Seabridge Gold: Good Growth Potential And Shares May Become More Attractive (Rating Downgrade)

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Seabridge Gold receives a "Hold" rating, downgraded from "Buy," due to the stock being in the upper part of the cycle and potential short-term negative pressures.Gold prices are expected to remain ...

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Oselote  A Hold Rating for shares of Seabridge Gold  This analysis suggests a \"Hold\" rating on shares of Seabridge Gold (NYSE:SA) (TSX:SEA:CA), a Canadian developer of gold and copper properties in Canada and the US Nevada. The rating represents a downgrade from the previous \"Buy\". The Buy rating was assigned based on the expected following combination of factors: the growth potential of Seabridge's 100% ownership of The Kerr-Sulphurets-Mitchell (or \"KSM\") and 100% ownership of Courageous Lake projects above all, would have gained momentum as advancements continued amid a bullish market for gold and copper prices leading to strong upside for the shares. Advances in Seabridge Gold mineral projects combined with bullish metal prices provided strong tailwinds for the stock price of Seabridge Gold: in fact, SA shares rose 19.40%, and SEA:CA shares rose 19.80% from the previous \"Buy\" rating, outperforming the S&P 500 +14.48%. About Gold: Recent Trends and the Outlook The yellow metal was forecast to be in uptrend mode as economic growth hit by the Federal Reserve's high interest rates, combined with headwinds from geopolitical tensions in the Middle East, would have boosted demand for safe-haven gold. While the hawkish Fed-induced slowdown in the US economy gives US investors time to be bullish on safe-haven gold, and with the risk of a severe recession also on the horizon according to US economist Ben Ayers, the fear of portfolio devaluation has long persisted among foreign investors. Faced with inflation, the risk of global geopolitical instability, and the poor performance of their local currency-denominated investment products, foreign investors, particularly central banks from Poland, China, India, Singapore, Turkey, and a handful of Middle Eastern countries, increased their investments in gold as a safe haven instrument. These overseas investors caused an “enormous, unrelenting demand for gold”, Fred Hickey, analyst, and editor of The High-Tech Strategist, said in one of his weekly newsletters, leading to a 17.5% year-to-date rise in the price to $2,380 /oz at the time of writing. In particular, China appears to remain a key driver of strong global demand for gold from central banks in emerging markets, which use gold as a hedge against devaluations due to other countries' debt and as a way to diversify their reserves and protect against a strong US dollar, according to Mason Mendez analysts at Wells Fargo & Company (WFC). The outlook for gold prices is likely to remain broadly upbeat as central banks continue to support global demand by purchasing the metal and safe-haven demand among North American investors strengthens amid the economic impact of the Fed's hawkish policy that becomes increasingly apparent. Last week, the economy showed further signs of deterioration as annual consumer credit growth slowed sharply by 210 basis points sequentially to 1.5% in March, coupled with negative trends in US commercial crude oil and petroleum inventories and weekly jobless claims hitting their highest level for nine months, suggesting that a red-hot labor market starting in 2024 may be giving up. About Copper: Recent Trends and the Outlook  As for copper, the rise in market expectations for China's central government's stimulus to the domestic economy, which has been hurt by the crisis among property developers, has sparked strong optimism since earlier this year about the outlook for industrial demand for the red metal, as China is the world's largest consumer. This caused strong upward pressure on the price per pound and, as a result, the red metal rose significantly since early 2024, as evidenced by a 30% rise in the price of Copper Futures (HG1:COM) to $5.05/lb. The outlook for copper prices is likely to remain broadly bullish due to upward pressure promoting the red metal's appreciation from an expected growing supply deficit. It appears that while copper demand for industrial purposes will be boosted by Chinese stimulus and energy transition projects, supply will be insufficient due to a lack of incentives to start new mining activities, as well as regulatory and geopolitical issues pushing project timelines back. The Reason for a Hold Rating The \"Hold\" rating is now assigned instead of a \"Buy\" rating, but not because this stock is not as effective as before in exploiting the upward trend in gold and copper prices. On the contrary, as shown by the non-sporadic but historically positive correlation between stocks of Seabridge Gold and metals prices, Seabridge's share price is poised to reach higher levels due to its strong ties to the metals, provided further progress is made on the company projects in Canada. The Hold rating is instead given in the sense that while investors may want to continue to keep this stock in their portfolios ahead of the promising outlook for the company and metal prices, shares currently trading at the upper end of the stock price cycle could see a short-term decline as the Federal Reserve delays its first rate cut amid sticky inflation, opening the possibility of a more attractive level. With sticky inflation, “the Fed may keep rates higher for longer, which would be a headwind for non-interest-bearing bullion.” Financial markets now expect the Fed to begin its interest rate easing cycle in