November 2008

Winning the waiting game

An exploration firm’s long-term outlook pays off

By D. Zlotnikov

The camp at the Courageous Lake property

What do you do when you’re sitting on a pile of gold? The answer, as far as Seabridge Gold is concerned, depends entirely on when the question is asked.

Formed in 1999, Seabridge entered the gold exploration market when most people were seeking to exit it. With gold trading below $325 an ounce, projects were routinely falling off the edge of the balance sheet. But the Seabridge founders all came from a mining background and were familiar with the cyclical nature of the markets. They entered the game with the intention of buying and holding promising properties, until renewed interest in gold made developing the assets worthwhile once more.

In a four-year span, the company acquired nine properties in Canada and the US. All of these, explained Seabridge’s senior vice president Bill Threlkeld, were chosen with three specific criteria in mind. “We were looking for assets that had some delineated resources on them, low long-term holding costs, as well as an exploration upside,” Threlkeld said. “Part of the strategy was to take acquisitions that had minimal holding costs, not knowing when the market would turn.”

These costs averaged out to a mere US$0.08 per ounce per year, allowing Seabridge to take its time in further exploring the assets. But first Seabridge had to find a way to conduct the exploration while remaining true to one of its guiding principles — minimizing equity dilution. Threlkeld explained that Seabridge has developed its own metric for tracking its success, that of gold ownership per share.

Rather than go to the stock market, the company optioned its Kerr-Sulphurets property to Noranda in September 2002, offering as much as a 65 per cent stake in the property for a $6 million exploration investment. The investment paid off; by 2005, Noranda (by then, Falconbridge) located four new gold-copper targets. But when Falconbridge was bought by Xstrata the following year, Threlkeld said that the project did not fit Xstrata’s profile and Seabridge reacquired its 100 per cent stake in exchange for equity warrants.

The following year, the Mitchell deposit was discovered. The idea that there was potential in the Mitchell zones was not new, but no one had ever found significant amounts of gold there. Threlkeld said that Seabridge’s advantage lay in the efforts of one individual — Mike Savell, the project’s senior geologist. He was the one who put together the original exploration agreement with Noranda, and when Xstrata purchased Falconbridge he came to work for Seabridge. “He saw the potential at Mitchell,” explained Threlkeld. “This has been bandied about for a good 20 years, but he’s the one who designed a program that allowed us to actually measure that potential, and it exceeded our expectations. In my mind, he gets full credit for discovery of the deposit.”

Mitchell’s results far outshone all of the other Seabridge properties and propelled the triple-deposit Kerr-Sulphurets-Mitchell (KSM) project to the top five undeveloped gold projects in the world, and by far the largest one in Canada. With delineation activities still ongoing, Threlkeld said that KSM resources already stand at 34 million ounces.

Similarly promising results, though not on quite as massive a scale, have come from the company’s Courageous Lake property. A January 2007 press release announced a grand total of 10.2 million ounces of resource. The Courageous Lake exploration lease, Threlkeld added, covers the majority of a Greenstone belt by the same name. Greenstone formations have frequently been associated with gold deposits, and there are two historic gold mines within this particular belt, so it is felt that there is definite potential for further discoveries.

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