Trey Reik’s conversation with Rudi Fronk (CEO of Seabridge Gold) provides a detailed roadmap for successful investing in the exploration and development sector of gold-mining equities.
Trey and Rudi first discuss the various stages of gold mine development (from discovery to commercial production), with focus on the time, resources and risks involved at each stage. Importantly, they identify how the process of mine-development progressively revalues a company’s below-ground gold reserves providing an attractive value-creation opportunity. Second, they identify the characteristics and fundamentals of successful gold exploration plays. And finally, Trey and Rudi examine how Seabridge Gold stacks up among the global universe of explorers and developers in the gold-mining universe.
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Rudi Fronk 0:00
Investors buy a gold stock with the expectation that if the gold price is up by 10% the share of the company I’m buying should be up by more than 10% that has not been the case of these major companies over the last quarter century.
Trey Reik 0:18
Greetings and welcome to our show. My name is Trey Reich, Bristol Gold Group, and we’re here today with Rudy Frank, Founder, CEO and chairman of sea bridge gold, one of the most promising exploration and development plays in the gold mining industry. Today, Rudy has over 40 years of experience in the gold mining industry, and I’m not aware of anybody who has a better perspective on the long term process of developing a promising gold mine. So Rudy, thanks for being with us here today. We appreciate it. Trey, looking
Rudi Fronk 0:58
forward to this and thank you for inviting me. Excellent.
Trey Reik 1:01
So in my last housekeeping item, I thought to make this discussion the most productive for our viewers, we cut it up in three segments, and I’d like to first talk about the various stages of mind development. Secondly, I’d like to turn our attention to your views on what makes the parameters for an excellent exploration play. And then finally, I thought we’d wrap it up at the end with an assessment of how sea bridge solves all of these criteria and the investment opportunity that Seabridge Shares represent. So for those who aren’t familiar with you, Rudy, if you could give us a brief synopsis of your four decade history in the industry and the process of how you developed and launched sea bridge.
Rudi Fronk 2:01
Okay, sure, quickly, born and raised in New York City, educated at Columbia University, undergraduate degree in mining engineering, then graduate degrees in finance and economics. I had a professor at Columbia named Malcolm Wayne who was a true gold bug, a Scotsman, and in the 1970s he instilled into me the importance of gold in portfolios, as well as how it plays into the global financial system. So I’ve been in the gold space and following gold for 40 plus years now. Early in my career, I was hired to run a company called Greenstone resources that assembles a portfolio of earlier stage exploration plays in Central America. And over a five year period, we actually built three mines, one in Panama, one in Nicaragua and one in Honduras. And then, sure enough, as the gold market went against us in 1998 and 1999 two of those mines were expropriated by the government. Coming out of that experience, I learned a lot of important lessons, which we then integrated into the startup of Seabridge in 1999 we have a couple of guiding principles at Seabridge that we have followed now for 25 plus years, focusing only on North America. Political risk is real. We will never build a mine. Making that transition is one that’s fraught with peril and hazards, and also trying to keep our share account manageable. Our industry has a history of diluting the shareholders in a very big way without offsetting that that that dilution with value, probably the most important guiding principle we have followed now for the past 25 years at sea bridge is to try and grow ounces of gold in the ground faster than shares. Outstanding.
Trey Reik 3:39
Excellent. Great synopsis and and we’ve discussed this in the past. I in my writing and my communication about gold mining to investors and readers, I try to make the case that you know, in the long secular opportunity of rising gold prices, there’s really one process that provides a value creation proposition, and that’s bringing a new mind on life, developing a new mind. So I thought you could give us your thoughts on sort of the various stages in bringing a mind from, you know, discovery, through definition, through production and the time and resources and risks at the various stages along the way.
Rudi Fronk 4:30
Fantastic. Yeah, so the first stage will be expiration, actually finding a deposit, and that typically is the exciting part of the business, where you find something new, and all of a sudden the market captures wind of that, and valuations start to really go higher. The next stage is engineering. Okay, I found something. Now, how can I mine it? How do I mine it? What do I need to do in metallurgy? What are the operating costs going to be? What are the capital costs going to be? And if you can settle that those questions through peas or PFS. Is you then get on to the permitting stage. Earlier in my career, you can get mines permitted in two years or less. That has changed dramatically over the past decade plus. For example, at KSM, we started the permitting process in 2008 and it took us over seven years to actually get that project permitted. Next comes construction. Okay, I need to raise a lot of money to build this mine. How do I raise it? And then finally comes production. And I think what a lot of companies don’t fully appreciate Trey is that each step along the way requires a completely different set of discipline within the company to advance a project. Explorers do not know how to design mines. Designers of mines don’t know how to permit mines. You need to continue to retool your organization to deal with the different steps you might be in along the way.
Trey Reik 5:48
So it’s important to make sure that you have the right people for the stage, that the company is at correct 100% okay, and as this value creation process occurs, which I truly believe in. Perhaps you could give us some input on what below ground ounces are valued at, on average at these various stages of development.
