Seabridge's Growth at Mitchell Deposit Provides Promising Opportunity

Seabridge Gold, Inc. (SA) released an updated NI 43-101 resource estimate for the Mitchell Deposit at its KSM project located in northwest British Columbia. The new estimate upgraded a portion of the resource to the Measured category from the Indicated category, nearly doubling the Measured and Indicated gold and copper resource in 2009 over the 2008 resource estimate. Clearly, the resource growth at the Mitchell deposit has moved the KSM project into the ranks of the world’s largest gold-copper porphyry deposits. We believe that precious metals companies with good projects with expansion and development potential may provide an above average investment opportunity in 2009.

click to enlarge

Source: Seabridge

The updated resource estimate included drill results from an additional 34 core holes totaling 15,416 meters drilled by Seabridge during 2008. The total drilling completed by Seabridge from 2006 to 2008 now includes 102 core holes totaling 40,060 meters of drilling (recoverable gold equivalent grades were calculated using a $650 gold price with a 70% recovery rate and a $2.00 copper price with an 85% recovery rate).

Mitchell Deposit (looking west)

Source: Analyst

In-fill drilling has confirmed management’s understanding that the mineralization of the deposit is consistent between wider spaced drill holes with higher grades of gold increasing at depth. In addition, the upper benches contain lower grades of gold-copper with potential to convert from waste to ore. This resulted in moving resources to Measured from Indicated, as well as adding new Inferred resources.

The updated resource estimate confirms our investment thesis (.pdf) that the project economics should be improving with the increase in size and the conversion of waste to ore. The resource update should allow Seabridge to complete an updated preliminary economic analysis, which is scheduled for the second quarter of 2009. In addition, the updated resource estimate for the Mitchell deposit does not include the Kerr and Sulphurets deposits, which are also scheduled to be updated in the near future.

KSM Project (looking east)

(Mitchell Deposit on left of center)

Source: Google Earth/Corebox

A good comparable for the Mitchell deposit or the KSM project, prior to the downturn, would be the acquisition of 51% of the Cerro Casale project in northern Chile by Barrick (ABX) for $800 million. Cerro Casale has a gold resource of about 25 million ounces, is in a mining friendly political jurisdiction similar to the KSM project, and has significant construction challenges. In addition, the KSM project appears to compare favorably to the average grade of the resource at Cerro Casale, which is about 0.69 g/t gold and 0.25% copper. Excluding copper, this may suggest an acquisition price of the gold component on a per ounce basis of 51% of Cerro Casale of about $63 per ounce.

Seabridge’s KSM Project is shaping up to be one of the world’s largest gold-copper porphyry deposits. As the project is advanced with additional studies and development work it should stand out among other projects attractive for construction and operation by a major mining company. Prior to the recent resource upgrade at Mitchell, Seabridge reported a total gold resource of about 49.0 million ounces and 8.2 billion pounds of copper. We are bullish on both gold and copper prices for the timing of the project and consider shares of Seabridge, which includes other assets, to be significantly undervalued.

Disclosure: The author is long SA. An affiliate of the author's employer provides corporate advisory services to SA.

Comments

[Beach Bubba:]

If I want to read tout I go to the tout blogs....this is crap, get it out of here.....Of course, the author is long (or short) the stock. Touted stocks always flip the suckers....Remember Nova Gold.

Mar 13 09:10 AM

[Roger Knights:]

“If I want to read tout I go to the tout blogs.” But every day on Seeking Alpha there are a dozen or so recommendations of specific stocks. There’s nothing wrong with the practice. And SA isn't just a penny stock whose only employees are Gabby Hayes and his burro. It's got a market cap of $730 million and trades on the NYSE.

“Touted stocks always flip the suckers .... Remember Nova Gold.” That’s not very logical. For every touted stock that sank, there’s probably one that rose. For instance, SA, which I bought at around 11 a few months ago, has been in a nice steady uptrend since its October low of 6.19. It closed today at 19.54, outperforming most other gold stocks. Its high in October of 2007 was about 38. Hopefully, now that it has these additional certified drill test results, the stock will revisit the 30s if gold gets back to four digits. Anyone who disbelieves should short the stock.

I like SA because it is so highly leveraged to the price of gold. I.e., there is a high fixed cost involved in shoving that mountain (in the pictures above) out of the way to get at all the gold, which makes SA's deposit uneconomic to mine as long as gold is below a certain price, but very valuable the farther that break-even price is exceeded.

Mar 13 04:38 PM

[Roger Knights:]

PS: Here's a link to the page on the Mineweb site that contains links to 60 stories and reports about Seabridge Gold over the years.
www.mineweb.com/minewe...

Mar 13 07:31 PM

[Roger Knights:]

PPS: I've just visited the Seabridge site at www.seabridgegold.net and, under Analyst Reports, located the following report by Thomas Schuster on March 6, 2008:
www.seabridgegold.net/...

It contains the following reassurance regarding the comparison of Seabridge to NovaGold:

"Critics of the project fear that the cost overruns that affected NovaGold’s Galore Creek project may occur at the [Seabridge] KSM [Kerr/Sulphurets/Mitch... project. Even though the two projects are similar with respect to general location and genesis, they are fundamentally different with respect to commodity and geography.

"Galore Creek is a copper project with a gold credit and the long-term outlook for the price of copper drives its economics. KSM is primarily a gold project with a copper credit and its economics are primarily driven by the long-term outlook for the price of gold. The average gold grade at KSM is approximately 2.7 times greater than that at Galore Creek.

"Another major difference between the projects is access. Galore Creek is located 200 kilometres north of the tidewater port of Stewart, BC and 100 kilometres northeast of the community of Wrangell, Alaska. The area is rugged and mountainous and requires a 135 km access road with a 4.3 km long tunnel to connect the mine site to Highway 37 near Bob Quinn Lake.

"Seabridge Gold’s KSM project is located in northwest British Columbia, approximately 65 kilometres north-northwest of Stewart, and 21 kilometres south-southeast of the Eskay Creek Mine. Planned access to the project is to continue the Eskay Creek mine access road (a year-round all-weather road) approximately 25 kilometres to the southwest."

Mar 15 04:50 AM

[PeakOiler:]

Find me a gold company making a nickel on 0.5 grams grade and I'll find you a ski hill in Florida. Seabridge has been touting this since time immemorial but gold needs to be 2000 per ounce minimum. Same holds true for Galore EXCEPT that the copper grades are economic there helped along by the gold credits. Copper grades at Mitchell are in the same category as the gold - pathetically poor.

I expect Seabridge to keep touting this goat range so da boyz can unload their free shares.

Well written and presented article however, even if it is promotional.

Mar 20 11:29 AM