Site Visit - Seabridge Gold’s KSM Project

Northern British Columbia ­– Seabridge Gold (NYSE: SA, TSX: SEA) is in the enviable position of owning 100% of KSM, the world's largest undeveloped copper-gold deposit. With majors, for now, shying away from big acquisitions and building major new mines, the company is also in the unenviable position of working to improve the attractiveness of the already-impressive project.

The KSM project is already huge, with some 38 million ounces gold in reserve and 10 billion lbs. copper, so increasing the size alone won’t cut it. And moving the deposit from its rugged mountainous position in northwestern British Columbia to reduce its $5.3-billion capex is also not an option, for obvious reasons.

So with deposit size and location-change out as options, the company is focusing on increasing the grades of the deposit by locating high-grade core zones beneath the porphyry zones. By doing so the company hopes to improve the economics, add reserve ounces and increase interest in the project. So far it looks to be working.

Since starting a deep-drill program last year Seabridge has announced a slew of intriguing drill results under Kerr, one of three porphyry deposits that form the sprawling Kerr-Sulphurets-Mitchell (KSM) gold-copper project, as well as good results from the nearby Iron Cap deposit that also forms part of the KSM project.

Last year's results from Kerr include drill hole K-12-20 that hit 452 metres grading 0.27 g/t gold and 0.45% copper starting at 560 metres downhole, and hole K-12-21 that returned 473 metres carrying 0.31 g/t gold and 0.9% copper.

The drill core showed alteration intensity increasing at depth, and the chalcopyrite-to-pyrite ratio also increasing at depth, which could mean the company is approaching the temperatures that would be associated with a high-grade core zone. At the time the company described the discovery as a potential "game-changer" if the results were indeed pointing to a high-grade core beneath the porphyry.

To test the theory Seabridge launched a $15-million, 5-rig drill program this summer, with 30,000 metres of core drilled. The company reports that an impressive 26 of 29 holes drilled this summer hit the high-grade zone, and all of the 15 holes assayed so far have intersected wide intervals of 0.5% copper, with 13 holes having major intercepts averaging more than 0.6% copper.

The latest results include hole 13-23C that hit 316 metres grading 0.45 g/t gold and 0.65% copper from 909 metres downhole, and hole 13-31 that returned 249 metres carrying 0.39 g/t gold and 0.77% copper from 422 metres depth. Results from earlier this year include hole 13-24C that hit 228 metres averaging 0.96 g/t gold and 0.72% copper, and hole 13-29 that hit 238 metres carrying 0.55 g/t gold and 0.89% copper.

The high copper grades are coming in at more than double the overall average copper grade at KSM of 0.21% copper in the 2.2 billion tonnes of reserves at the project.

The strike potential of the Deep Kerr core is now at least 1.6 km long, between 200 and 300 metres wide, and at least 700 vertical metres. The characteristics of the zone include a distinctive set of minerals including anhydrite, potassium feldspar and magnetite as alteration materials; abundant chalcopyrite and locally bornite with an observable decrease in pyrite; and an intense fine shattering of quartz veins filled with copper materials. The company has been concentrating on a 1,000-metre stretch of the zone to establish an initial resource, which could be out as early as later this year.

And it's not just at Deep Kerr that the company has made progress. The company drilled some deep holes at its Iron Cap deposit, which previous operators had dismissed as the expression of a shallow, small epithermal vein system. Seabridge has already established a reserve at Iron Cap, but punched through the reserve with hole IC-13-49. The hole returned 207 metres grading 1.22 g/t gold and 0.45% copper starting at 485 metres downhole, and therefore entirely below the established reserve. The company says the results point to the discovery of another high-grade core, and awaits further results from the area.

The company also stumbled on higher-grade epithermal-style mineralization at its Camp Zone late last year, which sits on the southwest corner of the Sulphurets deposit. Results there included 10 intercepts of more than 10 g/t gold. Seabridge says the results show chemical similarities to Pretium's high-grade Brucejack project that abuts Seabridge's property.

It's still early days for these new discoveries, and hard to say how they will improve the overall KSM project, but Seabridge is certainly living up to its goal of finding higher grades at its project.

The question is if it will be enough to change the economics of the KSM project. Last year's feasibility study on KSM showed some encouraging numbers, including a pre-tax net present value of $4.5 billion, a 55-year mine life producing an average of 508,000 oz. gold and 147 million lbs. copper, and a total cost per ounce of gold produced of US$598, well below the gold industry’s total costs average of $1,150.

The expense of the project doesn't make for the quick, big returns that interest many investors, with the internal rate of return coming at 11.5%. It is the long mine-life which the economics of this sized project rewards. After 6+ years of production, the payback of the investment would be made and KSM would produce for nearly 5- decades with substantial returns. Should higher grade material be available early in the mine life, the payback period could be reduced from current estimates.

There is still the potential for the cost escalations that have hobbled the industry globally. The KSM project requires a number of big-ticket items due to the project's remote location such as a $344-million tunnel, $217 million to link the mine to the new extension low-cost hydroelectric power line, $112 million for two access roads, and even $46 million for avalanche control in the high-mountain mine, helping bring the project to its $5.3-billion capex.

