Seabridge stays hopeful at Courageous Lake

A new preliminary feasibility study (PFS) on Seabridge Gold’s (SEA-T, SA-X) Courageous Lake gold project in the Northwest Territories suggests the project is viable at current gold prices, and more work needs to be done to lift its prospects.

At a base-case gold price of US$1,384 per oz. and a 5% discount rate, the study estimates the project’s pre-tax net present value (NPV) at US$303 million and pre-tax internal rate of return (IRR) at 7.3%, with payback in 11 years.

But those projections improve at a higher gold price. Using a  price of US$1,618 per oz. gold, the pre-tax NPV at a 5% discount rate triples to US$1.1 billion and the pre-tax IRR jumps to 12.5%, while payback drops to seven years.

Compared to the project’s updated preliminary economic assessment (PEA) published last June, the PFS outlines a slightly less favourable scenario at Courageous Lake’s FAT deposit.

However, 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.  

Excluding inferred resources in preliminary feasibility studies tends to negatively impact most projects, Seabridge’s chairman and CEO Rudi Fronk comments in an interview.

“We were fortunate we were able to capture 6.5 oz. reserves within the newly defined pit. But within that pit there’s also a lot of inferred resources that if we had been able to include, would have probably made the numbers a little bit better than last year.”

The PFS, prepared by Tetra Tech Wardrop, envisions Courageous Lake as a 17,500-tonne-per-day single pit operation with an on-site processing plant averaging 6.1 million tonnes a year.
The proposed 15-year mine is anticipated to generate 385,000 oz. gold a year. Total costs to produce a gold ounce are projected at US$1,123.

The price tag to get the project up and running is US$1.52 billion, which includes a US$187-million contingency.

This start-up cost is somewhat higher than the 2011 PEA’s US$1.26-billion estimate to build a mine producing 383,000 oz. gold a year over 16 years, with total costs per oz. coming in at US$850 per oz.  

Fronk says the rising costs in the PFS reflect the upward trend for inputs such as steel, mining equipment and labour.

He maintains that while cost escalations are an industry-wide phenomenon, the company will continue shaping up Courageous Lake. To do so Seabridge plans to adopt an approach similar to its main KSM copper-gold project in B.C., which underwent three rounds of prefeasibility studies.  

“Clearly, we’re going to move ahead with [Courageous Lake]. We are sitting with one of the largest gold reserves in Canada that is economic at current gold prices. More work needs to be done, and like we did at the KSM project, we probably would have another prefeasibility study with hopefully some improved inputs for the next time around.”

To boost the project’s economic value, the junior is focusing on completing up to 20,000 metres of additional drilling by year-end.

The program anticipates infill drilling on the existing deposit to upgrade the 21.8 million tonnes of inferred resources to measured and indicated, as well as geotechnical drilling to reduce the strip ratio, and exploration drilling to look for new deposits along the 52 km long Matthews Lake greenstone belt.

Fronk says that if the company finds high-grade material nearby that could be recovered early on in the mine’s life, it would reduce costs.  

“So that is one thing we are going after this summer to increase the resources that can become reserves,” he says, “and possibly find higher-grade zones as well, which will obviously have a big impact on economics.”

The company believes the belt — which hosts the 2-km FAT deposit and two expired underground mines — contains a lot of opportunities, given it has seen little systematic exploration.

With drilling underway, the company is also pursuing alternative power sources for the project, located 240 km northeast of Yellowknife.

The winter road access to the project usually lasts for less than three months a year, which means all the diesel has to be hauled to site during that time. The study estimates fairly high diesel costs at US30¢ per kilowatt hour and suggests that a combination of diesel and wind-generated power could reduce the projected power generation cost by nearly 40%, to US18¢ per kilowatt hour.

With that in mind, Seabridge is assessing nearby hydroelectric sources such as the Snare River system, which could provide a low-cost energy alternative and reduce the need for diesel.

Since most supplies for Courageous Lake would be transported by winter road, any increase in road access would also benefit the project.

The study notes that the Tibbitt to Contwoyto winter road joint venture intends to extend the availability of the winter road by at least another month, by building a 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.

While the latter is a study that is going on internally within the Northwest Territories, Fronk says the company will support any initiative that will provide better road access, but maintains this is secondary to finding a cost-efficient power source.

“Nothing would drive the project better than having a cheaper source of power,” he comments.  
Along with tapping into low-priced power, converting resources to reserves and making another nearby discovery will brighten the project’s outlook, Fronk says, adding that a higher gold price would also be helpful.

The study shows that at last year’s gold-price high of US$1,925 per oz., the project yields at a 5% discount rate an NPV of US$2.1 billion and an IRR of 18.7%.

While Fronk believes the gold price still has a long way to go, he plans to focus on de-risking the project before partnering with a larger company that has the balance sheet and technical skills to take Courageous Lake through  the construction phase and ultimately into production.

“The positive here is that, at current prices, this is a viable gold project as it stands. Now we will work to optimize it and improve it as we go forward.”