[Update]Seabridge stays hopeful at Courageous Lake

A recent prefeasibility study (PFS) on Seabridge Gold‘s (SEA-T, SA-X) Courageous Lake project in Canada’s far north suggests the project is viable at current gold prices, but notes more work can be done to lift prospects.

At a base-case gold price of US$1,384 per oz. and 5% discount, the late July 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 slated at 11 years.

But those projections improve at a higher gold price. 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 jumps to 12.5%, while payback drops to 7 years.

hhCompared 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.

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 exclusion of inferred resources in prefeasibility studies tend to have a negative impact on most projects, Seabridge’s chairman and CEO Rudi Fronk comments in an interview.

“We were fortunate we were able to still capture 6.5 million ounces of reserves within the newly defined pit. But within that pit there’s also a lot of inferred resource now that if we had been able to include, the numbers would have been probably even 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 process plant averaging 6.1 million tonnes a year.

The proposed 15-year mine is anticipated to generate roughly 385,000 oz. gold a year. Total costs to produce a gold ounce are projected at US$1,123 per oz.

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 ounce 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 while cost escalations are an industry-wide phenomenon, the company will continue to shape up Courageous Lake. To do so Seabridge plans to adopt a similar approach as it employed at its main KSM gold-copper project in British Columbia, 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 now 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 18,000 to 20,000 metres of additional drilling by year end.

That program will include 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 if the company is able to find high-grade material nearby that could be recovered early on in the mine’s life, it would significantly reduce costs. 

“So that is one thing we are going after this summer to increase the resources that can become reserves 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 previously seen little systematic exploration.

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

The winter road access to the project 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 using a combination of diesel and wind generated power, would reduce the projected power generation cost by nearly 40% to US18.4¢ 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 the bulk of the supplies to Courageous Lake would be transported via the winter road, any increase in road access will also have a positive impact on the project.

The study notes the Tibbitt to Contwoyto winter road joint venture intends on lengthening the seasonal use 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. However, he maintains that it 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 a low-priced power source, converting resources to reserves and making another nearby discovery will brighten the project’s outlook, Fronk says, adding a higher gold price will also be helpful.

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

While Fronk says he believes the price of gold 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 to construction, and ultimately into production.

“The positive here is 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.”