Seabridge Gold's Appeal of Disallowed Expenditures under BC METC Program is "Substantially Successful"

Rhea-AI Summary

Seabridge Gold (NYSE: SA) has won a significant legal victory as the British Columbia Supreme Court (BCSC) has largely approved its appeal against the Canada Revenue Agency's (CRA) decision to disallow $15.8 million in exploration expenditures under the BC Mining Exploration Tax Credit program.

The court ruled that expenses determining economic viability of mineral resources qualify under the program, validating most of Seabridge's claims except report compilation expenses. This decision affects approximately $3.1 million in refunds plus interest.

The ruling also has implications for a separate case involving $19.1 million in renounced expenditures from flow-through share financings (2013-2015), where Seabridge has deposited $9.4 million with CRA on behalf of investors. The company expects the court's reasoning to help resolve this second matter favorably.

Positive

• Court victory validates $15.8M in exploration expenditures, recovering $3.1M plus interest
• Legal precedent likely to resolve separate $19.1M flow-through share dispute favorably
• Company awarded legal costs for successful appeal

Negative

• Report compilation expenses portion of claim was rejected by court
• $9.4M remains deposited with CRA pending resolution of flow-through share dispute

Insights

Tax Litigation Specialist

Seabridge Gold's successful legal victory against the Canada Revenue Agency has significant financial implications that extend beyond the immediate case. The BC Supreme Court ruled that exploration expenses determining economic viability of mineral resources qualify under the provincial tax credit program, validating approximately $15.8 million in previously disallowed expenditures.

The immediate benefit is a $3.1 million refund plus interest under the BC Mining Exploration Tax Credit program, plus reimbursement of legal costs. However, the broader implications stem from the court's interpretation of "qualified mining exploration expenses" - specifically that expenses determining economic viability fall within the statutory language of determining a resource's "quality."

More significant is the potential resolution of a secondary dispute involving $19.1 million in exploration expenditures renounced to flow-through share investors from 2013-2015 financings. Since both disputes hinge on identical statutory language about determining "existence, location, extent or quality" of resources, this ruling creates strong precedent for resolving the larger claim.

The $9.4 million Seabridge deposited with CRA on behalf of flow-through investors should likely be returned based on this ruling. Strategically, this decision strengthens Seabridge's position for exploration financing going forward, validating their approach to qualifying expenses and potentially easing future tax compliance concerns.

Mining Financial Analyst

This legal victory delivers meaningful financial upside for Seabridge through multiple channels. Beyond the immediate $3.1 million tax credit recovery plus interest, the precedent established significantly increases the likelihood of resolving the parallel flow-through share dispute involving $19.1 million in disallowed expenditures.

For context, Seabridge's market capitalization of approximately $1.08 billion means this combined potential recovery of over $12.5 million (including the $9.4 million deposit) represents about 1.2% of company value - a material cash influx that strengthens the balance sheet without dilution.

The ruling substantially clarifies which exploration expenditures qualify for preferential tax treatment, notably validating expenses related to economic assessments including mine planning, engineering, geotechnical investigations, infrastructure design, metallurgical testing, and plant design. Only report compilation expenses were excluded.

This decision provides operational flexibility for Seabridge's continued advancement of the KSM project - one of the world's largest undeveloped gold-copper deposits - and their Iskut property. The company can now confidently structure exploration programs to maximize tax benefits, potentially stretching capital further in future exploration campaigns.

For flow-through investors, this ruling removes uncertainty and vindicates their tax positions, making future Seabridge financings more attractive and potentially lowering the company's cost of exploration capital.

Court's Decision Should Also Apply to Seabridge Gold's Appeal of Disallowed Expenditures with Flow-Through Funds Raised in 2013-2015

Toronto, Ontario--(Newsfile Corp. - March 28, 2025) - Seabridge Gold Inc. (TSX: SEA) (NYSE: SA) ("Seabridge" or the "Company") announced today that the British Columbia Supreme Court ("BCSC") has allowed its appeal of the Canada Revenue Agency's ("CRA") decision to disallow $15.8 million in exploration expenditures it claimed under the BC Mining Exploration Tax Credit ("BC METC") program. In her decision, Justice Maisonville concluded that expenses that assist in the determination of the economic viability of a mineral resource qualify under the BC METC program. As a result, all exploration expenditures claimed by Seabridge, other than report compilation expenses, were validly claimed by Seabridge. Approximately $3.1 million in refunds (plus interest) under the BC METC program were at issue. Seabridge was also awarded costs for its success in the appeal.

