Seabridge builds up fringe gold projects

Some gold companies become marginal plays, and others have that status thrust upon them; the unusual thing about Seabridge Resources (SEA-V) is that it was born a marginal play, and by design.

Founded by a group of former executives at defunct Greenstone Resources, Seabridge was conceived as a well-financed vehicle to acquire sub-economic gold projects in the expectation — or at least the hope — that gold prices would turn. That results should now be coming in from some of Seabridge’s projects just as gold seems to be rallying might be lucky, but it’s hard to begrudge a little luck for gold explorers after the past few years.

The most recent boost to Seabridge’s credibility would have to be a new resource at the Quartz Mountain project in Lake Cty., Ore. Quartz Mountain is a large, low-grade epithermal gold deposit, of the kind that was fashionable in the 1980s and disastrous during the hard times of the late 1990s. But like a collection of narrow neckties in the back of a closet, big and low-grade gold deposits wait for their time to return.

Seabridge acquired Quartz Mountain toward the end of 2001 from Vancouver-based Quartz Mountain Resources (YQZ-V). Quartz Mountain got US$100,000 in cash, 300,000 Seabridge shares and warrants to buy 200,000 more at 90. It also kept a 1% net smelter return (and a mineral marriage broker got a 0.5% royalty for his efforts).

Quartz Mountain, which had been optioned from Quartz Mountain successively by Pegasus Gold, Galactic Resources and Newmont Mining (NEM-N), was not short of resource estimates. There were 709 drill holes, and logs covering just shy of 80 km of reverse-circulation and core drilling. (The core itself, however, was gone — and Seabridge, responsibly, has not glossed over the inability to verify the analytical work.)

Seabridge’s first need, though, was for an updated one that would conform to National Instrument 43-101. The estimate, by Arizona-based Winters Dorsey, puts the measured resource at 3.5 million tonnes grading 1 gram gold per tonne; a further indicated resource at 54.3 million tonnes grading 0.9 gram; and an additional inferred resource of 44.8 million tonnes at 0.7 gram. The total — 102 million tonnes at 0.8 gram, at a cutoff grade of 0.34 gram — is not economic at current prices, but that’s not Seabridge’s raison d’etre. Having something in the storeroom that may be the answer to another company’s needs is the strategy.

Quartz Mountain, geologically, resembles many Nevada deposits; and no coincidence, because the Basin and Range terrane that dominates Nevada extends northward across the state boundary. This is not the Oregon of redwoods and drizzle.

The deposit itself is in rhyolite porphyry and surrounded by mainly mafic, flows and tuffs. The host rocks are veined and heavily silica-flooded, and the gold, associated with pyrite, marcasite and stibnite, is disseminated through more permeable country rocks. Where there are hydrothermal breccias or volcanic vents, stockwork-like or pipe-like mineralized zones can occur.

The first gold discoveries were in the 1890s, but it was not until the gold rush of the mid-1980s that serious work was performed on the property. Two feasibility studies were done, in 1988 and 1989, but there was never any development.

A similar acquisition for Seabridge was Hog Ranch, in Washoe Cty., Nev., from Platoro West. Like Quartz Mountain, this was a cash acquisition with a relatively small cash component (US$75,000, in this case) and the main payment in 500,000 shares. A bankable feasibility study for production at a minimum of 100,000 oz. per year, or an independent resource estimate of a minimum of 1 million oz., gets Platoro West a further 500,000 shares of Seabridge. Platoro also retains a net smelter return, from 3% at sub-US$300 gold to 5% at prices over US$500, and will get some of that royalty in advance after November 2004.

Hog Ranch, also a rhyolite-hosted epithermal gold deposit, had a lot of shallow, vertical reverse-circulation holes poked in it; but the geology suggested continuity downdip and the possibility that the “boiling level” of the hydrothermal solutions that deposited the gold was at depth. (Boiling of solutions is widely thought to cause gold to precipitate, and thus form high-grade zones at the depth where the solutions turned from liquid to steam.)

Drilling in April 2001 encountered higher-grade mineralization in five holes, generally at vertical depths in the 50- to 100-metre range. The structure, mainly 1-3 metres wide, carried gold mineralization grading 2.5-20 grams.

Two similar Seabridge projects in the western U.S. fit the same mold: Grassy Mountain, in Oregon, with 15.8 million tonnes grading 1.8 grams gold per tonne, and Castle-Black Rock, in the Walker Lane district of Nevada, with 12.4 million tonnes at a grade of 0.54 gram.

But it can’t be said that Seabridge has not been selective: it has walked away from at least one potential acquisition, that of the Borealis project, near Hawthorne, Nev.

The company announced in February it had agreed to a deal under which it would pay US$500,000 in cash and issue 250,000 shares to Golden Phoenix Minerals (gpxm-o), the owner of Borealis. The balance of the purchase would be in two promissory notes — US$250,000 due in one year and US$250,000 due in two years. Seabridge reserved the right to pay those notes in shares.

Borealis was a producing mine, operated by Tenneco Resources and then Echo Bay Mines (ECO-T) between 1981 and 1991; it produced about 635,000 oz.

Between 1991 and 1997, the project was investigated by Santa Fe Pacific Gold and by Newmont, which had taken over Santa Fe. Gold prices were low and the project never went into production again. By 1997, private company J.D. Welsh & Associates, and Golden Phoenix, held the property and Cambior (CBJ-T) had taken an option (which it would drop by the end of 1998).

Borealis is an epithermal gold deposit in andesite flows and fragmental rocks. The gold, in three zones, tends to be disseminated around northeast-striking faults. Over the years, the zones had been heavily drilled and Golden Phoenix re-evaluated the resource, coming up with measured-and-indicated figures of 17.4 million tonnes in the main Borealis zone, with an average grade of 2.1 grams gold and 8.6 grams silver per tonne; 10.5 million tonnes in the lower-grade Polaris zone, averaging 0.7 gram gold and 5.8 grams silver; and 2.3 million tonnes in the Orion Belt, grading 1 gram gold and 9.2 grams silver.

Low grades and large tonnages were precisely what Seabridge was looking for, and Golden Phoenix needed cash for other projects. But in a matter of days, Golden Phoenix notified Seabridge that the deal was off and that Seabridge would not be able to do a due-diligence investigation. It transpired that the underlying lease, still held by Welsh & Associates, required Golden Phoenix to get permission to assign the lease to Seabridge.

Seabridge did some technical due diligence, finding Borealis to have “merit,” but with property issues in doubt there was no deal.

So it is in the gold business these days: a lot more projects can succeed on their merits than could a year ago — as some gold bulls foretold.