Seabridge Gold’s (SEA-T, SA-N) KSM project is already one of the largest undeveloped gold projects in the world, home to 38 million oz. gold and 10 billion lb. copper. But with drills tapping into deep core zones and new stepout targets, the huge deposit appears set to keep growing.
The KSM project is located in northwest B.C., 70 km north of the town of Stewart. It is part of the Stikinia region, where numerous sub-volcanic, intrusive complexes resulted in a host of big copper-gold porphyry systems, including Galore Creek, Red Chris, Kemess and Mount Milligan.
KSM is the biggest of them all. The abbreviated name stands for Kerr-Sulphurets-Mitchell, the project’s three main deposits. Kerr is a deformed porphyry with upgraded copper and gold grades due to metal remobilization; Sulphurets is comprised of a gold breccia alongside a porphyry-style copper-gold zone; and Mitchell is a hydrothermal system associated with a thrust fault with lower grades, but twice the tonnage of Kerr and Sulphurets combined.
Over the last few years Seabridge has outlined several other mineralized zones at the KSM project, including the Iron Cap deposit 2 km northeast of Mitchell. Altogether, the four deposits host 2.2 billion tonnes of proven and probable reserves grading 0.55 gram gold per tonne, 0.21% copper, 2.74 grams silver per tonne and 0.00447% molybdenum.
That is already huge, but Seabridge aims to add another few hundred million tonnes to the reserve count. As CEO Rudy Fronk explains in an interview, the tailings facility is designed to hold waste from an even larger reserve.
“Our tailings management facility can hold 2.7 billion tonnes, and at the moment we have reserves of 2.2 billion tonnes,” Fronk says. “Our job now is to find the best 2.7 billion tonnes possible to fill that — and a higher-grade epithermal zone or a deep-seated core zone could certainly help with that.”
Fronk is talking about Seabridge’s two exploration successes from 2012: the Camp target and Deep Kerr.
The Camp zone is an epithermal gold occurrence that was discovered mid-2012 through systematic testing of geophysical targets. Once Seabridge discovered Camp, work focused on expanding the zone laterally with relatively shallow holes. The effort succeeded: Camp has been defined along 1,500 metres of strike and remains open in all directions.
The final 10 holes drilled into Camp in 2012 returned 10 intercepts grading more than 10 grams gold per tonne, confirming that the new area contains gold grades well above the average at KSM. Better results include 18 metres of 3.15 grams gold and 7.7 grams silver in hole 12-06, 81 metres grading 1.42 grams gold and 8.9 grams silver in hole 12-07, 39 metres of 2.23 grams gold and 10.6 grams silver in hole 12-12 and 22.6 metres averaging 1.86 grams gold and 0.8 gram silver in hole 12-13.
Seabridge is keen to poke more holes into Camp in 2013, as this new zone is showing potential as a gold-rich starter zone for the mine. In addition, geologic markers from the shallow holes drilled to date suggest grades may improve with depth.
A few weeks earlier Seabridge released results from several holes drilled as part of a separate exploration aim: finding a high-grade core zone underneath Kerr. That effort also succeeded. In fact, long holes at Kerr tagged into four deep, high-grade targets that bear what Seabridge describes as “favourable markers, characteristic of core zones.”
The company is looking for these deep core zones because huge copper-gold porphyry districts like the one at KSM are often created when deep-source ores migrate upwards through faults and favourable rock formations to create near-surface deposits. Since the four main deposits at KSM exhibit the vertical architecture created in that process, Seabridge has reason to believe that high-grade source ore exists at depth.
“When we began our search for a core zone at KSM, we assumed that the four main deposits would probably link to one such zone,” Fronk says. “We now believe that there may be several deep-seated sources. Our first priority is to generate a high-quality resource for Deep Kerr that could have an economic impact on the KSM project, particularly if it proves to be accessible from the Sulphurets valley floor by way of an inclined tunnel.”
Deep Kerr has already returned some of the highest metal values from the property to date. Discovery hole 12-20, reported in early November, returned 451 metres grading 0.27 gram gold, 0.45% copper and 2 grams silver. The next hole hit into 473 metres grading 0.31 gram gold, 0.9% copper and 3.7 grams gold from just 20 metres depth, followed by several short, higher-grade hits. The third hole, 12-22, cut 156 metres grading 0.24 gram gold and 0.65% copper almost from surface, followed by 325 metres averaging 0.27 gram gold and 0.48% copper.
