impact on the Company’s financial statements.
On August 15, 2023, the IASB issued amendments to IAS 21 to specify how to assess whether a currency is exchangeable and how to determine the exchange rate when it is not exchangeable. The amendments specify that a currency is exchangeable when it can be exchanged through market or exchange mechanisms that create enforceable rights and obligations without undue delay at the measurement date and the specified purpose. For non-exchangeable currencies, an entity is required to estimate the spot exchange rate as the rate that would have applied to an orderly exchange transaction between market participants at the measurement date under prevailing economic conditions. The amendments are effective on January 1, 2025 and are not expected to have a significant impact on the Company’s financial statements.
| 4. | Critical accounting judgments and estimation uncertainty |
The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and the application of the Company’s accounting policies, which are described in Note 3. Management believes that the estimates used in the preparation of the consolidated financial statements are reasonable; however, actual results could differ from those estimates. The key areas of significant judgments, estimates and assumptions are discussed below.
| (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).
Impairment of mineral interests, property and equipment
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). Judgment is required to determine whether there are indications that the carrying amount of an exploration project is unlikely to be recovered in full from the successful development or the sale of the project.
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| (ii) | Key sources of estimation uncertainty |
Mineral reserves and resources
Mineral reserves and resources have been estimated by qualified persons as defined in accordance with Canadian Securities Administrators’ National Instrument 43-101 Standards of Disclosure for Mineral Projects requirements. Mineral reserve and resource estimates include numerous uncertainties and depend heavily on geological interpretations and statistical inferences drawn from drilling and other data, and require estimates of the future price for the commodity and the future cost of operations. The mineral reserve and resource estimates are subject to uncertainty and actual results may vary from these estimates. Results from drilling, testing and production, as well as material changes in metal prices and operating costs subsequent to the date of an estimate, may justify revision of such estimate.
A number of accounting estimates, as described in the relevant accounting policy notes, are impacted by the mineral reserve and resource estimates:
| ● | Mineral properties and determination of technical feasibility and commercial viability. The application of the Company’s accounting policy for exploration and evaluation expenditures requires judgment in determining whether future economic benefits may be realized, which are based on assumptions about future events and circumstances | |
| ● | Impairment analysis of non-financial assets | |
| ● | Estimates of timing of cash outlays for asset retirement obligations, and | |
| ● | The valuation of the secured note liabilities |
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.
Reclamation Liabilities
Provisions for reclamation require the use of estimates of the future costs the Company will incur to complete the reclamation and remediation work required to comply with existing laws and regulations at each project site, as well as the timing of the reclamation activities and estimated discount rate. The Company assesses and revises its reclamation provision on a periodic basis or when new material information becomes available. Adjustments to the estimated amount and timing of future reclamation cash flows are a normal occurrence in light of the significant judgments and estimates involved.
Actual costs incurred may differ from those amounts estimated. Changes in future costs could materially impact the estimate of reclamation provision. The provision represents management’s best estimate of the present value of the future reclamation and remediation costs based on environmental disturbances as at the reporting date. A change in any, or a combination of, the key assumptions used to determine the provisions, could have a material impact on the carrying value of the provisions.
Page 19
Secured note liabilities
The Company measures the fair value of its secured note liabilities using a discounted cash flow model with a Monte Carlo simulation. Key assumptions into the models include future precious and base metals prices, discount rates, forecasted metals 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 liabilities. There is significant estimation uncertainty with respect to the application of the key assumptions in determining the fair value of the secured note liabilities. Refer to Note 12 for further information.
| 5. | Cash and cash equivalents and short-term deposits |
| ($000s) | December 31, 2023 | December 31, 2022 | ||||
| Cash and cash equivalents | ||||||
| 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 in whole or in part with interest at any time to maturity.
