Seabridge Gold Has A Bridge To Two Projects

Seabridge Gold (SA) leaves me puzzled. It has been around for many years, long enough to have discovered and developed significant mines by now. The stock’s profile page on Yahoo Finance shows the top executives making serious six figures. Executive pay is not a marker of enterprise success. It is nice to see that the CEO is a trained mining engineer and that the rest of the team has been around the block with other mining companies.

They have two serious projects now. The Kerr-Sulphurets-Mitchell (KSM) project in Canada has several iterations of NI 43-101 reports. I read the preliminary feasibility study (PFS) for 2012, and the reserves are not much to crow about without the deposit’s size. Consider how low the 2P reserves grade of 0.55 Au g/t would be without the 38.2M oz of metal to make it interesting. It is notable that the 2P reserves grade is about the same as the measured and indicated resource grade, a positive sign given the tendency of reserve grades to be lower after more engineering work. The project’s estimated IRR is only 11.5%, less than half what Sprott’s Rick Rule uses as a rule of thumb for viability. It’s good that their assumed total operating cost of $597.60/oz is so low, even lower than gold’s long-term average historic price. They must still raise the $5.3B initial capital cost.

The Courageous Lake project also has a PFS from 2012. This project looks a lot more desirable than KSM due to its 2P reserves grade of 2.2 Au g/t, but it only has 6.5M oz of metal. They only have to raise $1.52B in capital to make it work, but the estimated 7.3% IRR is even lower than the KSM project. The total operating cost of $1123/oz is also higher than KSM, and higher than gold’s long-term price.  Priority funding for Courageous Lake would make more sense in healthier economic times. The hard times in mining worldwide now make KSM the more attractive candidate for initial development.

Check out Seabridge’s Q2 10-Q report dated June 30, 2015. They had cash and short-term deposits of almost $CAD14.7M. That should be enough to operate for over one year given their present burn rate, once they have paid their current liabilities. Their fundraising success in April 2015 of $16.3M is very noteworthy. It is also noteworthy that the financing was executed at a share price of $10.17. Shares of Seabridge closed yesterday at $6.22. General market conditions are dragging down many companies but Seabridge’s private investors continue to have sufficient faith that their investment is worth the premium they pay.

Seabridge is viable if a major partner wants to contribute billions of dollars to starting its two major projects. The market is bidding up this company’s share price based on its ore body estimates rather than its operating history. These kinds of lower-grade projects make sense now that high-grade ores are running out worldwide. The mining sector will have to adjust to a new era of permanently lower IRRs with companies like Seabridge Gold.