Seabridge plans to spend $15 million exploring at KSM this year, and the program will target the same goals as last year: delineating the Camp zone, and probing for deep, high-grade core zones underneath Kerr.
Exploration is ongoing, but Seabridge has already advanced KSM towards development. KSM has been the subject of three economic assessments: an initial effort in 2010 was updated in 2011, and in 2012 the study was upgraded to prefeasibility level. The most recent revision also increased throughput, altered the mining methods, changed some design parameters included re-routing the access road to facilitate permitting and updated the resource and reserve estimate.
The result is a mine that is costly to build, but pays for itself in just over six years, creates less permanent damage to the environment and boasts improved economics. For example, the new plan involves open-pit and underground mining, which would eliminate 2.3 billion tonnes of waste-rock stripping and reduce the life-of-mine strip ratio by 45%, to 1.5 to 1. Mitchell is to be mined through an open pit and then underground block caving. Iron Cap would operate as a stand-alone underground panel-caving mine, and Kerr and Sulphurets would be tapped as open-pit mines.
Over the first 25 years of operation, the mill at KSM would process 130,000 tonnes of ore per day. In year 26, when mining at the Mitchell deposit switches to underground, daily throughput would drop to 90,000 tonnes per day for the remaining 30 years of mine life.
The flotation mill would produce a combined gold-copper-silver concentrate that would be trucked to the Pacific port town of Stewart. The facility would also produce a moly concentrate and gold-silver doré.
A near-surface, high-grade gold zone at Mitchell would increase gold production in the first seven years to 830,000 oz. per year. In that time, the operation would also produce 190 million lb. copper, 2 million oz. silver and 1.3 million lb. moly each year. Over the mine’s 55-year lifespan, annual output averages 508,000 oz. gold, 147 million lb. copper, 2.2 million oz. silver and 1.1 million lb. moly.
The new plan did not reduce the expected cost of building a mine at KSM. Instead, initial capital costs increased by 13% to US$5.3 billion. Some of the big contributors to KSM’s high capex include $344 million in tunnelling work, US$312 million for a water-treatment facility and water-storage dam and US$218 to set-up a power connection.
Another aspect that adds to KSM’s capex is the tailings management facility, which alone would cost US$316 million. The facility would have to accommodate carbon-in-leach sulphide tailings processed with cyanide, and while regulations do not require a lined facility in this circumstance, the International Cyanide Management Code recommends using a liner. In the new PEA, Seabridge includes plans to line part of the facility, adding substantially to the cost.
Despite the high capex, the PEA determined that a mine at KSM would pay for itself in 6.2 years. The mine as envisioned in the study would generate an 11.5% pre-tax internal rate of return and carry a pre-tax net present value of US$4.5 billion, using a 5% discount rate.
Fronk agrees the capex is substantial, but believes KSM will one day become a mine. But Seabridge will not build it alone. “We have made it clear all along that we do not intend to build or operate a project of this scale ourselves,” Fronk says. “Our preference is to partner with someone with the deep pockets and experience needed to move this forward. Looking at the marketplace right now, lots of companies are being challenged with big, capital-cost overruns. So right now might not be the best time to find that partner, but our time will come — major miners will need big projects like KSM. Until then, our goal is to advance and de-risk the project.”
KSM holds a lot of ounces, as does the neighbouring Brucejack project owned by Pretium Resources (PVG-T, PVG-N). Fronk points out that KSM’s 39 million measured and indicated oz. combine with Brucejack’s 8.5 million indicated oz. to create a resource bigger than all the ounces ever mined from Nevada’s famed Carlin district.
“This is going to be a mining district,” Fronk says.
News of the latest drill results from the Camp zone had no effect on Seabridge’s share price. But investors responded to the mid-December announcement of the intercepts from Deep Kerr, boosting Seabridge shares by some $2 to $17.25, where they remained at press time. Seabridge has a 52-week share price range of $12.31 to $25.62, and 45.6 million shares outstanding.
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