Seabridge falls flat on Courageous Lake’s PFS

Seabridge Gold‘s (SEA-T, SA-X) Courageous Lake project in Canada’s Far North is economic at current gold prices based on a prefeasibility study (PFS) released on July 24, however, the project’s prospects appear dim at the study’s base-case gold price.

At US$1,384 per oz. and the three-year trailing average gold price at July 3, 2012, the study indicates the project at a 5% discount has a pre-tax net present value (NPV) of US$303 million and a pre-tax internal rate of return (IRR) of 7.3%. Payback under this base case is expected in 11 years.

But when using a spot price of US$1,618 per oz., the pre-tax NPV at a 5% discount triples to US$1.1 billion and the pre-tax IRR increases to 12.5%, while payback drops to 7 years. 

The PFS, prepared by Tetra Tech Wardrop, sketches a similar mining scenario for Courageous Lake’s FAT deposit as seen in its updated preliminary economic assessment (PEA) last June.

But it’s important to note that the PFS is based on the project’s newly delineated reserves of 6.5 million oz. from 91 million tonnes grading 2.2 grams gold, while the PEA used measured, indicated and inferred resources, totalling 101.1 million tonnes at a similar grade.  

The PFS envisions Courageous Lake as a 17,500-tonne-per-day single pit operation, with an on-site plant processing an average of 6.1 million tonnes a year.

The mine is anticipated to produce an average of 385,000 oz. gold a year through its estimated 15 year-life. Total costs to produce a gold ounce are projected at US$1,123 per oz.

Getting the project up and running, which includes constructing the plant, is slated to cost US$1.52 billion. A US$187-million contingency is built into that price tag.

These costs are slightly higher in comparison to the 2011 PEA, which anticipated inital costs at US$1.26-billion, including a US$192-million contingency, for a mine producing 383,000 oz. gold a year over 16 years. Total costs per gold oz. came at US$850 per oz.  

Seabridge says it will continue to optimize the project and is currently drilling some “highly prospective” targets near the proposed operation, located 40 km northeast of Yellowknife in the Northwest Territories.

The Toronto-based junior is also examining opportunities suggested in the study to increase the project’s overall economics.

The PFS lists using a combination of diesel and wind generated power, would result in a projected power generation cost of US18.4¢ per kilowatt hour, which is almost 40% lower than power generation by diesel fuel alone.

The company says it is assessing nearby hydro-electric sources which could also provide a low-cost energy alternative and reduce the need for diesel fuel at site.

While the bulk of the supplies to Courageous Lake would be transported by winter road during a nearly three-month window, the company says it is looking at ways to increase road access to site.

The study notes the Tibbitt to Contwoyto winter road joint venture intends on increasing the use of the winter road by at least another month by building a proposed 150-km extension from the permanent road access at Tibbitt Lake to Lockhart camp. While this would lower operating and capital costs, Seabridge says an all-season road from Bathurst Inlet would provide “considerably more benefit” to the project’s economics.

During late afternoon trading in Toronto, Seabridge shares declined 6¢ to $14.05.