Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Seabridge Gold (TSX: SEA, NYSE: SA) has filed an NI-43-101 technical report for its KSM project in northern British Columbia, confirming the potential for a “dramatic improvement” in project economics by incorporating the recently expanded, higher-grade Iron Cap deposit into mine plans as previously highlighted in its preliminary economic assessment (PEA).
The technical report outlines a 44-year mine production plan recovering 19.6 million ounces of gold and 5.4 billion pounds of copper from the measured and indicated categories, plus an additional 20.8 million ounces of gold and 13.8 billion pounds of copper from the inferred category.
The latest PEA outlines a 44-year mine, producing 1.3 moz gold and 265 mlb copper annually in the first five years of operation
Life of mine recovered production would reach 27.6 million ounces of gold and 17 billion pounds of copper, with an average operating cost of $472 per ounce gold produced, net of copper and silver byproduct revenues.
Initial capital cost for the KSM project is estimated at $5.2 billion, with a four-year payback period owing to average annual pre-tax free cash flow of $1.45 billion from 1.3 million ounces of gold and 265 million pounds copper produced per year during the initial five years of production. The after-tax NPV estimate for this project stands at $6 billion.
Chairman and CEO Rudi Fronk noted that the most recent PEA was undertaken to assess an alternate approach to developing KSM by incorporating a much larger Iron Cap block cave mine earlier into the production schedule.
“The benefits of incorporating Iron Cap into mine plans at an early stage have exceeded the upper end of our expectations, not only for the improvements in projected economics but also for the reduction in environmental impact. The PEA is based on Iron Cap’s inferred resource estimate but we are very confident these resources will upgrade to higher categories with further drilling as they have in the past at the project’s other deposits,” Fronk said.
The PEA economic projections, if achieved, would rank KSM among the best large-scale producing mines in the world, he added.
Mike Kozak, an analyst at Cantor Fitzgerald, recently described the PEA as “much-improved” with projected 6% and 35% increases in annual gold and copper production respectively versus the 2016 PEA.
He also noted that the PEA captures about 31% of the total KSM resource and there continues to be upside beyond what was outlined in the updated PEA.