Rudi Fronk 6:18
Yeah, I hate to do that, because it’s all over the map. I announce these are not created equal. For example, you know, I know analysts like to throw out a number for resources, the valuation should be $50 an ounce. Reserves, they should be $100 an ounce. Yet you have companies that are trading at four or $500 an ounce on a project that may or may not be real. I truly believe that at the point when you actually have proper engineering done, mine design and show that a project can be permitted. One way to look at the valuation of a project is through net present values. You know, how much value will this project generate over time on a discounted cash flow basis? I do believe, however, that there are also problems with that approach as well, in terms of how the analyst community uses that technique as as they go forward on valuations, okay, but
Trey Reik 7:07
it’s fair to say that, at least at Discovery through resource definition, on average across the industry, a $50 an ounce valuation would be reasonable? Would you agree with that?
Rudi Fronk 7:22
Yeah, I would say so a lot of companies evaluate at that very
Trey Reik 7:28
Go ahead. I’m sorry. I
Rudi Fronk 7:30
wish we got $50 an ounce. Well, I’m coming there. So
Trey Reik 7:33
at the very peak, when you’re in the Agnico Eagle range of, you know, senior production, and 10 years of we can get up to 600 bucks an ounce. So we’re talking about a move from 50 to 500 over the life of building a mine. Is that fair? Yeah.
Rudi Fronk 7:53
If you look at the seniors today, I think the range of the senior gold producers anywhere from $400 an ounce in the ground upwards to $800 an ounce in the ground.
Trey Reik 8:01
So skipping ahead, because I wanted to save this for the end at today’s valuation, 1181 on sea bird shares. What is your purse per ounce valuation on your resources?
Rudi Fronk 8:14
Resources, it’s about $6 an ounce in the ground. Okay,
Trey Reik 8:19
so that gives us something to look forward to, hopefully people will stay to watch the end of our discussion. So I’ve always felt also that for folks investing at home, a portfolio of gold exposure should include some exposure to bullion itself. And I even encourage people to do that first, that you need your gold exposure first, because gold does what gold does, and then you can get into gold mining shares, if you’re if you’re interested in, I think it makes sense to have representation across the spectrum, maybe a senior producer, an emerging producer, and an E and P representation. So it’s important to recognize those are all important in a portfolio, but narrowing in on the exploration and development part of the portfolio that investors may create, what’s what? What are some of the boxes that need to be checked? What are the important characteristics and fundamentals to look for in an emerging producer?
Rudi Fronk 9:28
Well, I think it’s first and foremost. Once you make a discovery, is the deposit mineable? How is it going to be mined underground or open pit? Once you determine that, is it permittable? Can you get the project permitted or not, and it’s it’s a challenge today in any part of the world to get big projects permitted, and then, as a buildable Do you have local support around you that you actually can go in and build a mine? And then, last but least, is it financeable? And there are a lot of boxes you do have to check along the way, like jurisdiction, to me, is a critical factor when I look at. Some of these projects around the world today that are being talked about or being built by the majors, I scratch my head, what could possibly go wrong in a jurisdiction like Pakistan, local support is critical for projects. If you don’t have the support of the indigenous and local communities around you, you don’t stand a snowball’s chance in hell on getting your project proved through the permitting process, by the
Trey Reik 10:22
way, interacting for our viewers, where are sea bridges projects located? We didn’t establish that earlier.
Rudi Fronk 10:32
My bad on that Western Canada again, coming out of the Greenstone and having mines expropriated in third world countries, we were not going to go there. So if you look at our big project, KSM, that’s in British Columbia, our next largest project, courageous Lake, is in the Northwest Territories. We focused exclusively on North America.
Trey Reik 10:49
Gotcha Sorry to interrupt. So you were, you were at jurisdictions, local support, social support, and I think you were heading to the importance of share count. Yes,
Rudi Fronk 11:03
our industry, the amount of dilution that goes on in our industry is ridiculous. Dollars that are spent on projects that never have a chance of being a mine. You look over the last 20 or 30 years, that’s remarkable how much money has been wasted. Share counts can go from 10s of millions to hundreds of millions to billions of shares outstanding without offsetting that dilution with real value. And that’s one discipline that we have followed from day one at sea bridge. Yes, we’ll we’ll suffer dilution if we can offset that dilution with ounces per share. And over the past 25 years now, we’ve delivered on that concept, continuously growing our ounce count relative to our share count.