September. The Stock Price: A More Attractive Share Price Is Possible As of this writing, shares under the SA symbol were trading on the NYSE at $15.11 per unit, giving it a market capitalization of $1.33 billion. Shares traded fully above the MA Ribbon and significantly closer to the upper than the lower limit of the 52-week range of $9.31 to $16.71. Source: Seeking Alpha The 14-day RSI of 60.55 suggests that the gap between current levels and overbought levels is now much smaller following the stock price's year-to-date rise. With likely downward pressure from “higher-for-longer” Fed interest rates, shares could see more downside than upside in the short term. The same considerations apply to shares of Seabridge Gold under the symbol SEA:CA on the TSX: they were trading at CA$20.65/share at the time of writing, for a market capitalization of CA$1.81 billion. The shares are trading well above the level at the beginning of the year, which is reflected in the higher prices compared to the MA Ribbon. Shares are also closer to the upper limit than the lower limit of the 52-week range of CA$12.62 to CA$23. Source: Seeking Alpha The 14-day RSI of 61.71 suggests there is plenty of room for SEA:CA shares to pull back from these levels in the near term under downward pressure from the Fed's “higher for longer” stance on metal prices. The “higher-for-longer” Fed on rates not only bodes poorly for gold prices, as gold is a loser in the context of a high-yield environment, but expensive borrowing also weighs on the outlook for copper demand, putting downward pressure on the price per pound as well. Because Seabridge Gold shares are positively correlated with gold and copper prices, if the metals face headwinds, the latter are also likely to negatively impact the shares of the Canadian gold/copper developer. A positive correlation means that Seabridge stock and metal prices are generally affected by the same market sentiment at the same time: if copper or gold is bullish (or bearish), the stock is likely to trade bullish (or bearish), regardless of returns, that can even differ greatly. In the following charts, the positive correlation is described by the yellow-colored area curve (relative to gold prices) or the red-colored area curve (relative to copper) staying above zero for most of the last few years. Gold futures (GCM2024) and copper futures (HGN2024) are used as benchmarks for metal prices in this analysis. SA shares on the NYSE compared to gold and copper futures over the last few years: Source: Seeking Alpha SEA:CA shares on the TSX compared to gold and copper futures over the last few years: Source: Seeking Alpha The graphs also indicate that SA and SEA:CA shares develop through ups and downs as well as gold and copper prices, so the Hold rating is also given in the sense of holding on to the formation of an attractive share price level, which increases the probability of beating the US stock market significantly. About Seabridge Mineral Projects: Activities Continue to Add Upside Potential Toronto-based Seabridge Gold Inc. has a mineral portfolio consisting of metallic projects in Northwest Canada and Nevada, USA, with the 100% interest in Kerr-Sulphurets-Mitchell [KSM] property in British Columbia and the 100% interest in the Courageous Lake property in Canada's Northwest Territories being the most prominent. Source: Seabridge Gold May 2024 Corporate Presentation The KSM project's growth potential is attractive to the North American stock market, as the location in British Columbia provides a friendly mining jurisdiction for the majority of Seabridge Gold's total resources. Based on economic analysis data from the 2022 PFS and with a 2022 PEA document setting out an opportunity to further expand the activities of the 2022 PFS, the KSM project as a whole has the potential to develop into a highly profitable multi-year gold and copper mining site. The KSM PFS 2022 shows the potential for 33 years of production: more than one million ounces of gold, plus 178 million pounds of copper and 3 million ounces of silver per year, on proven and probable reserves totaling 47.3 million ounces of gold with 160 million ounces of silver, and 7.3 billion pounds of copper. These mineral resources represent no more than 25% of the estimated total mineral resources at the site. Source: Seabridge Gold May 2024 Corporate Presentation Since there are few metal projects around the world with premises similar to KSM, it should not be difficult to find someone among the metal giants who may be interested in bringing this asset to production through perhaps a cooperation agreement. The conditions in British Columbia, but also locally and near the KSM, are very favorable to the installation of metal production. Typically, the Canadian bureaucracy takes an average of two years to issue mining permits, compared to U.S. permits, which are issued on average after seven years. These estimates are based on surveys by North American experts in the mining and environmental sectors, which were confirmed last year during an update of global mineral resources by Italian experts. KSM already has certain local authority certifications, state authority approvals, and local municipality social licenses. Major infrastructure is already in place in the area: highways, power grids, ports, and airports as well as telecommunications lines, which significantly reduce the risk of investing in KSM. The prospect of a major gold/copper miner one day knocking on Seabridge's door may gain momentum as a four-year payback plus 16% IRR (or 6.2 years with a 19% IRR in PEA 2022) becomes increasingly attractive in a scenario where the Fed lowers borrowing costs, assuming the Fed will start