| 6. | Amounts receivable and prepaid expenses |
| ($000s) | December 31, 2023 | December 31, 2022 | ||||
| HST | ||||||
| Prepaid expenses and other receivables | ||||||
Page 20
| 7. | Investments |
| ($000s) | January 1, 2023 | Fair value through other comprehensive income (loss) | Loss of associate | Impairment | Additions | December 31, 2023 | ||||||||||||
| Current assets: | ||||||||||||||||||
| Investments in marketable securities | ||||||||||||||||||
| Non-current assets: | ||||||||||||||||||
| Investment in associate | ( | ) | (a) |
| ($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 | ||||||||||||||||||
| Non-current assets: | ||||||||||||||||||
| Investment in associate | ( | ) | ( | )(b) | (a) |
| (a) | |
| (b) |
The Company holds a
Page 21
| 8. | Long-term receivables and prepaid expenses |
| ($000s) | December 31, 2023 | December 31, 2022 | ||||
| BC Hydro 1 | ||||||
| Canadian Exploration Expenses 2 | ||||||
| British Columbia Mineral Exploration Tax Credit 3 | ||||||
| 1) |
| 2) |
| 3) |
Page 22
| 9. | Mineral Interests, Property and Equipment |
| ($000s) | Mineral interests | Construction in progress | Property & equipment | Right-of-use assets | Total | ||||||||||
| Cost | |||||||||||||||
| As at January 1, 2022 | |||||||||||||||
| Additions | |||||||||||||||
| Transfers adjusted 2 | ( | ) | |||||||||||||
| As at December 31, 2022 adjusted 2 | |||||||||||||||
| Additions | |||||||||||||||
| Transfers | ( | ) | |||||||||||||
| As at December 31, 2023 | |||||||||||||||
| Accumulated Depreciation | |||||||||||||||
| As at January 1, 2022 | |||||||||||||||
| Depreciation expense | |||||||||||||||
| As at December 31, 2022 | |||||||||||||||
| Depreciation expense 1 | |||||||||||||||
| As at December 31, 2023 | |||||||||||||||
| Net Book Value | |||||||||||||||
| As at December 31, 2022 | |||||||||||||||
| As at December 31, 2023 |
| 1) |
| 2) | Additions in
the prior year financial statements were net of $ |
Page 23
| Year ended December 31, 2023 | ||||||||||||||||||||||||||||
| ($000s) | January 1, 2023 | Mineral interests | Construction in progress | Property & equipment | Right-of-use assets | Total Additions | December 31, 2023 | |||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||
| KSM additions 1 | ||||||||||||||||||||||||||||
| KSM transfers | ( | ) | ||||||||||||||||||||||||||
| Courageous Lake | ||||||||||||||||||||||||||||
| Iskut | ||||||||||||||||||||||||||||
| Snowstorm | ||||||||||||||||||||||||||||
| 3 Aces | ||||||||||||||||||||||||||||
| Grassy Mountain | ||||||||||||||||||||||||||||
| Corporate | ||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||
| 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 additions 1 | ||||||||||||||||||||||||||||
| KSM transfers adjusted 2 | ( | ) | ||||||||||||||||||||||||||
| Courageous Lake | ||||||||||||||||||||||||||||
| Iskut | ||||||||||||||||||||||||||||
| Snowstorm | ||||||||||||||||||||||||||||
| 3 Aces | ||||||||||||||||||||||||||||
| Grassy Mountain | ||||||||||||||||||||||||||||
| Corporate | ||||||||||||||||||||||||||||
| Total adjusted 2 | ||||||||||||||||||||||||||||
| 1) |
| 2) |
Continued exploration of the Company’s mineral properties is subject to certain lease payments, project holding costs, rental fees and filing fees.