Trey Reik 11:43
We have a slide that we’re putting up, which is your comparison of Barrick and your share count. Magniko Eagle. Can you talk a little bit about those numbers? Yep,
Rudi Fronk 11:56
people think that the majors don’t dilute their shareholders. They do. If you look, I think over the past, I think the slide we show has, over the past 15 or 16 years, the share counts of the major gold mining companies have more than doubled doing the acquisitions they’ve done over the years, yet they have not grown their reserves in any meaningful way or their production. So if you look at their share counts on a per share basis to reserves or production, they’ve actually destroyed shareholder value, and that’s why, when you look at their share price performance over the past 25 years, they have significantly underperformed the gold price in a meaningful way. Investors buy a gold stock with the expectation that if the gold price is up by 10% the share of the company I’m buying should be up by more than 10% that has not been the case of these major companies over the last quarter century. So
Trey Reik 12:47
you’re you’re wading into one of my other personal assessments of the industry, which is the concept of negative survivorship bias in most industries, whether it’s automobiles or power plants or software companies, investors tend to gravitate towards the safety of the largest participants in the industry, but gold mining is the rare case where perhaps it’s best to avoid the very largest companies. I call that the negative survivorship bias. Can you comment on that? Yeah,
Rudi Fronk 13:25
and I think you know the history shows that. I mean, over the past 25 years, the gold price is up by about 800% from 216 ounce to $3,000 today, yet the share price of Barrick is up by 25% gold up 800% Barrick of 25% new month up of think 125% gold up 800% so these big companies have not delivered what they’re supposed to deliver, which is optionality and leverage to rising gold prices they’ve under. Why do
Trey Reik 13:54
you think that’s the case? What are their challenges?
Rudi Fronk 13:59
I think it’s simply a misallocation of capital, replacing reserves. Yeah, and they’re not replacing reserves. Their reserves per share have gone down precipitously. They’re not growing production. Their production per share has gone down dramatically. The big companies tend to do their big acquisitions at equity tops, where they go in and buy projects around the world and pay a lot for it. You remember trade that a few years ago, I was asked to present at the Jim Grant conference on why has the gold industry not kept pace with the price of gold in terms of valuation? And I pointed specifically to a few acquisitions that were done at the last market top 2010 2011 Barrett buying la Moana project in Zambia, paying $7.3 billion then eventually writing the whole thing off. Newmont buying Miramar for 1.5 billion, writing the entire thing off. And then Kinross buying red back, a project in Ghana for $7 billion and writing off more than 80. Have the value. They’ve shot themselves in the foot. They’ve misallocated capital, and I think that’s why their share prices have not performed the way you would expect them to perform with gold doing what it’s done. So
Trey Reik 15:10
essentially, what you’re pointing out is that if you’re mining five or 6 million ounces a year, it’s almost impossible to replace those ounces as you mine them, unless you start to get aggressive in acquisitions, etc, and that’s where mistakes are made. Is that fair?
Rudi Fronk 15:29
Absolutely. So at market tops, shareholders are the big companies are demanding growth. The only way you’re going to get growth is to go out and buy things that are probably overpriced to begin with. At market bottoms, you have a completely different set of shareholders, and they want to focus on cash flow per share and and profitability, and that’s where these big companies tend to go out and sell their non core assets for pennies on the dollar and destroy value in the process. Got
Trey Reik 15:56
it. And while we’re on the risk or negative side, there’s an infamous sequence called the LA sand curve, which focuses on the fact that when you’re building a mine, when you’re actually in the building the mind stage, that part of development, almost everything can go wrong. And there’s very little that can go better than expected. So it’s, it’s sort of skewed to risk. And can you talk a little bit about, you know, the fact that this puts explorers in a situation where they’re not exposed to those risks?
Rudi Fronk 16:35
Yeah. So my experience, which is over 40 plus years now is when Junior companies try to make that transition to production, and they do their engineering studies, their peas, their pre feasibility studies, even their feasibility studies, they tend to push their consultants very hard, and those studies turn out to be best case scenarios. They then get into the process and find out, oops, the recovery was not 90% it’s actually 75% whoops, the grade is not two grams per ton. It’s actually 1.3 grams per ton. So the finding that a lot of the assumptions they made, which was used to decide to build the mine or not, were way too optimistic, and then as as the rubber hits the road, they find out that a lot of the estimates they made were just wrong.
Trey Reik 17:21
But getting back to sea bridge, in your situation, you’re immune to the sort of cost overrun and execution risk that actually building the mine exposed the company to.
Rudi Fronk 17:34
Yeah, in that we have clearly stated that we will never build a mine. We won’t go through that phase. What we will do. And what we have done over the years is to either sell non core assets at market tops and good get good value in exchange for that, we’ve now sold over the years a number of early stage assets that we had acquired for more than $75 million in cash and kept streams or royalties or net profits a project like KSM that we recognize that it’s well beyond our capability to try and move it into a production phase. So our goal at KSM is to bring in a major mining company as a partner to take on those risks that we’d rather not have our shareholders exposed to perfect
Trey Reik 18:12
so switching gears a little bit, we had a recent conversation with Dave Ivan at copernic, and he introduced us to this fascinating topic, and trade off between discount, discounted cash flow models and the optionality models on the larger deposits in the world. Dave’s view is, you know, the best parameter of any gold mine is its longevity. No, it’s years of mine life. But with discounted cash flow analysis, the bigger mines get penalized because the production is so far in the future. Do you guys look at the optionality model for Seabridge councils. We
Rudi Fronk 19:02
do. We think that’s very important. And David is absolutely correct. I did
Trey Reik 19:07
notice he quadrupled his Seabridge holding in recent months, I think in February, correct?
