Kerr-Sulphurets-Mitchell: ENGINEERING STUDIES
PRELIMINARY ECONOMIC ASSESSMENT (2008)
In December, 2008, Seabridge announced the results of a National Instrument 43-101 Preliminary Economic Assessment ("PEA") for its 100% owned KSM project. The base case estimated a 30 year mine life recovering more than 19 million
ounces of gold at an average cash operating cos of negative US$11 per ounce and total costs of US$233 per ounce after base metal credits.
The PEA clearly demonstrates that KSM has the potential to be a significant gold mine with compelling economics. There are very few undeveloped gold projects in the world today with the attributes of KSM long mine life, significant annual production, cash operating costs per ounce well below the gold industry average and substantial exploration upside all within a stable political environment. The PEA is a benchmark to build on. The 2008 drilling should improve the size and grade of the Mitchell and Sulphurets zones. The PEA identified enhancements which could reduce capital and operating costs, both of which could also benefit from the changing economic environment. The next iteration of the PEA is scheduled for Q2 2009 which will include an updated resource, new mine plans and revised cost estimates. Exploration, engineering and environmental initiatives planned for 2009 would culminate in a Preliminary Feasibility Study in early 2010."
The PEA envisages a large tonnage open-pit mining operation at 120,000 metric tonnes per day of mill feed to a flotation mill which would produce a combined gold/copper/silver concentrate for transport by truck or pipeline to the nearby deep-sea port at Stewart, B.C. A separate molybdenum concentrate and gold-silver dore will also be produced at the processing facility. A mine plan combining production from the Kerr, Sulphurets and Mitchell zones would sustain a mine life of approximately 30 years with the following production highlights:
Seabridge notes that the PEA incorporates inferred mineral resources. They are considered too geologically speculative to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Therefore, Seabridge advises that there can be no certainty that the estimates contained in the PEA will be realized. To address this issue, Seabridge designed its 2008 KSM drill program with the aim of upgrading inferred resources in the mine plan to the indicated category. The KSM resource model will be updated to include 2008 drill results in the first quarter of 2009.
Initial capital costs, including contingencies, for the proposed operation total US$3.4 billion, or approximately US$180 per ounce of gold produced over the projected life of the mine. Sustaining capital, closure and reclamation costs are estimated at US$943 million, or approximately $50 per ounce of gold produced. Average mine, process and G & A operating costs (including pre-stripping and waste handling) over the project's life are estimated at US$11.89 per tonne before base metal credits. These capital and operating costs use 2008 third quarter input prices which are above current levels.
A base case economic evaluation was undertaken incorporating historical three-year trailing averages for metal prices as of October 31, 2008. This approach is consistent with the guidance of the United States Securities and Exchange Commission, is accepted by the Ontario Securities Commission and is industry standard. Cases were also constructed using historic average metal prices for one and two years. Finally, a case was prepared using recent spot prices. The pre-tax economic results in U.S. dollars for all four cases are as follows:
Note: Operating and total costs per ounce of gold are after base metal credits. High base metal price assumptions can result in a negative estimated cash operating cost for gold.
The KSM PEA was prepared by leading industry consultants, all of whom are independent of Seabridge and are Qualified Persons under National Instrument 43-101. The consultants with their responsibilities are as follows:
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Wardrop Engineering Inc. under the direction of Frank Grills and John Huang (overall report preparation, metallurgical testing, mineral processing, process operating and capital costs and infrastructure)
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Moose Mountain Technical Services under the direction of Jim Gray (mine planning, mine capital and mine operating costs)
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W.N. Brazier Associates Inc. under the direction of W.N. Brazier (power supply and related costs)
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Rescan Environmental Services Ltd. under the direction of Greg McKillop (environment and permitting)
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Bosche Ventures Ltd. under the direction of Harold Bosche (ore haulage tunnel infrastructure, tailings delivery and reclaim)
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Klohn Crippen Berger Ltd. under the direction of Graham Parkinson (diversion and seepage collection ponds, tailings dam, tailings access roads, pipeline, haulage and diversion tunnels, hydro plant and dumps)
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Resource Modeling Inc. under the direction of Michael Lechner (mineral resources)
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McElhanney Consulting Services Ltd. under the direction of Robert Parolin (main and temporary access roads)
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BGC Engineering Inc. under the direction of Warren Newcomen (rock mechanics and mining pit slopes)
PRELIMINARY ECONOMIC ASSESSMENT (2009)
In July, 2009 Seabridge announced an updated National Instrument 43-101 Preliminary Economic Assessment ("PEA") for its KSM project. The Executive Summary can be found at here.
The updated PEA improved the economics of the project. Changes in design and a reduction in the strip ratio materially reduced capital and operating costs compared to the 2008 study. The updated PEA confirms that KSM can be a significant gold producer at a total cost per ounce well below the gold industry average with the added benefits of a very long mine life within a stable political environment.