| a) | KSM |
Page 24
In 2011 and 2012, the Company completed
agreements granting a third party an option to acquire a
Additions to construction in progress
consisted of $
| b) | Courageous Lake |
In 2002, the Company purchased a
| c) | Iskut |
On June 21, 2016,
the Company purchased
| d) | Snowstorm |
| e) | 3 Aces |
Page 25
| f) | Grassy Mountain |
| 10. | Accounts payable and accrued liabilities |
| ($000s) | December 31, 2023 | December 31, 2022 | ||||
| Trade payables | ||||||
| Non-trade payables and accrued expenses | ||||||
| 11. | Provision for reclamation liabilities |
| ($000s) | December 31, 2023 | December 31, 2022 | ||||
| Beginning of the period | ||||||
| Disbursements | ( | ) | ( | ) | ||
| Environmental rehabilitation expense | ||||||
| Accretion | ||||||
| End of the period | ||||||
| Provision for reclamation liabilities – current | ||||||
| Provision for reclamation liabilities – long-term | ||||||
The estimate of the provision for
reclamation obligations, as at December 31, 2023, was calculated using the estimated discounted cash flows of future reclamation costs
of $
In 2022, the Company updated the closure
plan for the Johnny Mountain mine site and charged an additional $
In 2023, the Company placed $
Page 26
| 12. | Secured Note liabilities |
| i. | 2022 Secured Note |
On February 25,
2022, the Company, through its wholly-owned subsidiary, KSM Mining ULC (“KSMCo”) signed a definitive agreement to sell a secured
note (“2022 Secured Note”) that is to be exchanged at maturity for a silver royalty on its
| ● | When the 2022 Secured Note matures, the Investors
will use all of the principal amount repaid on maturity to purchase a |
| a) | Commercial production being achieved at KSM; and |
| b) | Either on March 24, 2032, the 10-year anniversary, or if the Environmental Assessment Certificate (“EAC”) expires and the Investors do not exercise their right to put the 2022 Secured Note to the Company, on March 24, 2035, the 13-year anniversary of the issue date of the 2022 Secured Note. |
| ● | Prior to its maturity, the 2022 Secured Note
bears interest at |
| ● | The Company has the option to buyback |
| ● | 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 2022 Secured Note back to the Company
for US$ |
| ● | If KSM’s EAC expires at anytime while the
2022 Secured Note is outstanding, the Investors can put the 2022 Secured Note back to the Company for US$ |
| ● | If commercial production is not achieved at KSM
prior to March 24, 2032, the Silver Royalty payable to the Investors will increase to a |
| ● | No amount payable shall be paid in common shares
if, after the payment, any of the Investors would own more than |
| ● | The Company’s obligations under the 2022 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. |
Page 27
To satisfy the interest
payment on the 2022 Secured Note, during 2023, the Company issued
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 2022 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$
The 2022 Secured
Note was recognized at its estimated fair value at initial recognition of $
| Inputs and assumptions | December 31, 2023 | December 31, 2022 | ||||||
| Forecast silver production in thousands of ounces | ||||||||
| Five year quoted future silver price | ||||||||
| Risk-free rate | ||||||||
| Credit spread | ||||||||
| Share price volatility | ||||||||
| Silver royalty discount factor | ||||||||
| ($000s) | December 31, 2023 | December 31, 2022 | ||||||
| Fair value beginning of the period (or on issuance) | ||||||||
| Change in fair value (gain) loss through profit and loss | ( | ) | ||||||
| Change in fair value (gain) loss through other comprehensive income (loss) | ( | ) | ||||||
| Foreign currency translation (gain) loss | ( | ) | ||||||
| Total change in fair value | ( | ) | ||||||
| Fair value end of the period |
Page 28
Sensitivity Analysis:
| 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 | $ | |||||
| $ | ( | ) | ||||
| ● Discount rates | $ | ( | ) | |||
| $ | ||||||
| Key unobservable inputs | ||||||
| ● Forecasted silver production | $ | |||||
| $ | ( | ) | ||||
| ii. | 2023 Secured Note |