Rudi Fronk 19:13
Yeah, he was the lead order in the recent financing we did, and he’s now, I think, at 10.6% ownership. So he is a believer in what we’re doing, and has been a great supporter over the years as well.
Trey Reik 19:26
Don’t you find it surprising that no one else, no sell side or buy side group, has come up with that concept of how ridiculous discounted cash flow analysis really is in assessing large gold deposits,
Rudi Fronk 19:42
it is quite remarkable. I think the only one that I hear speak about that on a regular basis is Robert Friedland, Robert who talks about that, you know, his big copper projects in Africa looking at a discounted cash flow on a project and go on for decades. You know, in a discounted cash flow model, anything beyond your 20 is valued at. Zero today anyway, but when you get to year 20, you still have another 20 to 30 years in front of you. There’s a lot of future value that the net present value calculation is just missing.
Trey Reik 20:11
Interesting. So keeping with the topic of large deposits, we’ll switch gears a little bit here to sea bridge. We’ve got a couple of slides for viewers to look at on sea bridges, gold and copper, resources and reserves. And can you talk a little bit about how they stack up against the world undeveloped deposit wise?
Rudi Fronk 20:39
Yeah. So KSM, it’s pretty unique. We talk about it being a project, it’s really a district. We have five deposits at KSM, which yield 12 billion tons of economic resources, which contain 160 million ounces of gold and 49 billion pounds of copper. If you just look at our reserves and resources at KSM. It’s the largest undeveloped gold project in the world by far, if you ignore our gold, silver and molybdenum and just look at our copper, it’s actually the third largest undeveloped copper project in the world today. So it is unique in that it stands up as a gold dominated project, or a copper dominated project, depending on which sequence of mining you want to go after. And we have
Trey Reik 21:24
one final slide, which puts the two together and ranks it against other companies. And there are very few that are even close, that aren’t already owned and operated by a major Correct, yeah,
Rudi Fronk 21:39
and that’s, that’s, that’s where our sweet spot will be. Because the elephant in the room today is that the major gold mining companies are running out of reserves. They need new projects. They don’t have them in their pipelines. The major copper companies all admit that with growing demand and copper that we know we’re going to see, that new copper mines have to be built. Here we sit at at at sea bridge with KSM, the world’s largest undeveloped Gold Project, or the world’s largest, third largest undeveloped copper project. In a world where the big companies need new projects, we’re permitted. We show tremendous capital efficiency. We have the support of all the local, indigenous populations around us, and this project is now ready to go to bankable feasibility. So
Trey Reik 22:20
you mentioned you’re permitted, and there’s a lot of different ways to look at being fully permitted. How fully permitted is? KSM is? Are there other permits that you will require in the future, or other develop? You know, anyone who’s going to build the mine might require. What is fully permitted mean, in your case, well, fully
Rudi Fronk 22:41
permanent means you actually can start producing metal. Okay, we’re not there yet, but we’re well on the way to that. The first step in Canada, or specifically in British Columbia, is to get your environmental assessment certificates. Provincially and federally. We did receive those approvals in 2000 and and 14. The next step then is to actually get the construction permits you need to build the mine. In the case of KSM, there’s probably about 150 different permits. You need to actually go in and finish construction to get the first production. We’re now probably pushing 100 of those already. Balance of those construction permits will come at at a bankable feasibility, where you have the detailed final final engineering to put in front of the regulators to get that final approval. What I will tell you, yes, that’s important, but also what’s important is to make sure, as you go through these different phases, that you have to support the indigenous people behind you to get these approvals from the regulators.
Trey Reik 23:37
But as as far as sea bridge is concerned, if you’re not going to build the mine and you’re going to find a partner to build the mine with you, the technical expertise, the critical mass, the capital, are you fully permitted for what sea bridge needs? If that’s the scenario, yes,
Rudi Fronk 23:56
we are. The next phase is to complete a bankable feasibility study, which allows then the partner to go out and secure the funding that’s necessary to build the mine, and that’s where we want to leave to our partner. We’re not going to complete a bankable feasibility study on our own. That’s the first phase of any partnership. We will continue to advance the project and de risk it. So it’s an easier transition for the major which is one of the reasons why we did that recent financing to allow us to move the project a little bit further down the track for that joint venture scenario. Since
Trey Reik 24:26
you brought up the financing, I think it was $100,000,000.08 point 2 million shares. Can you talk a little bit about, you know, who the parties were? There’s, there’s a interesting mention of an interested party which obviously gets my attention, my feelers go up. You know, interested party can what can you tell us about that?
