Seabridge Gold, Inc. (NYSE:SA)
Singular Research Annual “Best of the Uncovereds” Conference Transcript
September 10, 2009 1:00 pm ET
Rudi Fronk -- President and CEO
Well, thank you. I definitely appreciate the opportunity of presenting here today. Thanks, Singular Research, for picking up coverage on our company. We’re a company with a market capital of about $1.1 billion, $1.2 billion. And we only have now our second research report on us. We’ve definitely been under-followed in the marketplace.
Typically, when I present at conferences, the audience is geared more towards the mining companies and understanding commodities and gold. So I thought I would do today, since this is a -- (inaudible) spend a few minutes of your time talking about the gold market, and why we are optimistic on gold prices going forward.
First and foremost, in our view, gold is not a commodity. Commodities are things like oil, natural gas, copper, lead, zinc, things that are produced and consumed where their prices are driven by annual supply and demand fundamentals. That’s not the case for gold. Every ounce of gold produced since the beginning of time is available as supply today. It has no industrial applications per se. If it had industrial applications, there’d be less of it around, and the price will probably be lower that it is today.
Above ground stockpiles of gold are about 5 billion ounces. At $1,000 an ounce for gold as roughly trading at today, that represents about $5 trillion of value. The supply of gold grows by about 1.5% a year. All of that coming from new mine production. The price of gold is completely inelastic. If you were to double the price of gold today, production would actually go down. And the reason for that is mines that are built today have fixed capacities. And if you’re a mining company and the price of gold goes higher, you want to produce -- you want to extend your reserve life. So you start mining lower grade material and still making good margin on that. And when you mine lower grade material, you’re going to produce less gold at the end as a result, meaning, less gold production.
In fact, if you look, since 2002 when the price of gold finally got to $300 an ounce again, has been on a steady move to $1,000 now, the supply of gold -- new gold production is going down by about 5% a year. The best and highest use of gold is actually storing at a vault as a stored value. I know it sounds weird. We dig gold up out of the ground, and then we put it back in a vault and store it underground somewhere. It has no real industrial applications. What gold competes against are financial assets, stocks, bonds, and currencies.
If you look at gold at the long haul, gold prices do well when people lose confidence in financial assets like stocks, bonds, and currencies. Gold doesn’t do well when those other asset classes are in favor. If you look at the long term trend of gold, say, relative to the Dow Jones industrial average, over the past 100 years, on average, it has taken seven ounces of gold to buy the Dow. Twice in the past 100 years, it’s gone 1:1. Most recently, in 1980 when the price of gold hit $850, an all-time high back then, and the Dow was at $850.
By 2000, that ratio, the gold price relative to Dow Jones Industrial Average, had gone to 45:1, unprecedented. And even with the drop in the Dow we’ve had since that high in 2000, and the increase in the price of gold we’ve had, at today’s ratio it’s still about 10:1. We haven’t even reverted to the mean yet, let alone overshot the mean back to endgame scenarios where the thing may reach at 1:1 or 2:1.
Back in 1980 when gold and the Dow crossed, the amount of gold in terms of value at that time, represented about 25% of all the financial assets in existence. Today, with about $140 trillion in financial assets, and about $5 trillion in gold above ground supplies, gold represents about less than 4% of the financial assets in existence.
We at Seabridge believe that the best is yet to come in the gold price. We believe that gold will trade at multiples of where it’s trading at today, meaning multi-thousand dollars.
Here's slide ten.
I haven’t moved them yet.
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And we believe that the two major drivers for gold price going forward will be, first and foremost, what’s going on here now in terms of monitoring inflation on a global scale. We have seen an unprecedented increase in the money supply through the stimulus packages that are being driven not only in the US, but in China, Europe, Canada, and elsewhere.
We’ve never seen monitoring inflation grow like this, which we believe will result in price inflation at some point. And we do not believe Central Bank’s promises that when that does happen, they’ll be able to pull the excess liquidity out of the market. And that will drive gold prices higher.
The other big factor that we think will affect gold prices to the positive going forward, is the amount of dollars, mostly in Treasury, that have been accumulated by central banks outside of the US, namely China and other places like them. China today, has over $1 trillion worth of US Treasuries. They’ve stated very clearly that they would like to diversify out of dollars at some point into hard assets. We believe that a lot of that, or a good portion of that diversification, will go into hard assets, including gold.