| ● | When the 2023 Secured Note matures, Sprott will
use all of the principal amount repaid on maturity to purchase a |
| a) | Commercial production being achieved at KSM; and |
| b) | Either on March 24, 2032 or, if the Environmental Assessment Certificate (“EAC”) expires and the Investors do not exercise their right to put the 2023 Secured Note to the Company, on March 24, 2035. |
| ● | Prior to its maturity, the 2023 Secured Note bears interest at 6.5% per annum, payable quarterly in arrears. However, payment of quarterly interest due on or before June 29, 2025 (the “Deferred Interest”) will be deferred and the Deferred Interest plus interest accrued on it (the “Interest Deferral Amount”) is payable in a lump sum on or before December 29, 2025. |
| ● | KSMCo can pay the Interest Deferral Amount (US$ |
| ● | The Company can elect to satisfy quarterly interest payments, including the Deferral Amount due, by paying in cash or Seabridge common shares. The requirement to make quarterly interest payments expires on the maturity date. |
Page 29
| ● | No amount payable shall be paid in common shares
if, after the payment, Sprott would own more than |
| ● | If commercial production is not achieved at the
KSM Project prior to March 24, 2032, the size of the NSR to be sold to Sprott on the Maturity Date will increase to |
| ● | The Company has the option to purchase the NSR
amount down (after the NSR is sold to Sprott) to a |
| ● | If project financing to develop, construct and place KSM into commercial production is not in place by March 24, 2027, Sprott can put the 2023 Secured Note back to the Company for: |
| a) | if the Company is obligated to sell Sprott a |
| b) | if the Company is obligated to sell Sprott a |
This Sprott put right expires once such project financing is in place. If Sprott exercises this put right, Sprott’s right to purchase the NSR terminates.
| ● | If KSM’s EAC expires at anytime while the 2023 Secured Note is outstanding, Sprott can put the 2023 Secured Note back to the Company at any time over the following nine months for: |
| a) | if the Company is obligated to sell Sprott a |
| b) | if the Company is obligated to sell Sprott a |
If Sprott exercises this put right, Sprott’s right to purchase the NSR terminates.
| ● | The Company can elect to satisfy payments due on Sprott’s exercise of either of its put rights in cash or by delivering common shares. |
| ● | No amount payable shall be paid in common shares
if, after the payment, Sprott would own more than |
| ● | The Company’s obligations under the 2023 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 2023 Secured
Note was recognized at its estimated fair value at initial recognition of $
Page 30
| Inputs and assumptions | December 31, 2023 | June 29, 2023 | ||||||
| Forecast NSR: | ||||||||
| Gold in thousands of ounces | ||||||||
| Silver in thousands of ounces | ||||||||
| Copper in millions of pounds | ||||||||
| Molybdenum in millions of pounds | ||||||||
| Five year quoted future metal price | ||||||||
| Gold per ounce | ||||||||
| Silver per ounce | ||||||||
| Copper per pound | ||||||||
| Molybdenum per pound | ||||||||
| Risk-free rate | ||||||||
| Credit spread | ||||||||
| Share price volatility | ||||||||
| NSR royalty discount factor | ||||||||
| ($000s) | December 31, 2023 | |||
| Fair value at inception | ||||
| Change in fair value (gain) loss through profit and loss | ||||
| Change in fair value (gain) loss through other comprehensive income (loss) | ||||
| Foreign currency translation (gain) loss | ( | ) | ||
| Total change in fair value | ||||
| Fair value end of the period |
Sensitivity Analysis:
| Key Inputs | Inter-relationship between significant inputs and fair value measurement | Increase (millions) | ||||
| Key observable inputs | The estimated fair value would increase (decrease) if: | |||||
| ● Metals price forward curve | $ | |||||
| $ | ( | ) | ||||
| ● Discount rates | $ | ( | ) | |||
| $ | ||||||
| Key unobservable inputs | ||||||
| ● Forecasted metal production | $ | |||||
| $ | ( | ) | ||||
Page 31
| 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, 2023 or December 31, 2022.
