Seabridge proves permits still attainable for big BC mines

VANCOUVER — It’s shaping up to be a big year for Seabridge Gold (TSX: SEA; NYSE: SA) at its large-scale Kerr-Sulphurets-Mitchell (KSM) gold-copper project, 65 km northwest of Stewart, B.C. In late December the company received a positive environmental assessment (EA) decision from the federal government, which sets the stage for a potential partnership that could provide the foundation for mine development.

KSM underwent a joint-harmonized, federal-provincial environmental assessment review as outlined by the B.C. Environmental Assessment Act (BCEAA) and the Canadian Environmental Assessment Act (CEAA). The process began in March 2008 with the initiation of the provincial review, while the federal review started in July 2009. The provincial process concluded in July 2014 with the receipt of the B.C. environmental assessment certificate.

“When you’re dealing with that sort of approval period the perception of mining certainly changes,” vice-president of environmental affairs Brent Murphy notes during an interview. “There has been both the good and the bad, but what we’ve seen as the process has evolved is additional requirements, which I think are good things.

“On the social side you’re seeing much more involvement from all the stakeholders, and there is a real desire out there to be involved, participate and have your opinion heard. It’s really evident just how important social license has become.”

It’s been  a long road for Seabridge, as KSM actually achieved approval under the now-antiquated harmonized review process. The old system was replaced in 2012 by the Harper government’s “one project, one review” initiative, which recognizes provincial processes as substitutes or equivalents to federal ones as long as they meet the requirements under the CEAA.

And Seabridge’s success should be welcomed by a mining industry that has often been stymied by government review processes in recent years in light of rising First Nations empowerment and heightened environmental vigilance. Murphy describes the review as “time-consuming and expensive,” but adds he believes it remains “balanced.”

The company has paid extra attention to First Nation issues in regards to KSM, which sits on the traditional lands of five First Nation groups. The two primary bands are the Nisga’a — with which the B.C. government has a treaty — and the non-treaty Tahltan. Murphy says Seabridge always strived to have a presence in the area around the project, and established a project office in the region back in 2009.

The company also made project alterations to address First Nation concerns, including the addition of lining in the centre cell of KSM’s tailing management facility, which is not something that’s required federally or provincially. Murphy explains that the changes to deal with stakeholder issues likely tacked on $500 million to KSM’s eventual capital development costs.

In mid-June Seabridge struck a benefits agreement at KSM with the Nisga’a Nation to “establish a long-term co-operative relationship.” Mitchell Stevens, President of Nisga’a, noted after the agreement that the company had an “open and direct approach,” and “began consulting with us very early on in the development of the [project design].” Murphy says a similar agreement with the Tahltan is being negotiated.

“One of the key advantages we had was that we started talking to First Nations in advance of any regulatory discussions with any government agency. We were in there and listening, and based on the feedback we developed our project design to address those concerns,” Murphy says.

“What we’ve also done is to continue that involvement throughout the process. The other thing we brought forward was that we had a real willingness to listen to concerns and change our project design even when it added to our development costs.”

And even as the environmental process proceeded, Seabridge continued to grow KSM’s resource footprint. Six years of exploration work created a comprehensive assessment of project geology on a district scale, leading to expanded drill programs in 2012 and 2013, and a search for higher-grade core zones beneath the known Kerr and Sulphurets deposits.

In February 2014 the company reported a large copper-gold resource at Deep Kerr, and in September it confirmed a major new gold-copper occurrence beneath Iron Cap, one of the KSM’s four porphyry deposits.

At press time KSM’s global measured and indicated resources — which include the Sulphurets, Kerr, Mitchell, and Iron Cap zones — total 2.5 billion tonnes grading 0.55 gram gold per tonne, 3.1 grams silver per tonne and 0.2% copper. Inferred resources tack on 1.1 billion tonnes of 0.41 gram gold, 2.8 grams silver and 0.2% copper.

Deep Kerr’s maiden resource adds 514 million tonnes of 0.5% copper, 0.36 gram gold and 1.8 grams silver.

In late November Seabridge announced that its 2014 drill program added 400 metres of strike and 300 metres of depth at Deep Kerr. The company drilled a total of 12,900 metres and says results support a “substantial increase in inferred resources.”

Highlights from the program include: 737 metres of 0.6% copper, 0.36 gram gold and 1.1 grams silver from 871 metres deep in hole 14-34A; 357 metres of 0.6% copper, 0.5 gram gold and 1.9 grams silver from 900 metres deep in hole 14-28C; and 252 metres of 0.7% copper, 0.55 gram gold and 1.4 grams silver from 945 metres deep in hole 14-39.

“From the point of view of copper porphyry systems it’s an average size mine, and the capital costs are within a reasonable range. Our next major milestone is our partnership,” Murphy comments. “We said we would advance and de-risk the project, and our stated business objective has always been to secure a joint-venture agreement. So that’s where we are at currently and, depending on market condition, we’re hoping to have a deal in place sometime this year. It’s dependant on a lot of variables, but we are in discussions with the major mining companies.”

Seabridge’s mining strategy at KSM hasn’t materially changed since a prefeasibility study update in May 2012. The study is based on proven and probable reserves that total 2.1 billion tonnes of 0.55 gram gold, 0.2% copper and 2.74 grams silver.

KSM’s mine life is estimated at 55 years. At Mitchell, open-pit production is scheduled from inception through year 23, to be followed by underground block-caving operations from years 26 through 55.

Open-pit production from Sulphurets will augment Mitchell’s open-pit production from start-up through year six, and then from years 23 through 27. Open pit production from Kerr is scheduled from years 27 through 50. Finally, underground block-caving production will come from Iron Cap during years 32 through year 51.

The mine is estimated to have start-up costs of US$5.3 billion, and produce an average of 147 million lb. copper, 508,000 oz. gold, 2.2 million oz. silver and 1.1 million lb. molybdenum per year. Seabridge’s model features a US$4.5-billion pre-tax net present value at a 5% discount rate, along with an 11.5% internal rate of return. Metal price assumptions include US$1,330 per oz. gold, US$3.45 per lb. copper, US$25.20 per oz. silver and US$15 per lb. moly.

“We don’t want to go quiet this year. You’ll see a continuation of our important baseline programs, and we’ll continue to engage the stakeholders. We’ll definitely be act
ive in Alaska since there’s been some concerns on some trans-boundary impacts,” Murphy says. 

“B.C. remains an attractive place for investment. The fact KSM exists as a large-tonnage porphyry system that’s becoming more known, demonstrates that B.C. can host more of these world-class deposits.”

Seabridge shares have traded within a 52-week window of $6.74 to $12.72, and closed at $11 at press time. 

The company had US$17 million in working capital at the end of the third quarter, and has 48.4 million shares outstanding for a $518.4-million market capitalization.