We are bullish on gold. And our business model that we started ten years ago was built on a Buddhist -- bullish gold price view. Now, we get on to the company. And then, hopefully at the end, we can have some time for questions.
As I said, we started Seabridge about ten years ago at a point in time when the price of gold was trading well below $300 an ounce. I will show you my forward-looking statements slide and let you read that with a magnifying glass later.
When we started Seabridge in October of 1999, we set in place four guiding principles that we have stayed true to since the beginning. First, remain fully exposed to the gold price, meaning no hedging. Back at that point in time, there were a lot of producers that hedged a lot of ounces forward, which brought ounces into the market sooner than they should have, which depressed the share -- the price of gold.
I think you can probably see those (inaudible) financial markets yesterday, the largest hedger in the universe, Bear Gold, decided to go out and dilute the shareholders by over 10% on a new equity issue, the largest equity issue ever done in Canada. They raised $4 billion in cash, in a (inaudible) financing with a number of investment dealers. And the sole purpose of that funding was to extinguish two-thirds of their hedge book. So hedging is no longer in vogue.
What we tried to do at Seabridge, looking for ways to try and maximize our shareholders leverage to the price of gold. We though that one simple concept to pursue was to try and provide more gold ownership per common share than any of the publicly traded gold companies.
We’re also unique in our space in that we will never, ever try to build a mine for our own account. I’ve learned the hard way that it’s very difficult to make the transition from exploration to production. I’m a mining engineer, trained at Columbia University. I’m supposed to be training to build mines.
I’ve learned that trying to make that transition from exploration to production that is wrought with peril, hazards, and risks. Something we’d rather not take onto our shareholders. Last, but not least, I’ve also built mines in places like Nicaragua and Honduras, where mines do get expropriated. That doesn’t happen in North America. So when we went out to build this asset base, we focused exclusively on assets in North America.
To show you how the business strategy has evolved over the past several years, in 1999 when we started the company, we were viewed as the garbage collectors of the industry. We actively went out and tried to buy, advanced-stage, gold deposits situated North America. They were not anywhere near economic.
This was an environment where gold was trading about $250 to $260 an ounce. We were trying to buy projects that would not be economic until the price of gold got to $400 or $500 or $600 an ounce. We had that positive view on gold.
And from 1999 to 2002, we had the world to ourselves. There was no one else doing what we were doing. We looked at about 300 different projects during that three-year period. We assembled a technical team both at the Board level and senior management level that had the ability to go out and evaluate these advanced stage projects. And we wound up buying nine deposits in North America.
We paid about $15 million to buy these deposits. Previous owners had spent over $300 million to define their resource and do engineering studies on us. So we got that for pennies on the dollar. And at that point in time, the projects we had acquired gave us just over 14 million ounces of known gold resources in the ground in North America.
One of the common elements we were looking for during this acquisition phase was to try and find projects that still had good exploration upside. Because we knew at some point in time, the price of gold would go higher. And at that point in time it would be difficult to try to continue to buy advanced-stage projects because there would be a lot more competition on our side of the table.
And lo and behold, that happened in 2002. The price of gold finally got back above $300 an ounce. And has been on a steady, upward trend since then.
So in 2002, we said, “Okay. Let’s now take these nine deposits we acquired and start spending our own dollars on them.” And from now, 2002 to the present, we’ve been able to grow our resources from those same nine deposits, from just over 15 million -- 14 million ounces that we acquired, to well over 60 million ounces, today. So, we had a lot of -- a lot of success in terms of the drill bit, in terms of expanding these deposits.
Along the way, we also found that most of the growth in those resources came from our two, big projects. And we are now concentrating our activities on those two, big projects that have definitely caught the attention of the major gold companies, to move them towards feasibility studies where we can then define reserves.
The smallest stuff in the portfolio we’re actually selling outright, which provides all the capital we need now to advance the big projects. I’m probably one of the few CEOs in the gold space that will look any shareholder in the eye and say that we will never have to do another equity issue. We have all the cash we need in the balance sheet today to complete our business plans.
Owning our shares is not for the faint of heart. Along with leverage comes volatility. Here’s a five-year graph that plots the Seabridge share price relative to the price of gold and relative to senior gold equities. As you can see, over the long haul we’ve done quite well. However, during some short periods of time, we’ve definitely not done well.