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 pre-operating 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 2023. 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,
In December 2023, the Company issued
a total of
In December 2022, the Company issued
a total of
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| 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
| 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 ($000s) | |||||||||||||||||||
| Outstanding January 1, 2023 | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Exercised option or vested RSU | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Options surrendered for cash | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Expired | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Amortized value of stock-based compensation | ||||||||||||||||||||||||
| Outstanding at December 31, 2023 | ||||||||||||||||||||||||
| Exercisable at December 31, 2023 | ||||||||||||||||||||||||
| Options | RSUs | Total | ||||||||||||||||||||||
| Number of Options | Weighted Average Exercise Price ($) | Amortized Value of options ($000s) | Number of RSUs | Amortized Value of RSUs ($000s) | Stock-based Compensation ($000s) | |||||||||||||||||||
| Outstanding at January 1, 2022 | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Exercised option or vested RSU | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Expired | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Amortized value of stock-based compensation | ||||||||||||||||||||||||
| Outstanding at December 31, 2022 | ||||||||||||||||||||||||
| Exercisable at December 31, 2022 | ||||||||||||||||||||||||
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In December 2023,
In December 2022,
In December 2021,
| 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, 2023 was $
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Loss 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.
| ($000s) | December 31, 2023 |
December 31, 2022 |
||||
| Weighted average number of common shares outstanding | ||||||
| Weighted average shares dilution adjustments: 1 Stock options | ||||||
| RSUs | ||||||
| Diluted weighted average shares outstanding |
| 1) | Excluded in the diluted weighted average number of common shares outstanding as their exercise or settlement would be anti-dilutive in the earnings per share calculation. |
| 14. | Cash flow items |
| Year Ended | ||||||||||
| ($000s) | Notes | December 31, 2023 | December 31, 2022 | |||||||
| Impairment of investment in associate | 7 | |||||||||
| Equity loss of associate | 7 | |||||||||
| Loss (gain) on convertible notes receivable | - | ( | ) | |||||||
| Interest income earned on convertible notes receivable | - | ( | ) | ( | ) | |||||
| Depreciation | 9 | |||||||||
| Finance costs, net | - | |||||||||
| Effects of exchange rate fluctuation on cash and cash equivalents | - | ( | ) | ( | ) | |||||
| ( | ) | |||||||||
| 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).
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The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
| December 31, 2023 | ||||||||||||||||||||
| ($000s) | Carrying Amount | Level 1 | Level 2 | Level 3 | Total Fair Value | |||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||
| Amounts receivable | ||||||||||||||||||||
| Investment in marketable securities | ||||||||||||||||||||
| Long-term receivables | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||||||||
| Secured note liabilities | ||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| ($000s) | Carrying Amount | Level 1 | Level 2 | Level 3 | Total Fair Value | |||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||
| Short-term deposits | ||||||||||||||||||||
| Amounts receivable | ||||||||||||||||||||
| Investment in marketable securities | ||||||||||||||||||||
| Convertible notes receivable | ||||||||||||||||||||
| Long-term receivables | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||||||||
| Secured note liabilities | ||||||||||||||||||||
The carrying value of cash and cash equivalents, short-term deposits, amounts receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term maturity of these financial assets and liabilities.
The Company’s financial risk exposures and the impact on the Company’s financial instruments are summarized below:
Credit Risk
The Company’s credit risk is primarily
attributable to short-term deposits, convertible notes receivable, and receivables included in amounts receivable and prepaid expenses.
The Company has no significant concentration of credit risk arising from operations. The short-term deposits consist of Canadian Schedule
I bank guaranteed notes, with terms up to
Page 36
Liquidity Risk
The Company’s ability to fund
its operations and capital expenditures and other obligations as they become due is dependent upon market conditions. The Company has
in place an At-the-Market offering that allows for the issuance of up to US$
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, 2023, the Company
had cash and cash equivalents of $
| ($000s) | Less than 1 year | 1-3 years | 3-5 years | Greater than 5 years | Total | |||||||||||||||
| 2022 Secured Note including interest | ||||||||||||||||||||
| 2023 Secured Note including interest | ||||||||||||||||||||
| Flow-through share expenditures | ||||||||||||||||||||
| Lease obligation | ||||||||||||||||||||
As the Company does not generate cash inflows from operations, and 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 12 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 liabilities (Note 12) bear interest at a fixed rate of
Page 37
| (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, 2023, the Company had cash and cash equivalents, investment in associate, convertible notes receivable, loan receivable, reclamation deposits, accounts payable, accrued liabilities and secured notes that are in US dollars.