Rudi Fronk 24:48
Yeah, great question. I wish I could name who that strategic investor was. I can’t I think of the world new they might view the project a bit different. Yeah, so we did our recent financing in two. Inches. $80 million was done on the public side. That was a bought deal, financing led by RBC Capital Markets and Cantor Fitzgerald. Most of that financing was taken down by existing shareholders, including Cobra Nick David Ibn. 20 million of the financing was done as a private placement the strategic investor. What I can tell you, although I’m not allowed to name who that strategic investor is, if someone that’s aligned with us wanted to move the project forward to get to the next positioning, which is bankable feasibility study. So the use of proceeds from this financing is to ensure that the power that we’ve now secured with BC Hydro can’t be taken away by someone else that we remain first in the queue is to do the final data collection that’s required to complete bankable feasibility, and most importantly, it’s probably to look at doing value add engineering. What can we do to the project to improve the project design and economics as we go from pre feasibility to bankable feasibility? And that’s where the alignment of the strategic investor was important. We want to make sure that the things we’re looking at in terms of value add engineering are the same things they would be looking at as the potential builder of the mine in the
Trey Reik 26:09
hydroelectric power I’ve heard you use that phrase before. Remain first in line. Can you explain what you mean by that? Yeah,
Rudi Fronk 26:20
so the Government of Canada and British Columbia spent over $700 million bringing the power grid right next door to KSM, okay, called the Northwest transmission line for
Trey Reik 26:31
you, or for everyone, or for certain minds. Why? Why did they do that for
Rudi Fronk 26:36
the district? They actually foresaw the need for power if project development was going to go ahead. And there’s a lot of big projects in the big projects in the region there that eventually will require power galore. Creek, that’s a joint venture between new mods and tech. Newmont is now looking to expand the red Chris project by going underground with a blockade. Those projects will require power on this transmission line, though, there’s only 375 megawatts of power available. ASM requires about 245 megawatts of power, so we went in before anyone else and secured that level of power from BC Hydro through contractual agreements. Do you pay in a position? You pay
Trey Reik 27:13
them money for that, or you just ask for it, or you promise something in return for it. How do you lock it up? Well,
Rudi Fronk 27:20
we locked it up by we will be the biggest user for this transmission line. But to lock it up, we need to then build the switching station that will allow us to take power from the line to the project there, and that’s where we’ve now been spending money with BC Hydro on that switching station.
Trey Reik 27:35
So it’s the switching station construction that sort of shows or committed, or is store part of the agreement? Is that correct? Yeah.
Rudi Fronk 27:46
And we Yeah. We’ve now spent over $100 million with BC Hydro, and they are they and they will finish the switching station now with the money we’ve just raised to this last financing, what we didn’t want to have happen Trey is somebody trying to come in and jump in front of us in the queue. They can’t now we’ve now will have the switching station done, ready to transmission power to our project,
Trey Reik 28:08
not to be a negative Nabob. But how do you know no one can jump in front of you? Is it a legal agreement or?
Rudi Fronk 28:17
Yeah, great question. So they’re not far enough down the packet Road, yet, in terms of project design, on how much power they would need, how would they get it in there? Whereas we are so we have agreements in place with BC Hydro that allows us to take, initially, power that’ll be used for construction, and then eventually power that’ll be used for the operation of the mine. And as I said, it’s 245 megawatts of power. I mean, the great thing about this power line is it’s hydro. The current tariff is about five cents per kilowatt hour. If we had to go out and build our own power source, whether it be diesel, coal or gas, you’re probably looking at another billion to $2 billion of capital that have to be spent for that infrastructure and then operating costs to generate that power probably be 15 to 25 cents per kilowatt hour. And then the other nice thing is it also checks the green box. We’re not using diesel, we’re using hydro power.
Trey Reik 29:12
That did not escape my attention. That’s great little bonus. Very well done. So as we look at 2025 you Seabridge has the habit of putting out an annual corporate goals list and then publishing a report card. If we had all afternoon, we could review your 24 report card. But let’s turn our attention to 2025 what’s on that corporate goal list? And you’re very specific about the percentages of your time and effort to be devoted to each one of those goals, so not reviewing all of them, but say the top three or four. What sea bridge looking to accomplish this year? Well, first
Rudi Fronk 29:56
and foremost, finding that partner, a name partner. That will move forward with us, to move this project through bankable feasibility and to a construction decision that remains priority number one. Number two, it was to go out and secure the financing that was necessary to keep moving the project forward and de risk it. And we’ve now done that with the recent financing we’ve completed. And then probably the last important aspect for this year, in my view, is we just issued 8 million shares at two ounces of gold in the ground per common share. How do we offset that dilution with ounces per share? We have a drill program plan this year at our snip North project at iscid, which is pretty close to KSM, where we think we have the potential to develop and define a very, very large resource of both gold and copper to help offset that dilution we just suffered
Trey Reik 30:48
excellent now not to focus again on on the negative. Sea Bird shares have lagged, you know, the Arca gold share miners, ETF, GDX and the junior minor ETF, the GD XJ pretty significantly since last October. If we look at it on a year to date basis, the GDX is up 30% GD xj is up 29 and Seabridge is only up 3.5% so far this year. Now in my 20 years of doing this, I’ve always looked for investments in companies that have lagged the averages for reasons that are misunderstood or can be quickly resolve, because if you can find that type of a situation, and you resolve these clouds, I it’s just my opinion, but I think gold mining companies suffer a little bit from the cloud mentality than other industries, just because of, you know, past events back in the 2010 2012 area, era. So we talked about the share offering, which obviously introduced new shares, and they have to be absorbed by the system. But I’ve noticed there’s really two other events that are sort of looming out there, which I think may be being misunderstood. The first is in September of 24 British Columbia, you know, granted your occupation rights for 20 years for construction of a very important tunnel. And about a month later, another company named Tudor gold seems to be hiring lawyers and objecting that it might interfere with their mineral rights. Can you give us an update on how significant this is and where it stands?