When sentiment goes out of the gold sector and markets deteriorate, stocks like Seabridge get hit pretty hard. When there is a bullish view on gold going forward, there’s nobody in the industry that outperforms us. I think one way to think about owning Seabridge shares is, “We are our own form of ETF, gold ETF on steroids.”
If you were to go out, the most common -- the most common ETF to buy today is an instrument called GLD that you can buy on the New York Stock Exchange. GLD is backed by physical gold in a vault that’s monitored by a big investment banking -- a big bank. You buy one share of GLD today, you’ll pay about $98 a share. And what you get, supposedly, is a tenth of an ounce of physical gold stored somewhere in a vault on your behalf.
What makes GLD go up? Only the price of gold. That’s it. There are no other ways to move the price. You buy one share of Seabridge today, each one of our shares is now backed by 1.6 ounces of gold in the ground. And I’ll be the first to admit there is a difference of gold in the ground versus gold in a vault. But the ratio there of 16 times the amount of gold, compared to paying $97 a share of GLD versus $30 a share of Seabridge, you can see the leverage we provide.
And more of the point, it’s not only the price of gold that makes Seabridge shares go higher. It’s your ability to continue to increase our gold ownership per common share, providing you more leverage to the gold price, and our ability to continue to upgrade resource classifications from lower ends of the spectrum to higher. And eventually, to reserves.
This is a graph that we’re quite proud of here. This actually shows how we have grown our resources over the past five or six years from the time where we completed our acquisitions, which gave us about 15 million ounces of gold. At that point in time we had about 28 million shares outstanding to where we are today.
Today, we have over 60 million ounces of gold in the ground. And our share growth has only grown from 28 million to 38 million on a fully diluted basis, meaning that our gold ownership per share has grown ten times faster than our shares outstanding. And if you do the math, with about 40 million shares outstanding, fully diluted, and over 60 million ounces of gold in the ground, each one of our shares is backed by about 1.6 ounces of gold in the ground.
And again, nobody in the industry comes close to that. If you look at the senior producers like Newmont, Barrett Gold Corp, Kinross, they probably are in the tenth of an ounce to maybe a quarter of an ounce per share. We provide a lot more gold ownership per common share than any other vehicle out there.
Now, we’ve also been fortunate that, when you look at our asset base, and the price of gold has obviously done well in the last few years, and as our asset base has grown over time from the 14 million ounces to the 60 million ounces, most of that growth came from two projects, our KSM project and our Courageous Lake property. And the smaller stuff in that portfolio that only represent maybe 4 million ounces of the total, have become far less important in terms of driving value in the marketplace.
So what we’ve decided to do is to start to sell our smaller, non-core assets as a way to fund the development of our two bigger assets, those assets, which have caught the attention of the senior gold companies. One example of this is an asset we bought in -- early on in our history. We were able to sell late last year to a joint venture between Newmont Mining and Fresnillo, where they paid us $25 million in cash.
We keep a net smelter return royalty on it. So every ounce of gold they produce in the future from this, we get 1.5% off the top line. And we also -- they also owe us another $5 million when they go into production. And it’s those proceeds that come in that allow us to continue to advance and grow our two big assets without the need of going back to the equity markets.
If you look at it in terms of the context of Seabridge versus some of the other big companies you’re maybe familiar with, you could see at 61 million ounces we’re up there with the big boys. But in terms of market cap, we’re not. Our market cap represents about just under $20 per resource ounce in the ground.
And you can see some of the valuations of the big guys. And we definitely would be a nice bite size for anyone of the major gold companies to come in and take our projects over and then build mines and put them into production. And we definitely have not priced ourselves out of the market.
Our two core assets are the two assets on the top of this map, the Kerr-Sulphurets which we now call the KSM project, and Courageous Lakes, which located in the Northwest Territories. KSM is located in northern British Columbia. We have recently already announced the sale of our Red Mountain property, also in British Columbia. We’re getting paid $7 million in cash plus a $5 million convertible debenture that will close in September.
We also have recently announced the sale of our advanced exploration properties in Nevada, none of which have any resources on them other than one small one of about 300,000 ounces. And we’re selling those for $3 million in cash, 5 million shares of the acquiring company, and the convertible debenture. That allows us to monetize some of these smaller assets, still keep upside through the participation in convertible debentures or straight equity, and allow us to concentrate on the two big ones.
