Reversing course from its 67% climb through the first 10 months of 2017, shares of Seabridge Gold (NYSE: SA) plunged 20% last month according to S&P Global Market Intelligence following the release of the company's third-quarter earnings report.
A developmental-stage company, Seabridge is engaged in the acquisition, exploration, and development of mineral properties -- namely, gold. Since the company has no source of revenue, it's imperative that the company deftly manages its finances in order to maintain operations. Recognizing this fact, investors took exception to news that the company reported a 1.5 million Canadian dollar net loss in the third-quarter -- considerably more than the CA$0.3 million net loss that the company reported during the same period last year.
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Incurring a net loss for the quarter, in and of itself, would not likely frustrate investors as long as the company was making progress in executing its strategy to grow its gold resources. In the third quarter, this was hardly the case. Management reported corporate and administrative expenses increased to CA$3.6 million in Q3, representing a 57% increase over the CA$2.3 million it reported during the same period in 2016. The culprit? According to management, the increase in expenses was largely attributable to an increase in stock-based compensation. Although it accounted for CA$0.9 million in Q3 2016, stock-based compensation totaled CA$2.3 million in the recently completed quarter -- a whopping 156% increase.
In addition, management cited environmental rehabilitation costs as another factor that largely contributed to the company's net loss. Accounting for CA$0.8 million, the source of the costs was the remediation and closure planning of the Johnny Mountain Mine site contained within the Iskut property.
Although Seabridge's third-quarter report provided cause for concern, there were some highlights. For one, the company reported progress in exploratory activities at KSM, one of the company's primary assets, where drilling at Iron Cap confirmed a major extension -- including some of the highest grades -- of the deposit. The company, moreover, reported that it completed the Iskut exploration program, and the results are expected shortly. Unfortunately for investors, these bright spots weren't enough to outshine the blemishes.
An investment in Seabridge Gold is predicated on the belief that management can successfully add to the company's gold resources, sell its projects, or find partners for projects when they reach the gold-producing stage. This represents a high-risk investment, and it presumes management will adroitly manage its finances -- something investors found to be lacking in the third-quarter.
Now, as always, a position in Seabridge Gold is highly speculative. Consequently, the stock should only be on the radars of the most risk-tolerant investors.
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