Rudi Fronk 32:55
Yeah. I mean, tutor has been challenging these rights we’ve had for years. Matter of fact, we had these rights in place before they actually came into the project that they joined that show with two Junior companies. We have a license of occupation that was set to expire last year. The government saw their way to actually grant us a 20 year extension on that license of occupation, on the application process we went through and the due diligence. We have a What’s the m 245, permit, which allows us to build the portals for the tunnels, as well as the first 100 meters of the tunnel length to the first cross cut. And we have a mineral reserve, which is really important because prohibits anyone else from interfering with the project. And the tunnel tutor went in and actually opposed our approvals a couple years ago, when the government saw their way to actually reconfirm that what we have is appropriate. We’ve always told to her to look, if you ever have a project that’s viable, that’s permittable, that you want to move forward on, we can easily flex a portion of the tunnel to bypass where your mineral may be be mined. They don’t have that yet, and they don’t, it doesn’t seem that they have any real desire to move that forward. They’ve been talking about a pea now for four or five years. That’s still not done, and they continue to relook at the project and how they might mine it. But again, there is a solution if and when it has to happen, and we’re happy to sit down with tutor to discuss, you know, if and when that does happen. So we don’t view that as an issue.
Trey Reik 34:24
British Columbia is a pretty mining savvy, savvy government, right? So I the question that comes to my mind is they would never have, you know, granted these occupation rights if they thought they legitimately interfered with someone else’s mineral rights. Am I overstating
Rudi Fronk 34:43
that? No, no. I mean, the fact is, is they don’t have mining rights. Tutor, they have exploration rights, and with the approvals we have, we don’t impact their exploration rights. They can do whatever they want in terms of exploration on the ground without interfering with us. I. Um, so it we we’re not interfering with any rights they have right now if they advance it to mining rights. So that may be a different story. But again, we can sit down with tutor and find a solution to that.
Trey Reik 35:11
So how do you predict this will resolve itself?
Rudi Fronk 35:16
I look, I The big question now is we now have in front of the government the an amendment to our m 245, permit, which right now gives us the right for the for the portals and the first 100 meters of tunnel length. The amendment we have now in front of the government gives us the rights for the entire tunnel
Trey Reik 35:33
length. And the second thing that’s happened in recent months is British Columbia granted you the designation in July of this past year of being substantially started. Now for most people, that phrase doesn’t mean much, but at least in Canada, it has to do with the fact that your permits are extended because you’ve started doing something with them. I think you’ve spent four, 50 million or so, but the people who are objecting are not to be diminutive, but a tribe I cannot pronounce because it’s four different words and I’ve never heard of before in a couple of NGOs. Can you give us a synopsis here? Yeah, just
Rudi Fronk 36:17
quick background. So substantially started was important for us to get in terms of a de risking without having that designation, the approvals we have, the environmental approvals we have, were set to expire in July of 2026 there is a mechanism in British Columbia known as substantially started to get that designation. Your permits are then good for the life of the project, which, in the case of KSM, could be 100 years. So that was important for us to get in terms of de risking. You can imagine, any big company looking at KSM, knowing the permits could expire in just a few short years was a risk. So we went out and secured 370, $5 million US. Spent those dollars on early site construction, building roads, building camps, building fish compensation, building bridges and building the power of the switching station, BC Hydro. And then, as we then applied for that designation, we also had strong letters of support that came in from the Niska nation, the Talton nation, the different local communities and BC Hydro supporting that application. And then in July of last year, the government gave us that designation, and once we got that designation, trade you may have seen that our share price really took off. We got through $20 a share us on the on the market, which was more of a double from where we were earlier that year. And then in late November that the saw it, ski kamaha filed a petition asking the government, saying that the government is unreasonable and granting us this designation, and that the government did not properly consult with them throughout. So
Trey Reik 37:49
hold on here, because I want to ask you, are they objecting on sort of an ILO 169 level, that you didn’t consult, that they weren’t consulted on the impacts to the community, or were they not consulted on whether the thing is substantially started? Like, what are they objecting that they weren’t consulted on? They’re
Rudi Fronk 38:12
objecting that they were not consulted on whether the project was substantially started,
Trey Reik 38:16
or isn’t that kind of, I don’t know. I mean, do they have the capability to make those types of determinations versus that’s
Rudi Fronk 38:25