The two remaining assets we have in the portfolio that we’ve deemed as non-core are Quartz Mountain and the Grassy Mountain, both situated in Oregon; combined, have about 3.7 million ounces of gold resources which we believe we’ll be able to sell for order of magnitude, $50 million in value as we go forward.
Our two big projects represent two of the largest undeveloped gold projects anywhere in the world. In fact, the KSM project is the largest undeveloped gold project in the world today. And we own 100% of it at 47 million ounces of gold. On top of that, there is over 11 billion pounds of copper, 100 million ounces of silver, and over 100 million pounds of molybdenum contained in those three deposits at KSM.
Courageous Lake is about 10 million ounces. It doesn’t sit on this graph here, but it is one of the ten largest undeveloped gold deposits in the world as well. So we have two big projects remaining in our portfolio, of which we both own 100%.
KSM is a project located in northern British Columbia. We did a deal on KSM in June of 2000 with Placer Dome, who was the owner at that time. They were one of the majors existing at that point in time. And so, Barrett took them out in a hostile bid many years ago.
We paid $200,000 to buy this project in June of 2000. It was at a time when gold was trading at about $250 to $260 an ounce, and copper was about $0.60 a pound. Placer Dome, for their activities at KSM, found two zones, the Kerr zone which is the K in KSM and the Sulphurets zone which is the S in KSM. And collectively, those two deposits had about 3.4 million ounces of gold and 2.7 billion pounds of copper.
And Placer Dome came to the conclusion that those two deposits needed at least a $400 gold price and a $1.25 copper price to have a chance of being a mine. They didn’t see that in the future and they hid our bid, and we were the only bidders on this project.
Since that time, we’ve had tremendous success on this. We actually did our first real activity on this project in 2006. We’ve discovered the Mitchell zone which is now the M in KSM. Mitchell is now the largest gold deposit ever found in Canada.
We’re pushing 40 million ounces alone at the Mitchell zone. We’ve also done engineering studies to demonstrate the economic viability of it. And we’ve started the permitting process as well so this mine can be put in production rather quickly.
When you have big projects like KSM, you need a number of things going for you from a logistical standpoint. These projects consume a lot of energy. So you need a source of nearby power, and hopefully, cheap power.
We’re fortunate that at KSM, BC Hydro provides a power line right too -- you see the Red Mountain property, and that junction just to the east of that, there is already existing power from BC Hydro, online, right to that junction point.
In BC, you can buy off the grid for less than $0.04 cents per kilowatt hour. If you were to build a diesel plant or a gas turbine plant, you’re probably looking at generating power at about $0.15 per kilowatt hour at today’s energy prices. So being able to buy off the grid from a closed-buy grid have a huge advantage for us at KSM.
The other big advantage is access to nearby roads, there’s already a road from the town of Stewart up to the Eskay Creek Mine, which is a mine that was just shut down by Barrick a few years ago, and just to the North of it. The town of Stewart and access to Stewart is important because Stewart provides year-round port facilities out to the Pacific Ocean. You can bring 45, 000-ton ships into the existing port there. That's a great way to bring supplies in and concentrate out eventually. So logistically, KSM is well-situated.
This is a view of the Mitchell Zone, it’s a zone that we've had our big discovery on. You could see that little water flow that’s spreading down the middle of the valley. That’s actually from a glacier that sits right behind us here that has been melting for the past 25 years. The reason that Placer Dome did not find this deposit is because this deposit was covered in ice. This deposit has -- this glacier has retreated by about 2.5 kilometers in the past 25 years, about a hundred meters per year. And it’s in this zone where we had our discovery.
In 2006, (inaudible), this is now looking down in plan at that zone. So you’re looking down from the sky, down to the valley floor here and this is just a trace of our first drill, it’s about 24 widely-spaced holes in 2006, which gave us an initial inferred resource. The lowest class of case you can have for a resource of about 13 million ounces of gold and just over 2 billion pounds of copper. It definitely led us -- we knew we were on to something, so we continued these activities in 2007. In 2006, Sterling did not find the limits of these deposits. Every hole we drilled was stocked in ore, and we’re still open to the North and the South.