The decision focused on the meaning of the definition of "qualified mining exploration expenses" ("QMEE") under the BC METC program. At issue was whether the disallowed expenses fell within the purpose test in that definition, namely whether they were "incurred for the purpose of determining the existence, location, extent or quality of a mineral resource in BC". Justice Masonville concluded that "expenses that assist in the determination of the economic viability of a mineral resource are captured under the 'quality' term of the purpose test". Accordingly, expenses relating to determining a broad range of factors that inform whether a mineral resource can be extracted economically meet this purpose test. The expenses the court decided qualified for the BC METC program included open pit and block cave mine plans and engineering, geotechnical investigations and engineering, engineering relating to water, mine waste and tailings management, infrastructure design (including electrical), metallurgical testing, and process plant design. The only expenses that were not allowed were expenses relating to compiling and assessing the technical information supporting a pre-feasibility study into a report.

The Company also renounced the same types of exploration expenditures to investors in flow-through share financings the Company completed in 2013 - 2015, claiming the expenditures qualified as "Canadian exploration expenses" ("CEE") under the federal Income Tax Act. The CRA reassessed the Company and reduced the amounts renounced to investors by approximately $19.1 million on the basis that the expenses were not "incurred for the purpose of determining the existence, location, extent or quality of a mineral resource". The CRA then reassessed most of the flow-through share investors and rejected the deductions or credits they claimed associated with those disallowed expenditures. The Company has filed an objection to the CRA's reassessment of its renounced expenditures, and the reassessed investors have also filed objections to the CRA's reassessments of these renounced expenditures. The Company has deposited $9.4 million with CRA on behalf of the flow-through share investors. The Company's and the investors' objections are being held in abeyance pending this decision on the disallowed BC METC expenditures. The Company believes that the reasoning in Justice Maisonville's decision is directly applicable to these renounced expenditures and will be conferring with its counsel on how to resolve this second legal matter with the CRA in a timely way.

Chairman and CEO Rudi Fronk said: "I am very pleased with the BCSC decision validating Seabridge's claimed expenditures. It demonstrates that our approach to claiming expenses under BC METC and in respect of flow-through share subscriptions has been reasonable. This decision should not only result in funds being returned to the Company in respect of our BC METC claim but also should form the basis for a resolution of the flow-through share reassessments and result in the return of further funds." Mr. Fronk added: "I want to thank our counsel, Thorsteinssons LLP, who argued this case for us, as well as our flow-through investors for their patience and support of Seabridge in the related legal challenges."

Seabridge holds a 100% interest in several North American gold projects. Two of Seabridge's principal assets, the KSM project and its Iskut project, are located in British Columbia's "Golden Triangle". The Courageous Lake project is located in Canada's Northwest Territories, the Snowstorm project in the Getchell Gold Belt of Northern Nevada and the 3 Aces project in the Yukon Territory. For a full breakdown of Seabridge's mineral reserves and mineral resources by category please visit the Company's website at http://www.seabridgegold.com.

Neither the Toronto Stock Exchange, New York Stock Exchange, nor their Regulation Services Providers accepts responsibility for the adequacy or accuracy of this release.

ON BEHALF OF THE BOARD "Rudi Fronk" Chairman and C.E.O.

 
For further information please contact:
Rudi P. Fronk, Chairman and C.E.O.
Tel: (416) 367-9292 • Fax: (416) 367-2711
Email: info@seabridgegold.com

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/246436

FAQ

How much money will Seabridge Gold (SA) recover from the BC Mining Tax Credit appeal victory?

Seabridge will recover approximately $3.1 million in refunds plus interest, and was awarded legal costs for the appeal.

What types of exploration expenses did the BC court approve for Seabridge Gold's (SA) tax credit?

The court approved expenses for open pit and block cave mine plans, geotechnical investigations, water management, infrastructure design, metallurgical testing, and process plant design.

How much did Seabridge Gold (SA) deposit with CRA for the flow-through share dispute?

Seabridge deposited $9.4 million with CRA on behalf of flow-through share investors.

What was the total amount of disputed exploration expenditures in Seabridge Gold's (SA) BC METC claim?

The CRA initially disallowed $15.8 million in exploration expenditures claimed under the BC Mining Exploration Tax Credit program.