-- Published: Tuesday, 27 January 2015 | Print | Disqus
Last December, after seven years of slowly and patiently pushing the bureaucracy forward, Seabridge Gold achieved one of its biggest accomplishments so far: securing federal environmental approval for its massive Kerr-Sulphurets-Mitchell (KSM) project in Northern British Columbia.
The environmental green light hugely de-risks the KSM project, which, after continued Seabridge drilling is now the biggest undeveloped gold-copper deposit in the world (measured by reserves). The project boasts 38 million oz. gold and 10 billion lbs. copper in reserve alone, while new drilling has identified deeper higher-grade deposits that could be world-class on their own.
With the environmental permit now secure Seabridge is much better placed to attract the joint-venture partner that it needs to build the project. And with the deeper deposits showing much higher copper grades, some of the world’s base metal majors are also starting to take a look at the project, meaning the chances are better than ever of striking a deal.
The Green Light
Seabridge accomplished no small task in securing environmental approval. Despite often coming under criticism, the Canadian environmental assessment system is quite a thorough process with approval far from guaranteed. KSM is only the second big mine to secure approval in the past five years, and it took seven years to get it.
Of course KSM is hardly a simple project. The project sits in a remote and largely untouched stretch of northwestern British Columbia some 35 km from the Alaskan border, with the deposits surrounded by glacier-capped mountains. The mine plan calls for at least three open pits and a 23-km-long tunnel to link the deposits to the processing and tailings facilities.
To produce the 38 million oz. gold and 10 million lbs. the mine will have to churn through 2.16 billions tonnes of ore, and process up to 21 billion gallons of water per year in a region that feeds into major salmon-spawning rivers.
But that complexity is why the 35,000-page environmental assessment submission took 20 consulting firms and five years to prepare, along with extensive consultations with Treaty Nation and First Nations, other local communities, and government regulators.
And because of the consultation process the company already has a signed benefits agreement with the Nisga’a Nation relating to the KSM project. The agreement, announced last June, outlines long-term benefits for the community and addressed social and environmental concerns of the Nisga’a Nation, and in turn the Nisga’a Nation has agreed to support development of the project.
The company also has a less formal agreement with the Gitanyow Wilps reached in June, where Seabridge is funding their environmental monitoring programs and has established a committee to inform the community about developments at the project.
During the review process the company made numerous modifications to the mine plan to accommodate various viewpoints. The company re-routed the main access road, incorporated more lining of the tailings dam and relocated the grinding facility. The company is now studying switching to block-caving for parts of the Mitchell and Iron Cap deposits, which will reduce the amount of waste rock moved by more than 2 billion tonnes.
With so much preparation Seabridge expected a smooth federal review after British Columbia gave its approval in July. But then Mt. Polley tailings dam breached, releasing 17 million cubic meters of water and eight million cubic meters of tailings into Polley and Quesnel Lake.
That disaster put a temporary halt to progress on KSM as the feds spent extra time reviewing the tailings plan for KSM and waited to hear more about what went wrong at Polley.
Seabridge CEO Rudi Fronk has pointed out that KSM’s tailings will sit in a valley and so won’t have the same risks as a simple earthen containment wall. The company applied for a discharge permit so they will be able to constantly process and remove water from the tailings pond, further reducing risk. And it seems the assessment committee agreed, concluding that the project is not likely to cause significant adverse environmental affects.
But of course that assessment didn’t satisfy everyone, and there is still some vocal opposition coming from conservationists and fishermen, especially downstream on the American side of the border worried about water contamination.
Fronk has pointed out that the water coming from the area is already naturally highly acidic because of exposed metals in the bedrock, so the water should actually be cleaner after being processed at the mine.
He has also clarified that the project does not actually need any regulatory approval from the United States, though the Environmental Protection Agency and the Alaska Department of Natural Resources have both given informal approval of the project.
With the environmental hurdles cleared the company is now much better situated to attract a big buyer, but with the mine costing an estimated $5.3 billion to build, and with such huge gold reserves, there are only a handful of gold companies capable of taking on the project. Which is why Fronk is so excited about what’s happening below the existing reserves.