In 2007, we drilled another 40-somewhat holes at Mitchell. We went deeper, and we extended the deposits to the North and the South. And the drilling in 2007 allowed us to increase the gold resources from 13 million ounces, all in the inferred category, to 29.6 million ounces, of which over 16 million ounces were then classified as vindicated and the balance of inferred.
It also gave us enough critical mass to start to look at what this could look like as a producing mine. We put together a team of independent consultants, all of which were pre-vetted for the major gold companies that have expressed interest in this asset. And we started (inaudible). We went to show that this could be a very profitable mine. We started the permitting process with the government level, both the provincial level and the federal level. And we’re now two-thirds of the way through the permitting process at KSM.
In 2008, we had additional drilling. We increased the resources by a further 12 million ounces at Mitchell. Mitchell now is about 40 million ounces of gold, and well over 8 billion pounds of copper. It’s grown in size. And just last month, we announced the results of the definitive engineering study, which starts to show what this could look like as a mine.
Capital costs for this project are estimated at about $3 billion to build. It would take about four years to build this mine construction. And in that case scenario, it could start in the spring of 2011. The mine will be accessed initially by continuing the road from the Eskay Creek Mine down into the Mitchell Valley, which would allow us to start mining the Mitchell Zone, the Sulphurets Zone, and then eventually the Kerr Zone. You now crush the ore and grind it in the Mitchell Valley. You’d put it through a tunnel that has to be built. Part of the capital is to build this tunnel that would take the ore by slurry pipeline to the mill. At the mill, you would make a gold and copper concentrate. You’d make a gold and silver dore, and you make a molybdenum concentrate.
One of the big issues in dealing with projects of this magnitude is finding enough area-- surface area for tailings management and waste rock management. And we’re fortunate that the ground we control provides enough storage in this one area, called the tailings management facility, a little zone you (inaudible), the yellow (inaudible) there, which can hold over 2 billion pounds of tailings, and has enough ample room around the existing deposits to store the waste that will be encounter with the open pit mine.
We’re looking at a number of different production scenarios here. We have started the process on permitting on a 30-year mine plan, which means that the mine would produce gold, copper, silver, and moly for 30 years. The results have been able to demonstrate a 45-year mine plan. The total production under the 30-year plan would result in over 19 million ounces of gold recovered, over 5 billion pounds of copper, over 60 million ounces of silver, and about 60 million pounds of molybdenum. And if you look at the average annual production in terms of gold, it will be one of the largest gold mines in the world.
In terms of economic projections, I think what’s striking about this project is how cheap you could produce gold for. When you have base metal in a project like this, the way that mining companies account from the base metal production, the copper, the silver, and the molybdenum, is by taking them as a credit against operating costs. Therefore, the revenues from copper, silver, and molybdenum reduce your operating costs.
We ran three different cases under the 30-year scenario. The first case is what the SEC requires you to do, which is to take through your metal price averages. And in the case of gold, it was about 78 crowns, copper about $3, silver and molybdenum. And because you produce enough base metals, you are getting the gold out for free. You are actually being paid $11 an ounce to produce the gold because there are enough base metals produced there to cover your operating costs.
We also ran an alternate case, which we consider a very conservative case using $800 gold. I'll point out that gold is today trading at I think $997 last I looked, copper at $2. Today, copper’s trading about $2.90 a pound. And even on that basis, the life of mine cash operating cost, $2.43 per ounce. Total costs, including all the $3 billion loans of capital, sustaining capital beyond that, and enclosure costs of less that $500 an ounce. So it’s a decent margin even with an all-in cost basis.
And then we ran a case, which we call back then the recent spot metal price case, which is using $9.50 gold, $2.50 copper, (inaudible) for silver and moly. The total life of mine cash costs of about $114 an ounce. Now remember these numbers because it's important when you look at these numbers in context of the senior gold producers today. The industry average on cash operating costs today by the nine largest gold producers on the planet is about $4.40 an ounce. Our cash costs on our conservative base case is estimated at $2.43 an ounce, on a spot case about $100 an ounce. This project will be accretive to any one of these majors stepping up to take this project over and put it in production because they want to reduce their overall cash costs of the company, and add 30 years plus of mine life and a lot of production and a lot of reserves to their mix.
So what we’re doing to get this asset dressed up so we can do a transaction with a major is to simply take this project to the point of pre-seize ability, where we will then successfully have converted gold resources to gold reserves. Reserves in the marketplace mean that you’ve done an engineering study that support, that you can show economic viability of the project as well as you’ve started the permitting process to show that it’s not going to gain any fatal loss in the permitting side.
