Seabridge Gold (TSX: SEA; NYSE: SA) has bought Pretium Resources’ (NYSE: PVG) Snowfield property in northwest British Columbia for US$100 million in cash, a 1.5% net smelter return royalty related to all production and a US$20 million future contingent payment.
The Toronto-based miner says the acquisition of Snowfield, immediately adjacent to its 100%-owned Kerr-Sulphurets-Mitchell (KSM) gold-copper project, opens up new development opportunities for its flagship asset. The acquisition closed on Dec. 17.
Snowfield contains measured and indicated resources of 1.37 billion tonnes grading 0.59 gram gold per tonne and 0.10% copper for 25.9 million oz. gold and 2.98 billion lbs. copper, with a further 833 million inferred tonnes grading 0.34 gram gold per tonne and 0.06% copper for 9 million oz. gold and 1.1 billion lbs. copper.
Speaking to The Northern Miner, Seabridge Gold’s chairman and CEO, Rudi Fronk, said the Snowfield acquisition would increase the measured and indicated resources for their combined assets by 52%, and talked about what the deal means for his company.
“First, it adds a fifth deposit to KSM, which really does improve our optionality in terms of how you might want to sequence mining at KSM; we have both open pit-able deposits and block caving deposits,” he said. “Secondly, it brings our total resources at KSM to 9.8 billion tonnes.”
The addition of Snowfield, Fronk says, makes KSM not only the world’s largest undeveloped gold project, but also one of the world’s largest copper projects.
“If you look at KSM now in the aggregate, we now host 76 million ounces of gold and 17 billion pounds of copper, in the measured and indicated categories, plus an additional 66 million ounces of gold and 33 billion pounds of copper in the inferred categories.”
According to Fronk, Seabridge has had its eyes on Snowfield for over twelve years, but it was only in June of last year that things began to really coalesce between the two companies, culminating in the December acquisition agreement.
“The stars finally lined up,” said Fronk. “I really believe that on this transaction it was a true win-win deal. Pretium got to pay down a $100 million US in debt, and we get another cornerstone to KSM that just makes the project that much more attractive.”
Seabridge has already started on a prefeasibility study to bring Snowfield into their KSM mine plan and intends to do additional drilling at the site this year seeking geotechnical information related to the open pit concept.
“What the new study is going to be focusing on is open pit mining,” he said. “We believe that with Snowfield now we can show a project that’ll have more than 25 years upfront of open pit mining, at a strip ratio of less than one to one. And that should be able to produce, on average, better than a million ounces of gold per year, before you even have to start looking at the block caves.”
Fronk believes that this new mine plan will bring a “decent number of ounces from Snowfield into reserves, while improving the project’s economics, in terms of payback periods, internal rates of returns and net present values.”
A key aspect of the deal was Seabridge’s ability to fund the acquisition by closing an early-December agreement with Cantor Fitzgerald Canada as lead underwriter and sole book-runner, to purchase 6.1 million common shares of the company at US$17.25 per share. The bought deal financing raised a total of US$115.7 million.
“Before they were willing to sign the deal, Pretium wanted certainty that we would be able to write them the cheque,” Fronk related. “$100 million US upfront from Seabridge, that’s a lot of money. They wanted to make sure we would actually be able to pay them that. And I think what is really gratifying to us is that if you look at the makeup of that financing, probably well over US$70 million of the financing was taken down by existing shareholders of Seabridge.”
For Seabridge, which Fronk co-founded in 1999, the addition of this new asset represents another step in a corporate strategy to grow the company’s projects in B.C., the Yukon, the Northwest Territories and Nevada, and advance projects that can then be taken on by a major.
“We’ve made it very clear from day one that this [KSM] is a project that is well beyond our capabilities to build,” he said. “So what we’ve been doing is getting the project ready for a hand-off to a major mining company. And the addition of Snowfield will definitely help our chances in getting a deal done that we can say yes to.”
Fronk also believes that mergers and acquisitions are definitely going to pick up again in the gold sector.
“I think if you look at the gold industry as a whole, there’s only about ten years of reserves left in the mining space on the gold side. The big companies need to start focussing on what comes next for them, because they don’t have those project internally. Big companies need new assets.”
At press time, Seabridge was trading at $28.70 per share within a 52-week range of $7.37 and $28.79. The company has a market cap of $2 billion and 74 million common shares outstanding.