to cut rates. A decline in the interest rate will be viewed positively by the market in terms of KSM's prospects and provide a tailwind for the share price in the market. This will be a step forward for the KSM project, as will any physical progress in Stewart, British Columbia, positioning the share price very well for an upside, as it has since the previous Buy recommendation. Of course, assuming that the environment for metals remains bullish, as the most likely scenario earlier highlighted suggests. In this context, the submission of the application for “substantially started status” at the end of January 2024, whereby Seabridge wishes to extend the environmental permit for KSM well beyond 29 July 2026, was certainly received very positively by the stock exchange. Not only because the application, if approved, will be valid for the life of the project, but it will also be further evidence of Seabridge Gold's true commitment to developing the mineral property. The approval serves as a meaningful benchmark of compliance with Seabridge's objective of creating gold/copper production in the region: If approved, it will mean that British Columbia's Minister of Environment and Climate Change will be satisfied with the activities carried out, which have resulted in an investment of more than CA$997 million since Seabridge took over the project in 2001. A response from the Canadian regulator is expected in the coming months on the following activities, including the creation and upgrading of miner accommodation as well as contributions to the creation of roads and bridges and hydropower infrastructure. Furthermore, approximately 30 air kilometers from KSM, Seabridge Gold is pursuing a fully funded $12 million drilling program at its 100% owned Iskut project that covers a total of 294 km2 of land. Through 15,000 meters of diamond drilling, the company is focused on intrusions with high copper-gold porphyry mineralization identified in 2023. As they become more similar to the KSM deposits, exploration is gradually revealing the potential the company has always hoped for: these intrusion targets could be part of a district-wide structural trend. In pursuit of its 100% mineral interest in the Courageous Lake Project, 240 km northeast of Yellowknife, Northwest Territories, Canada, Seabridge has completed a new NI 43-101 technical report in late February 2024 including an updated 2024 pre-feasibility study (or \"PFS 2024\") from the pre-feasibility study in 2012 (or \"PFS 2012\") and a new preliminary economic assessment (or \"PEA 2024\"). The Courageous Lake property is a large undeveloped project that hosts approximately 11 million ounces of gold measured and indicated resources at an average grade of 2.36 grams of metal per ton of mineral.   Source: Seabridge Gold May 2024 Corporate Presentation Compared to the 2012 PFS, the updated study assumes a higher grade, more profitable gold/copper-producing single open pit mineral project in 2024, requiring lower initial capital and a significantly shorter period to recoup the initial investment. Additionally, the 2024 PFS results in a 38% increase in estimated measured and indicated gold resources, but there is still significant potential for development: If we consider that the share price increased by 35% after the release of the 2024 PFS, we can imagine the additional upside for the share price that still lies in the Courageous Lake Project, as the improvements compared to the 2012 PFS were achieved with less than 30% of the total measured and indicated resources. Source: Seabridge Gold May 2024 Corporate Presentation And that's not all: Indeed, PEA 2024 considers it possible to extend the operation of the Courageous Lake open pit mine by 16 years. Although only from a conceptual perspective, the upside potential that Courageous Lakes can still unlock is further and significant as this derives from mineral resources that will come into play after the mining has depleted resources in the 2024 PFS. But as seen 70% of these resources still need to be covered by a feasibility study. Other projects in Seabridge's portfolio include:  In Nevada, the exploration team is conducting activities targeting fault mineralization deposits on a property believed to have the potential to host large mines. Known as “The Snowstorm” project, the project is located on a 103 km² property directly at the intersection of three major Nevada gold belts and near the Nevada Gold Mine's Barrick Gold Corporation (GOLD) (ABX:CA) and Newmont Corporation (NEM) (NGT:CA) JV Twin Creeks mine and JV Turquoise Ridge mine. Exploration activities at a 314 km2 property called “The 3 Aces Project” in the southwestern Yukon Territory, Canada, focused on better understanding the potential of high-grade mineralized deposits, are providing very encouraging results consistent with the objective of resource delineation.  Conclusion Compared to the previous analysis, Seabridge Gold Inc. shares now receive a \"Hold\" rating, not because the stock is viewed as less effective than before in profiting from bullish metals markets, but because the shares are in the upper part of the cycle and could decline somewhat before adding up. The Fed's \"higher for longer\" rates will work as a headwind in the short term.  The future is very bright for Seabridge shareholders, as while gold and copper prices are expected to uptrend and add value to Seabridge Gold's metallic projects, the growth potential inherent in the company's extensive and largely unexplored resources also provides an amazing upside catalyst.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.5","shortVersion":"4.22.5","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2435673374"}