Reserves in the marketplace command much higher valuations than resources. You saw our valuation as a company from an earlier slide. We were trading at just under $20 per resource ounce. Reserves were probably a minimum of $75 an ounce as reserves, and higher, and as those valuations that we’re looking to achieve when the transaction is done with the company. We will have that (inaudible) seasonability completed in the first quarter of 2010. And then it’s a very interesting time for the company to decide what we do with this asset next -- just quite get about as far as we intend to take this asset.
The other large project we have in the portfolio is Courageous Lake. We got lucky on this one as well. We bought this from Newmont and Total Energy from France just before the gold market started to take off. At that time, known gold resources at Courageous Lake was about 5.7 million ounces, almost all in inferred category. We paid $5.5 million cash to buy this asset from the two companies. We also immediately then put together a large land position there and tied up an entire greenstone belt. Greenstone belts are the preferred geologic terrain to find the gold deposits. And we started drilling on the known deposit at the Courageous Lake property. And by 2006, we’d increased the resources form 5.7 million ounces to 10.2 million ounces, and also upgraded a good portion of those resources to the measured and indicated category.
Our deposits has now host 10.2 million ounces. There’s pit tunnels in two kilometers of the 53-long kilometer greenstone belt that we control the entire thing. And there’s known gold shown -- up and down the entire greenstone belt.
In 2008, we did an engineering study to start to look at what could this look like as a mine. At that point in time, we used the average spot gold price for 2007, which was $6.90 per ounce. Came up with a 12-year mine life, not a 30-year mine life, but a 12-year mine life, producing just over half a million ounces of gold per year. Had cash operating costs of $4.35 an ounce, pretty much in line with what the majors are making gold for today. Upfront capital of $848 million. And if you’d wrap all that together, the project only generated a pre-tax net cash flow of about $0.5 billion.
Nobody in their right mind is going to invest $848 million to get that kind of a potential return with all the risks associated with the mining project. However, when you start to look at Courageous Lake in the context of today’s gold market, you can see the leverage that this project provides with the gold price. At today’s gold price of $1,000 an ounce, the base case net cash flow jumps from a $0.5 billion to $2.2 billion. The pre-tax NPV at a 5% discounted rate jumps from $175 million to almost $1.5 billion. And the internal rate-in-return jumps from 9% to 36%. So on today’s gold price, this project was very different than it is a year and a half ago.
Our plan is to continue to move KSM to the previous ability, and then this is in one what we will go back to next, and look to advance this project to the point of previous ability to reserves as well.
On a corporate basis, we have a very, very tight fair chair structure. Our biggest shareholder is a gentleman by the name of Albert Freidberg. Mr. Friedberg owns a little over 20% of our company. Mr. Friedberg is not that well-known here in the state, but in Canada he’s an investing legend. He deals most towards currencies and commodities, made a very bullish call on gold in 2001, and came into our stock at that point in time and continuing to add to his position. Our second largest shareholder is the Royce Fund here in New York. They own about 12% or 13% of the stock. They only started buying the stock earlier this year. And then management of the company owns another 15% of the stock. We’re still on the play of (inaudible).
So when you actually add those three groups together, you’re through 50% of the stock already. And then on top of that, other institutions on -- probably collectively about 25% of the stock. So with under $40 million shares outstanding and 50% of stock in very tight hands, our fluid is not very large.
With that said, however, our liquidity is not bad. On the New York AmEx, we trade similar to 200,000 to 300,000 shares a day. So we’re trading about $6 million to $10 million worth of stocks a day in New York. We traded about a tenth of that volume in Canada, not a lot of liquidity in Canada. The trade options on the New York, you can actually get options down several years at much higher prices. At one time, they were offering $90 calls on it, which I didn’t understand, they did.
We have a strong balance sheet. We don’t take on debt. We have more than $25 million in cash. That’s going to be supplemented by the sales of those two other assets we talked about, Red Mountain and the Nevada properties, and we'll never need to go back to the equity markets.
With that said, that’s the Seabridge story, and I’d be happy to take any questions.