the government’s job. The government was supposed to decide whether the project was substantially started. And if you looked at KSM relative to any other project that got substantially started designation in the history of British Columbia, we spent far more dollars, and we had far more local support, indigenous support, than any of the project. So for them to be able to show that the project was not substantially started is a bit of a wild herring. I should also point out that when you look at the groups that did support us and continue to support us, The Gits and hereditary chiefs, the Niska nation, the Talton nation, you’re looking at nations there that combined, or, you know, 20,000 people or more, okay, the TASKI kamaha is a band of 30 Okay, 30 people, 30 people. And I can tell you firsthand that we properly consulted with them, because we brought them into the into the dialog, even before we actually applied for this designation, they knew the work they were doing, we were doing there, and in fact, some of the work we were doing they got paid for in terms of some of the contracting opportunities that existed. And we know also that the government properly consulted with them as well throughout the process, as they did the same consultation with the Niska nation, the Talton nation and the gates nation. So we’re not
Trey Reik 39:42
dealing with an Escobal type situation with 30 people who are claiming they weren’t consulted from the very beginning. Correct, correct. Okay, terrific. Now, I don’t mean to put words in your mouth, but can you think of any other reason other than the ones that we just. Us that would account for the share price lag in Seabridge over the last three or four months? Well, I
Rudi Fronk 40:05
think it’s interesting, if you look at the gold market in general. So our shares started to fly with substantially started designation. As I said, we were up precipitously through $20 US, which was a doubling from earlier in the year. There seemed to be money that was coming into the gold equity space, if you talk to guys like John Hathaway, instead of getting redemptions, they were getting inflows, and gold mining stocks started to do well, and then Newmont reported their q3 numbers. Everybody was expecting a blowout quarter, and they actually disappointed the mark in terms of the cost side of the equation, and their share price was down 15% in one day, which kind of put a stop to gold equities actually starting to move higher. So I think that was a big part of it. And I think, I think also clearly the financing, I think, took the market off guard in terms of us going out with the property, the assumption being okay, if they’re raising $100 million it must mean that a partnership discussion is not moving forward. They failed to recognize the importance of a strategic investor coming in, but also the importance that this money will be spent on moving the project forward to allow us to bring that partnership in. So I think that probably put a bit of crimp in our market as well. And then last but not least is, you know, these big projects like KSM, like NOVA gold has it at Donald creek right now. They on any historic measure, they are really low valuations compared to where they should be from historic perspective. The question is, okay, these projects are going to be big, they’re going to be costly. How much are they going to eventually cost to build, and who’s going to build them? And I think until we answer that question with the name joint venture partner, someone willing to step in and move the project forward, I think that’s when we get a significant move in our share price on that announcement, which, again, I expect to happen over the course of this year. One
Trey Reik 41:55
of the things that I noticed in 2024 is gold has clearly shed its negative correlation to 10 year treasury yields, right? We have trend. They were, I think in January, we were at a 4.9% yield, and gold is at all time highs, but the stocks paid a little bit of a different price. So I have a theory that, you know, traders more aggressive money as long rates are rising, they’re penalizing gold companies more than gold because of the construction component if there’s a big capital expenditure in the future. Similarly, I think when Trump was re elected and everybody tried to reinstate what worked in 2017 stocks, up, gold, down gold. I think that. I think that also explains a bit of the disconnect in sea bridge, you know, since Election Day, and I, I would expect now that it’s sort of coming to the fore, that the Trump playbook isn’t going to work like it did in 2017 Don’t you think it’s fair to assume there’s a bit of catch up in in companies like yourself? Yeah,
Rudi Fronk 43:09
I think so. I think I look at it from a slightly different perspective. I think right now the gold market, you have east versus West. You have gold prices at all time highs because the East is buying physical gold, central banks, sovereign wealth funds, family offices outside of North America, and when they get exposure to gold, they don’t buy gold mining stocks. They’re buying the physical and that’s why Gold is trading north of $3,000 an ounce. The West, on the other hand, they are under owned gold right now, from any historic perspective, if I look back over my career, you know, historically, large pools of capital, like pension funds, would have two to 3% exposure to gold right now it’s less than one half of 1% and it’s those investors are the ones that typically buy equities, gold mining stocks. They’re not involved in gold equities right now, and they don’t think they have to be because all they need to do is own The Magnificent Seven. Why do I need to own a gold stock that’s underperform over the past 25 years, when I can buy Nvidia or something else? I think what has to transpire here to really get gold equity valuations moving to where we think they should be is the Western investor has to come back to the gold space, realizing having some exposure to gold is important, and they are the ones that tend to come in and buy gold mining stocks. And I think, I think that’s going to happen in the not too distant future, and we’re going to see gold mining stocks go through the roof very quickly.