Bigger and Richer
Seabridge released an economic assessment on KSM in 2012, which mapped out a 55-year mine life to process all the reserves at a very respectable total cost of around $600 per oz. gold. With such a long mine life, it didn’t make sense or add value to keep adding more low-grade gold ounces.
So Seabridge started hunting for higher grades to improve the economics of the project, which as of the 2012 plan showed a fairly low 11.5% internal rate of return. It didn’t take long to find what they were looking for.
In 2013 the company struck new mineralization under the Kerr deposit, with results including hole 13-34 that hit 640 meters grading 0.42 g/t gold and 0.85% copper. Calling the discovery Deep Kerr, the company spent $15 million and did 24,000 meters of drilling in 2013 to establish a 515-million-tonne inferred resource grading 0.53% copper and 0.36 g/t gold for 6 billions lbs. copper and 5.9 million oz. gold.
Fronk is quick to point out that the grades at Deep Kerr are 2.5 times higher KSM’s reserves, with much more copper content. This has allowed the company to start marketing the project to base metal producers, and has the Seabridge CEO more hopeful than ever of finding a partner.
Not stopping there though, the company has also discovered a mineralized zone under the Iron Cap deposit they’ve called Lower Iron Cap. Both Deep Kerr and Lower Iron Cap look to be higher grade core zones, which are formed under higher temperature and pressure conditions and often result in significantly higher metal content than the shallower porphyries.
The company spent 2014 further drilling the two discoveries, to improve the resource at Deep Kerr and establish one at Lower Iron Cap.
At Lower Iron Cap the best results have come from the northern section of the deposit, where hole 14-059 hit an impressive 592.7 meters averaging 1.14 g/t gold and 0.37%, while hole 14-53 cut 514 meters grading 0.3 g/t gold and 0.68% copper, and hole 14-54 returned 510 meters grading 0.28 g/t gold and 0.41% copper.
Lower Iron Cap is also interesting because some intercepts come within a kilometer of the proposed Mitchell-Treaty tunnel that would connect the main deposits to mine infrastructure. Seabridge says this makes the zone an attractive early development option with lower capital and operating costs.
And 2014 drilling has also significantly expanded Deep Kerr, with the company estimating that it added 400 meters of strike and 300 meters of depth to the deposit.
Results from the 2014 drill program are now being processed and Seabridge expects to have a resource estimate out on Lower Iron Cap and an updated resource on Deep Kerr in the first quarter of this year.
Slow and Steady
Given the general pace of progress in the mining industry, and add in the scale of the project at KSM, and it becomes reasonable not to expect anything to happen too fast. But the pace has definitely started to pick up at KSM, and with the new discoveries and regulatory approvals in the past two years the metrics for the project have improved significantly.
Markets are still very tough, and few majors are buying big, but Seabridge has certainly positioned itself well for any kind of opportunity or change in momentum. The company, with only 50 million shares out, controls the world’s largest undeveloped gold-copper project, which now also happens to have environmental approval. And on the side they keep finding big, higher-grade deposits also sitting on the project.
So far the market has somewhat perked up for Seabridge, with shares climbing to over $9 each compared with under $7 level they were trading at in mid-December before the environmental approval. But the company still only has an enterprise value of roughly $7 per oz. gold. That should go significantly higher once the company does find a partner.
2015 marks the beginning of a new era for KSM. Seabridge continues advancing this massive gold-copper project, de-risking it and adding value through discoveries. Through diligent share structure management, investors are also being rewarded. Now with major hurdles being removed, we look forward to Seabridge unlocking significantly more value for these resources.
- Peter Spina, President of GoldSeek.com
Seabridge Gold (NYSE: SA | TSX: SEA)
Shares outstanding | 48.2 million |
Options outstanding | 2.8 million |
Market capitalization | $430 million |
Working capital | $15 million |
Debt or hedges | nil |
Insider ownership | ~35% |
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-- Published: Tuesday, 27 January 2015 | E-Mail | Print | Source: GoldSeek.com
Seabridge Gold Gets the Green Light