Yes, the interesting thing, if you look at the gold market today, there’s definitely a number of dominant players, like Newmont, Barrick, Goldcorp, Kinross; the South African producers like Anglo and Goldfield; and, the Australian producer, New Crest. And those will be the top seven. They’re not really competitors because we do not compete with them, we don’t want to build mines. We want to sell our assets to them or let them come and take over the company.
In the smaller space, you have mid-tier producers like Yamana and Agnico-Eagle, and even smaller companies than that. If you ask me what’s the biggest risk in owning Seabridge shares today, it's that the universe of potential buyers or acquirers of this company is quite small because it’s only the majors that can build the mine that's going to cost $3 billion. So that’s, in my view, is a big risk.
With that said, the biggest challenge that faces the majors today is they’re not -- they're not generating any new ounces on their own. The only way that they keep the dream alive and continue to be a big gold producer is to go out and buy companies that have big projects. And we’re fortunate that if you look at the universe of today, I can probably count on one hand the number of companies that have a project of enough critical mass to attract the majors. We’re in a good position.
I was fortunate several years ago, Albert Freidberg, another company that he invested in heavily, it was a company called Arizona Star, that owned it, 51% interest in the project in Shelley [ph] called the Solly [ph] Project. It was a project that needed the involvement of a big company. He brought me in as the director of the company. I was named the Chair of the Special Committee. (inaudible), he’d come in for the company at some point, which Mr. Friedberg, with 36%, who controlled the company was able to turn down. And then we went on a sales process, and eventually sold the company to Barrett Gold for $18 cash per share. This is at a starting point where Mr. Friedberg came in at $0.90 a share. He did very well. He owned almost 14 million shares of the company.
And you know, I had a firsthand -- first row seat in terms on how the big companies evaluate these types of opportunities. And when I looked at KSM and compared it to what we had at Zurich and Bali, I like the hand we have right now. There really isn’t any competition from our perspective, other than maybe some other companies that may have attractive projects that the majors may decide to go after first.
Yes. Cohen is a specialist on the floor. They trade it. But a lot of the trades now come in for the electronics system. Not through the market maker anymore.
What we’re looking at here is, as we advance the project, essentially what we’re trying to do is reduce the risk profiles to the major that will build these mines. The lower we can reduce the risk, the more they’re going to pay for the asset. Getting more land around the existing asset was important in terms of giving us elbow room for further expansions of mining facilities, perhaps more discoveries.
So we went out and found the opportunity where we can double the land size. We bought about 22,000 acres on this transaction, and we paid about $3 million, a combination of 75,000 shares and a $1 million in cash which allowed us to more than double our land position on an asset that going to cost $3 billion to build. And it’s generating today a market capital of over $1 billion.
For us, it was a no-brainer. And it does give us a lot more flexibility in operations going forward. That’s why we did it.
Yes. Most of the work is now completed. To go from the preliminary assessment, which we just announced last month, to pre-feasibility, we needed to do some more in-fill drilling. In the 30-year pit, there still was about 277 million tons of inferred resources out a total ore tonnage of about 1.3 billion tons. We need to go in and do more drilling on those inferred tons to convert them to a higher resource category.
Inferred tons cannot become reserves, measured and indicated (inaudible). So we’ve now gone in and done this year a 14,000 meter drilling program, of which about 8,000 meters was devoted to convert those resources to measured and indicated. We also did geo-technical drilling that’s needed for infrastructure placing of buildings and waste dumps and such, pit stilt slope abilities. And we also continued the environmental process to continue to move the project towards permitting.
So the work between now and March of 2010, most of those dollars have been spent now. We probably have another $3 million or $4 million to spend to complete the pre-feasibility on that. And that’s more just really honing in, just a little more engineering work. All the physical work on the ground has now being completed.
That will all be done by March of 2010. We will be at pre-feasibility to reserves by March of 2010. And that’s really an important day for us because that’s -- having large resources is one thing. Having reserves is somewhat entirely different. There weren’t a lot more.
Yes. It will be at that point in time. That study defines reserves. So at that point in time, we can announce the reserves. And the large mining companies are more apt to step up and pay top dollar for reserves than they are for resources. If they can stand up to their own shareholder base and say, “Look, we’re buying reserves.” A great example, let’s take Newmont, just because the math is easy on them. Not because they’re any front runner.
