TGR: Even though KSM is the world's largest undeveloped gold-copper project, Seabridge continues to explore aggressively. Why?
RF: Not because we are simply adding more of the same material we have already as reserves. Adding mine life at the same grade as our existing resource beyond our projected 55-year operating horizon would make no difference to our economic projections.
What our recent exploration has achieved is the addition of nearly 1 Bt at Deep Kerr and Lower Iron Cap containing over 11 Moz gold and 10 Blb copper at grades 50–100% higher than our existing reserves. This new material will allow us to modify the KSM mine plan by bringing forward higher-grade material, improving the economics and making KSM that much more attractive to a suitable partner.
TGR: How much working capital does Seabridge have and how much debt, if any?
RF: We have no debt. Seabridge is debt adverse. We recently announced a $14.6M non-brokered financing, which was taken up by two of our largest shareholders. That will increase our working capital to over $20M, enough to carry us well into 2017.
Many juniors worry about their ability to finance. Because we've stayed on message and on course with our shareholders over such a long period of time, we've always been able to raise money when needed to fund operations and exploration.
TGR: What are your plans for Courageous Lake? How far is that project from a feasibility study?
RF: We completed a prefeasibility on Courageous Lake in 2012 showing a robust project at higher gold prices. The gold price since then has fallen dramatically, so we recognized that KSM was the better project to advance first. That said, Courageous Lake holds 6.5 Moz P&P on only 2 kilometers within a 52-kilometer greenstone belt. There are known gold showings up and down its entirety, and there are two historic mines on the property that produced at better than one ounce per ton.
We will begin to advance Courageous Lake after it becomes clear that the gold market is again moving into a bull market.
TGR: You mentioned a potential joint venture (JV) partner to help with KSM's $5.3 billion capex. How is this search progressing?
RF: Slowly. We have been upfront about the fact that KSM is too large for Seabridge alone from both the technical and financial aspects, especially considering that since 2011, the market environment has not been kind to large projects, both on the precious metals and base metal sides.
KSM, however, has now received its environmental approvals and has added a significant higher-grade resource. These advances have strengthened our position considerably. About 10 of the world's largest gold and base metal miners are now conducting due diligence on KSM under confidentiality agreements. If we can achieve the objectives we seek in a JV, we'll do a deal. If that proves impossible in the current depressed environment, we will continue to derisk and await improved market conditions. We have no doubt, however, that KSM will be developed as the largest mining project ever built in Canada.
TGR: You already have an option agreement with Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX).
RF: Yes. Royal Gold invested $48M in Seabridge with the purchase of 2M shares at an average price of about $24 per share, a 15% premium to the then market price. We then invested that cash to advance KSM. Royal now holds an option to buy a 2% royalty on KSM's gold and silver, not its copper or molybdenum. To exercise that option, Royal would have to pay Seabridge $160M in cash.
TGR: Are you considering any streaming arrangements?
RF: Not at this time. Should we sign a JV with a gold miner, we could use the copper under an offtake agreement or perhaps even a stream to help fund a good portion of the upfront capex to build the mine. Under such an arrangement, Seabridge and its JV partner would keep the entire gold exposure. Alternatively, should we sign a JV with a base metals miner, it might be realistic for Seabridge's retained interest in KSM to be in the form of a stream on the gold produced there. That would allow us to put up no capital going forward and buy physical gold from KSM at a meaningful discount to the prevailing spot gold price.
TGR: At a time when so many gold juniors are hitting 52-week lows, Seabridge hit a 52-week high Oct. 28. How much growth remains in Seabridge shares?
RF: As someone who has more than 90% of his net worth tied up in Seabridge shares, I believe a great upside still exists. I also believe we will continue to see insider purchases. During the last two upcycles in gold, Seabridge common shares reached nearly $40, significantly outperforming most other gold equities.