But while a company can only do so much about mine costs, Seabridge continues to de-risk the project on several fronts, including getting the mine approved through Canada’s Environmental Assessment process. The 2012 pre-feasibility study incorporated numerous modifications to reduce the environmental impact of the project. They include re-routing the main access road, lining part of the tailings dam, relocating the grinding facility, and perhaps most significantly, switching to underground 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.

So far the measures seem to be paying off. In September the Gitxsan First Nation expressed its support for Seabridge's KSM project in a submission to the B.C. Environmental Assessment Office, writing that they believe the project will bring economic benefits and that Seabridge is clearly committed to the community. In August, Seabridge reached an agreement in principle with the Nisga'a Nation on the key parts of a benefits agreement, paving the way for a future final agreement.

And in June the B.C. government accepted the company's environmental assessment application for review after the company spent five year preparing the 35,000-page report. With the screening period now over the next step is a 180-day environmental assessment, and then a 45-day Minister's decision review, which means Seabridge should have an answer by mid-2014.

Meanwhile, the company continues to advance Courageous Lake, its sizable secondary project in the Northwest Territories.

The project already has proven and probable reserves of 6.5 million oz. gold from a July 2012 pre-feasibility study, which planned out a mine producing 385,000 ounces gold at an average cost of US$780 per ounce for 15 years. But the project showed a 7.3% internal rate of return, and an 11.2-year payback, so the company is looking for ways to improve the metrics.

Seabridge is now concentrating on the Walsh Lake deposit, a new 2012 discovery some 10 km south of the FAT deposit on which the pre-feasibility study is based. Earlier this year metallurgical testing showed high recoveries of gold from conventional, direct ore cyanidation on the Walsh Lake ore, in contrast to the FAT ore which is refractory. That added costs, as well as serious permitting challenges, to developing the FAT deposit. But with direct cyanidation recovering between 93.8% and 95% of gold, and flotation isolating 88% to 95% of the gold, Walsh Lake is looking promising.

Drill results from the winter campaign at Walsh Lake included numerous short but fairly high-grade gold intercepts. Hole CL-252 hit 26 metres averaging 4.86 g/t gold, hole CL-248 cut 9 metres carrying 5.18 g/t gold, and hole CL-253 returned 4.7 metres carrying 10.41 g/t gold.

The company only discovered the zone, sitting some 10 km south of the FAT deposit, last year, but plans to have a resource estimate out on it by the end of 2013. Drilling has so far established a strike of 850 metres and remains open to the north, up dip, and at depth.

Seabridge is funding all this exploration and project advancement from two major financings last year, including a $24-million flow-through financing at $21.85 per share, and $17 million from Royal Gold exercising its option to buy just over a million shares at $17.92 each. As of September the company had about $20 million in the treasury, enough to at least finish this year’s program and to fund completing KSM’s Environmental Assessment next year as well as 2014’s corporate G&A.

Like most of the resource sector Seabridge Gold's share price has since suffered, and is now trading at a little under $10, though it did rally to more than $17 in August when the Deep Kerr results were first released.

Seabridge itself has acknowledged that finding a partner for its sizable projects will be more challenging in this present climate, but the company plans to keep doing what it's done successfully for the past decade: continue to improve one of the world's great projects while steadily moving it towards production and maintaining its focus on giving investors the most gold reserves exposure – nearly one ounce of gold reserve per share!

Among all of the gold stocks out there, Seabridge Gold leads its peers with its strong combination of people, property, and place along with its solid share structure and financial positioning. The management has held to its commitment over the years to put shareholders first, which has been demonstrated by their history of advancing these projects, adding value combined with their anti-dilution policy. This is an investor friendly gold stock which can now be bought for a fraction of its value. I see the current trading levels as an excellent accumulation opportunity.

- Peter Spina, President of GoldSeek.com

Seabridge Gold (NYSE: SA | TSX: SEA)

Peter Spina is President, CEO of GoldSeek.com & SilverSeek.com.

His experience with the precious metals markets started back in the mid-1990s, which led to the creation of GoldSeek.com in 1995. Today GoldSeek.com ranks within the top, most-visited gold investor websites in the world with a 300,000+ global monthly reader outreach. Its sister site, SilverSeek.com, is ranked as one of the most visited silver websites in the world recently reaching 100,000+ monthly silver investor readers.

With nearly 20 years of experience with investing into gold and silver mining companies, Peter devotes much of his time researching, consulting and investing into gold and silver stocks with a primary focus on micro-caps. His focus is also heavily on gold and silver’s return as monetary metals and the ongoing monetary and financial developments with a global perspective.

Back at the start of the new secular precious metals bull market, Peter established the technically+fundamentally-focused subscription newsletter which merged in 2005 into the The Gold & Silver Forecaster weekly newsletter (www.goldforecaster.com | www.silverforecaster.com).

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