They have 92 million ounces of reserves today. 92 million ounces. They have about half a billion shares, outstanding, call it. If they were to give us a one-for-one exchange ratio, which would be about a 40% of premium to our stocks today, which is pretty typical in the gold market on takeovers, they’d be issuing about 8% dilution of their shares and they’d be increasing their reserves by over 25%. Definitely something that they can stand up and support to the shareholder base.
I should also point out that our preferred transaction with the majors, since we are bullish on gold and tend to be so over the next several years, I don’t want a cash out of my Seabridge cash. I want to transfer my shares of Seabridge into shares of a major gold company, where I can continue to ride the gold market through ownership of their shares, and also the benefit of having KSM and Courageous Lake as part of their portfolio. I could do that on a tax-free rollover to North American shareholders. Enough liquidity in any one of the majors that if you want to take out cash, you can sell the shares of the shareholder if it gives you that tax-free rollover and continued exposure to gold.
And if you did that same exercise with anyone of the majors, whether it be Gold Corp, Barrett, Kinross, Newcrest, whoever, you’ll see that it would be accretive to any single one of these companies to issue shares to buy as just to increase their reserves. Let alone what it does for their operating costs. So the operating costs, as you can see at KSM, are far lower than what they have today as costs.
Are there any impediments to this March target? I mean, I’m just stuck from last deals. Have you guys thought about aboriginal rights or I don’t know if it’s time to (inaudible), or is there something like that? Have you ran across this before investing in other companies? It just throws everything out of kilter and...
I mean, there’s no question that the...
Can you repeat the question?
The question was, “What can come out of left field, like aboriginal rights, spotted owls, or things like that?” There are always risks in advancing a project to production. Okay? The larger companies are far better equipped to deal with those risks than we are. That’s why we only take it so far.
One of the big things you need to demonstrate to a major gold company is that you can permit this mine and get it done. To that end, we actually started that process almost two years ago. We filed the project description document with the Federal regulators, as well as the provincial regulators which started the permitting process.
And in the last two years we’re now doing baseline data collection. We probably spent about $10 million on permitting over the past two years to do that work. In British Columbia you do have native rights that have to be recognized.
In the case of our project, we actually have four different native groups that we have had constant dialogue with. It’s the Tl'azt'en [ph]. It’s the Nisga’a, the Gitksan, and the Gitnao [ph], and to a lesser extent, the Skikamaha [ph]. And we have ongoing relations with them. They work at our camp in the summer. They provide the catering services, the core cutters, driller’s helpers.
What they native groups want to see on a project like this are job opportunities and economic benefits that will flow through to them. There's no requirement by the mining company to have any revenue sharing with the native groups. That is supposed to come from the British Columbia government through the tax base they collect on those assets. So it is important to actually start the dialogue soon enough, which we did, and have a successful dialogue going through the permitting process and engineering process. Right now, I can’t see of anything that’s going to be a red flag, that’s going to be a showstopper here. As a matter of fact, the feedback we’re getting is quite positive on our project in terms of jobs it will create.
You have to recognize that Canada is very different than the United States. I can speak of both sides here because I’m a dual-citizen, so -- having lived in both jurisdictions for many, many years. Canada definitely likes mining. Mining and the extractive industries in Canada is a huge part of the Canadian economy. It’s a big part of jobs creation. Canada has one-tenth the population of the United States. It graduates ten times more mining engineers in a year than the United States does.
They want to see the jobs grow. They want to see these projects built because it’s good for the Canadian economy. You don’t have the environmental groups that will come out of the woodwork say in the United States or the jurisdiction to challenge a project. You have the local populations with the natives that are definitely supportive of this, as long as they see economic benefits that flow through to them. And from a provincial and a federal basis, they want these mines permitted.
A good example, there’s a project just to the north of us that started their permitting process several years back and actually received their full operating permits within 30 months of starting the process. We’re forecasting 36 months. And we think all logistical issues at KSM are a lot less severe than what they had on their 30-month process. So it’s something we recognize. It’s something we work hard on. It’s something we spend a lot of dollars on because, again, that’s another way to reduce the risk (inaudible) to the major.
Are we running out of time here?
We’re getting close to it.
I may be around for a couple of more hours. So if you have anymore questions?
That’s good. Stay here for another second. I’m going to go ahead and open the lines to any -- any questions from (inaudible)? Lines are open. If you’d like to ask a question, we’ll pause for just a moment. All right.
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