Similar to the 2008 study, the updated PEA envisages a large tonnage open-pit mining operation at 120,000 metric tonnes per day of mill feed to a flotation mill which would produce a combined gold/copper/silver concentrate for transport by truck or pipeline to the nearby deep-sea port at Stewart, B.C. A separate molybdenum concentrate and gold-silver dore will also be produced at the processing facility.
Two mine plans are considered in the updated PEA: (i) a 30 year mine life designed to maximize a 5% net present value discounted mining schedule; and (ii) an extended 45+ year mine life based on larger pits designed to maximize total undiscounted net cash flow for the project. Both the 30 Year and the extended mine life scenarios would follow a similar development path and capital payback would occur in the same time frame for both scenarios. Although the extended mine life scenario provides useful information, the updated PEA concentrated on the 30 Year scenario which will be used in the preparation of a Preliminary Feasibility Study and in Seabridge's ongoing permitting program. Production highlights for the updated 30 year mine life are as follows (note the higher gold production in the earlier years):
Initial capital costs for KSM are now estimated at US$3.08 billion, compared to US$3.43 billion in the 2008 study, a reduction of approximately US$350 million, or about 10%. Reduced mine equipment requirements and several project design changes contributed to the reduced capital costs. A revised mining schedule optimized the mining operation by reducing waste-to-ore stripping ratio. The primary grinding plant is now located at the Mitchell mine site allowing ore to be transported by slurry pipelines and pumping stations (rather than conveyors) through a tunnel to a further processing site near the tailings management area with access to Highway 37. A high pressure grinding roll (HPGR) circuit now replaces the SAG mill circuit used in the 2008 study. The HPGR circuit will be refined subject to future test work. Rather than using a single large tunnel for ore transport and delivery of supplies to Mitchell, two smaller tunnels have been shown to be more cost effective, facilitating construction, ventilation and operational efficiencies. One of the tunnels will be used to transport ore slurry from Mitchell while returning water, diesel fuel and electrical power to the KSM mine site. The other tunnel will be used for transport of personnel and supplies to the Mitchell mine site from the plant location near Highway 37. After delivery of the slurry to the process plant, further primary grinding prior to flotation will be accomplished with efficient tower mills rather than ball mills.
Average mine, process and G&A operating costs over the project's life (including pre-stripping and waste handling) are now estimated at US$10.57 per tonne milled (before base metal credits) compared to US$11.89 per tonne milled in the 2008 study, a reduction of about 11%. Operating costs have been improved from the 2008 study by a new mine schedule which reduced waste-to-ore strip ratios, resulting in lower equipment and manpower requirements. Additionally, the use of the HPGR grinding and further regrinding with tower mills reduced operating costs for grinding media and electrical power.
A base case economic evaluation was undertaken incorporating historical three-year trailing averages for metal prices as of June 30, 2009. This approach is consistent with the guidance of the United States Securities and Exchange Commission, is accepted by the Ontario Securities Commission and is industry standard. An alternate case was also constructed using more conservative metal prices. Finally, a case was prepared using recent spot metal prices. The pre-tax economic results in U.S. dollars for all three cases are as follows:
Note: Operating and total costs per ounce of gold are after base metal credits. In the Base Case, using 3 year average base metal price assumptions results in a negative estimated cash operating cost for gold.
Seabridge notes that the updated PEA incorporates inferred mineral resources which are considered too geologically speculative to be categorized as mineral reserves. Therefore, Seabridge advises that there can be no certainty that the estimates contained in the updated PEA will be realized. To address this issue, drilling is now underway designed to upgrade the 277 million tonnes of inferred resource contained in the 30 year mine plan to the measured and indicated categories.
The updated KSM PEA was prepared by leading industry consultants, all of whom are independent of Seabridge and are Qualified Persons under National Instrument 43-101. The QPs have reviewed and approved this report. The consultants (QPs) with their responsibilities are as follows:
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Wardrop, A Tetra Tech Company, under the direction of Frank Grills and John Huang (overall report preparation, metallurgical testing, mineral processing, process operating, ore slurry tunnel and capital costs, and infrastructure)
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Moose Mountain Technical Services under the direction of Jim Gray (mine planning, mine capital and mine operating costs)
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W.N. Brazier Associates Inc. under the direction of W.N. Brazier (power supply and related costs)
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Rescan Environmental Services Ltd. under the direction of Greg McKillop (environment and permitting)
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Bosche Ventures Ltd. under the direction of Harold Bosche (conveyors, pipeline, pumping, infrastructure, tailings delivery and reclaim)
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Klohn Crippen Berger Ltd. under the direction of Graham Parkinson (diversion and seepage collection ponds, tailings dam, tailings access roads, pipeline, haulage and diversion tunnels, hydro plant and dumps)
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Resource Modeling Inc. under the direction of Michael Lechner (mineral resources)
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McElhanney Consulting Services Ltd. under the direction of Robert Parolin (main and temporary access roads)
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BGC Engineering Inc. under the direction of Warren Newcomen (rock mechanics and mining pit slopes)