| (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 $
| 16. | Corporate and administrative expenses |
| ($000s) | 2023 | 2022 | ||||||
| Employee compensation | ||||||||
| Stock-based compensation | ||||||||
| Professional fees | ||||||||
| Other general and administrative | ||||||||
| 17. | Related party disclosures |
| ($000s) | 2023 | 2022 | ||||||
| Compensation of directors: | ||||||||
| Directors’ fees | ||||||||
| Stock-based compensation | ||||||||
| Compensation of key management personnel: | ||||||||
| Salaries and benefits and consulting fees | ||||||||
| Stock-based compensation | ||||||||
Page 38
During year ended December 31, 2023 and 2022, 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 |
| ($000s) | 2023 | 2022 | ||||||
| Deferred tax expense (recovery) | ( | ) | ||||||
| ( | ) |
| ($000s) | 2023 | 2022 | ||||||
| Financing costs - recognized in statement of equity | ( | ) | ( | ) | ||||
| Revaluation of the secured note liabilities – recognized in OCI | ( | ) | ||||||
| ( | ) |
In 2023, the Company recognized income
tax recovery of $
The provision for income taxes differs
from the amount that would have resulted by applying the combined Canadian Federal and Provincial statutory income tax rates of
| ($000s) | 2023 | 2022 | ||||||
| Earnings (loss) before income taxes | ( | ) | ||||||
| % | % | |||||||
| Income tax calculated using statutory rates | ( | ) | ||||||
| Non-deductible/(non-taxable) items | ( | ) | ||||||
| Difference in foreign tax rates | ( | ) | ||||||
| Change in deferred tax rates | ( | ) | ( | ) | ||||
| Movement in tax benefits not recognized | ( | ) | ||||||
| Impact of true-up of prior year balances | ||||||||
| Renouncement of flow-through expenditures | ||||||||
| Other | ( | ) | ||||||
| Income tax (recovery) expense | ( | ) |
Page 39
| (b) | Deferred Income Tax |
| ($000s) | December 31, 2023 | December 31, 2022 | ||||||
| Deferred income tax assets: | ||||||||
| Property and equipment | ||||||||
| Provision for reclamation liabilities | ||||||||
| Financing costs | ||||||||
| Non-capital loss carryforwards | ||||||||
| Secured note liabilities | ( | ) | ||||||
| Deferred income tax liabilities: | ||||||||
| Mineral interests | ( | ) | ( | ) | ||||
| Net deferred income tax liabilities | ( | ) |
| (c) | Unrecognized Deferred Tax Assets |
| ($000s) | December 31, 2023 | December 31, 2022 | ||||||
| Marketable securities | ||||||||
| Loss carryforwards | ||||||||
| Investment tax credits | ||||||||
| Foreign tax credits | ||||||||
| Mineral properties | ||||||||
| Provision for reclamation liabilities | ||||||||
| Other |
Deferred tax has not been recognized
on the deductible temporary difference of $
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.
Page 40
| (d) | Income Tax Attributes |
| ($000s) | Expiry date | |||||||
| Canadian non-capital losses | ||||||||
| Canadian capital losses | ||||||||
| Canadian tax basis of mineral interest | ||||||||
| US non-capital losses | ||||||||
| US tax basis of mineral interest | ||||||||
| 19. | Commitments and contingencies |
| Payments due by years | ||||||||||||||||||||
| ($000s) | Total | 2024 | 2025-26 | 2027-28 | 2029-30 | |||||||||||||||
| 2022 Secured Note – interest | ||||||||||||||||||||
| 2023 Secured Note – interest | ||||||||||||||||||||
| Capital expenditure obligations | ||||||||||||||||||||
| Flow-through share expenditures | ||||||||||||||||||||
| Mineral interests | ||||||||||||||||||||
| Lease obligation | ||||||||||||||||||||
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 $
Prior to its maturity, the 2022 Secured
Note bears interest at
Prior to its maturity, the 2023 Secured
Note bears interest at
Page 41