Interview with the President of Seabridge Gold Inc. (TSX: SEA)

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A $26 Per Oz Bargain
Seabridge Shares Are Cheap at the Price
~ By Ted Niles - October 25 2011
Rudi Fronk believes Seabridge Gold Inc TSX:SEA is one of the cheapest gold payback period of 6.6 years. The mine life is estimated to be 52 years with aver-
stocks in the world. A glance at the numbers would seem to support this. At a age life-of-mine cash operating costs of $231 per ounce of gold after base metal
market cap of roughly $1 billion, with proven and probable reserves at its KSM credits.
project in BC of 38.5 million ounces gold, Seabridge stock is now trading at ap-
proximately $26 per ounce. And that’s ignoring considerable additional reserves In addition to updating inferred resources at Sulphurets, Seabridge is also current-
at the project, including 10 billion pounds copper. ly testing the Mitchell deposit for underground potential. “Mitchell is the largest of
the four deposits—in fact it’s the largest gold deposit ever found in Canada,” Fronk
says. “It now has more than a 40-year mine life on an open-pit basis, but there’s
a lot of material down dip that is still there as resources. Our thought is, at some
point in the Mitchell open-pit life, to move to a block-cave operation to reduce the
amount of strip you have to do and continue going well beyond 40 years at Mitch-
ell. We’ve engaged a consulting firm that’s very top-level in terms of block caving,
and we did six deep holes for geotechnical purposes at Mitchell this year. One of
the holes intersected 810 metres of continuous mineralization from the surface.” In
other words, “This ore body is unbelievable.”
The next major step for Seabridge is permit applications. Fronk reports, “Best-
case scenario is you’re looking at 2012 and 2013 for completing the permitting
process, then probably a four to five year construction period for this project.”
In spite of its relative remoteness, the KSM project has certain logistical advan-
tages over other major projects in northern BC; namely, it is the closest project of
The President and CEO notes that the nearest comparable company, NovaGold its size to existing roads, to BC Hydro’s Northwest Transmission Line (expected to
Resources Inc TSX:NG—with advanced-stage projects in Alaska and BC—is be completed by late 2013) and to Stewart’s year-round, ice-free port. In addition,
“trading at five to six times our valuation on a reserve basis.” He explains the Seabridge finds itself in the advantageous position of being fully funded after the
inconsistency, “The big difference between NovaGold and Seabridge is they June 30 closing of a $30 million private placement with Royal Gold Inc TSX:RGL.
already have sponsorship in their projects with big joint venture partners [i.e. (Royal Gold was also granted the option to acquire a 1.25% net smelter royalty on
Barrick Gold Corporation ABX:CA and Teck Resources Limited TSX:TCK.B]; we all gold and silver production sales from KSM for $100 million.)
don’t yet. When we get that sponsorship through joint ventures, we would expect
to see a pretty significant re-rating in our share price. I’d say we’re getting close to Seabridge’s other major project—Courageous Lake, comprising 85% of the
that point now.” Courageous Lake Greenstone Belt in the Northwest Territories—is, according to
Fronk, approximately a year and a half behind the KSM project. It has a mineral
KSM is located 65 kilometres northwest of Stewart, BC and about 20 kilometres resource estimate of 6.8 million ounces gold measured and indicated, and 4.5
southeast of the past-producing Eskay Creek Mine. The project consists of four million ounces inferred. Seabridge is spending $16 million on the project this year
deposits—Kerr, Sulphurets, Mitchell and Iron Cap—and, in addition to the 38.5 and expects to have a prefeasibility study completed by 2Q 2012. “We’ll have
million ounces gold and 10 billion pounds copper already mentioned, it has silver more time and more resources to spend on it after we get the deal done on KSM,”
reserves of 214 million ounces and molybdenum reserves of 257 million pounds. Fronk says.
Fronk declares, “KSM is the largest undeveloped gold-copper project in the world
today in terms of reserves.” Fronk sums up, “[KSM] is a project—of scale now—that really few companies in
the world have the technical and financial capabilities to build. We’re not one of
The company is in the midst of a 12,000-metre infill drill program at the Sulphurets them. We’ve had a very open-door policy with the big gold mining and base metal
deposit to upgrade roughly three million ounces of inferred resources to reserves. companies over the last several years with a view to, at some point, partnering up.
October 20 assays include We’ve done all the work that we should be doing, and it’s almost time to hand it
over to a major in some sort of transaction. Our preferred structure is a joint ven-
1.03 g/t gold and 0.1% copper over 182 metres ture, where we stay in the deal, but they do all the heavy lifting going forward.”
0.96 g/t gold and 0.1% copper over 150 metres
0.93 g/t gold and 0.51% copper over 143 metres Seabridge has 42.4 million shares trading at $24.61 for a market cap of $1.04
0.74 g/t gold and 0.3% copper over 105 metres billion. Its other projects include the Grassy Mountain and Quartz Mountain
“
0.8 g/t gold and 0.47% copper over 86.5 metres properties in Oregon, the Red Mountain project in BC and the Castle-Black Rock
0.38 g/t gold and 0.27% copper over 152 metres project in Nevada.
1.57 g/t gold and 0.04% copper over 36.6 metres
Fronk comments that the results “are better than what was expected. In addition
to the inferred level, we’re also finding unclassified blocks that we’ll move up to When we get that sponsorship through
higher categories as well. So I think our objective of three million ounces in addi- joint ventures, we would expect to
tion to reserves is easily going to be achieved there.” see a pretty significant re-rating in our
Calculated using a gold price of $1,069 per ounce, Seabridge’s May 2011 up- share price
dated prefeasibility study gives a base case net present value (at a 5% discount
rate) for the KSM project of $2.6 billion, an internal rate of return of 9.2% and a – Rudi Fronk
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