Trey Reik 44:36
I in along those lines, I did see that in the most recent month, ETFs had their biggest gold inflows in some time. So that seems to be changing, but that’s a great segue to my last question. You got to have one barn burner at the end, and that is, you know, to our viewers who are cognizant of the gold mining industry, you know, really earning a. Reputation for capital allocation and, you know, execution and that type of thing in the bad decisions that were made after the period gold went up 12 years in a row, which, you know, obviously eroded capital discipline, management discipline in the industry in 2010 2011 i i think gold stocks are still paying the price. But the question is, given that gold stocks have underperformed the metal now for a decade, sort of what? What is going to change that? And you know, why should investors expect gold shares to turn that around, that now perform in the future?
Rudi Fronk 45:43
Well, I think for two reasons. Number one, let’s face it, I mean, revenues are at all time highs. We’re going to be reporting our record revenue is on the on the producer side, in the not too distant future, and the impact of inflation is, is, yeah, it’s probably still there, but not to the extent that it was. So I don’t think we’re going to see a lot of disappointments on the cost side versus the revenue side. So I think companies will be reporting record profits, record cash flows. And then I think as they do that, they now need to start focusing on what comes next for them, and that’s where projects like KSM will stand out in terms of an opportunity because of the capital efficiency. I mean, KSM can show a mine plan now, 33 years producing gold at a cost of less than $600 an ounce, all in, including all the capital. You know, there’s very few projects out there that can move the needle for a major mining company like KSM can. So I do believe that as we go forward and more, more of a profitability is out there in cash flow, companies will start to get valued based on on cash flow and dividends. Right now, you look at the major gold companies, they’re doing pretty well in terms of their dividend returns and but just not so much in terms of their their valuations.
Trey Reik 46:58
Coming back to sea bridge, could you give me a summary on the metal in the ground per share?
Rudi Fronk 47:06
I think you did that in your last write up. So we have, we have two ounces of gold in the ground per common share. We have over 600 ounces, sorry, 600 pounds of copper per common share. We have nearly a billion ounces of silver, and we have over a billion pounds of molybdenum. I think if you add all that up, that today’s metal prices, last time I did the calculation, I think it was over $8,000 of metal in the ground per common share, and we’re trading
Trey Reik 47:36
just under 12 bucks right at 12 bucks, correct? So
Rudi Fronk 47:39
that’s that option. If that’s not optionality, I don’t know what is.
Trey Reik 47:44
So is there anything else that we missed or that you’d like to put on the table about sea bridge or the industry, or your part of the industry? Yeah, I forget.
Rudi Fronk 47:55
Yeah. I think a question that I get asked a lot is you’ve been talking about a joint venture now, for many, many years. Trey, you and I go back a long time, and you know, I’ve been talking about a joint venture. That’s what’s required at KSM. And the question is, why hasn’t it happened yet? Rudy, why is it taking question? Yeah. And look, I get this question asked this question quite a bit, and rightfully so. You know, I think to get a joint venture done on KSM. We have to have an open window where many, many factors align. If you look back over the plus 10 years, you know, in 2012 KSM was out there as a big opportunity, yet it was not yet permitted. There was a lot of skepticism on partnership discussions, where that this project could actually get permitted? Well, we did in 2014 we got the environmental approvals. We then go out and start talking about KSM on a joint venture. You know, from 2012 when gold hit, I think 1900 by 2015 it was 1050 the market created. The big companies were never not looking for big projects again. They were actually looking to sell non core assets paid down the mistakes of their past. Things start to recover in 2018 we actually received a number of proposals for joint ventures, one of a major copper company, and then the copper market fell apart, going from, I think about $4 down to 220 as a result of the China trade wars. Okay? We come out of that. Discussions continue again, and then COVID hits, big companies were more inward looking, not outward looking. You couldn’t even do due diligence trips to KSM because Canada closed for a couple of years. Also at that point in time, a lot of the big companies that were looking at KSM were concerned about our mine plan back then involved not just open pits, but also big block caves. And very few companies know how to block cave and underground mining technique. That’s that’s challenging, so we go out and acquire the East Mitchell deposit from our next door neighbor, prettium, which allows us to convert the project to open pit only for 33 years with tremendous. Economics, and we get that updated, PFS out there, and dialog continues. We then go out and hire RBC Capital Markets to run a joint venture process. We have seven companies at the table engaged. There’s never been an issue raised in terms of a potential fatal flaw from this project, in terms of reserves, resources, permitting, social license, or any of that. We’re now at a point where we believe the window is finally open. Metal prices, check that box. Permitting with substantially started check that box. Obviously we got to defeat these, these petitions, which will get defeated. But most importantly, the big companies now know they need new projects, and all of them are out there on the hunt. So I think when you talk about things aligning, stars aligning and having the window open, now is the time to get a deal done. And that’s why I sit here confident that this is the year to get it done. Fantastic.
Trey Reik 50:52
So with the disclaimer that, of course, our discussion is in no way a solicitation for folks to buy sea bridge shares, we will admit that we’re watching the situation very closely. We’re rooting for you, as we have for years, and it’ll be interesting to see how well you do on your 2025 corporate report card. Thanks, Dre. Best of luck. Thanks for your time. Totally My pleasure. Thank you. Good to talk to you. Rudy, bye, bye.
