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By Dennis Boyko
Created on: February 3, 2010
Current version 0.30: April 22, 2010 -- Updated CapEx estimates on KSM based on March 31, 2010 news release.
Metrics have been updated with closing prices available on 2010-Sep-08.
Projected fair market stock price for Seabridge Gold Inc. at the close of trading on 2010-Sep-08 was C$106.02. The actual closing stock price was C$31.39.
At the close of trading, the current and projected Market Capitalization per ounce of Gold Equivalent for Seabridge Gold Inc., were:
current market valuation: US$13.11 per ounce of Au Eq.
projected fair market valuation as a gold producer: US$102.81 per ounce of Au Eq.
Seabridge Gold in situ metal value is approximately 65.8% from gold.
The KSM deposit is roughly 86% of Seabridge Gold's total in situ metal value.
The projected fair market capitalization per ounce of gold equivalent has been set at 50% of valuation on the Gold Producer Valuation line to discount copper and other projects.
The expected valuation change is outlined in the chart below. The market capitaliztaion per ounce of gold equivalent for Seabridge Gold is expected to increase from the current valuation to the projected valuation (project valuation is 50% of what the valuation would have been on the Gold Producer Valuation Line.
Projected fair market stock price for Seabridge Gold Inc. is derived using the projected fair market valuation at start of production of US$102.81 per ounce of Au Eq (as derived above) and the following assumptions:
Capital Expenditure for mine development: US$3370M -- this is based on CapEx figures from Preliminary Feasibility Study Completed for Seabridge Gold s KSM Project Wednesday, 31st March 2010
Risk Premium: 25% applied to the capital expenditure,
Discount Factor: 25% -- set to cover a multi year gap between now and a future start of production on the deposit.
The discounting of the future gold metal prices after the start of production are already fully accounted for in the Gold Producer Valuation Line which is derived from current day market prices and company fundamentals.
The supporting model and the calculations used to produce the projected fair market stock price are detailed in Fair Market Price Calculations.
The discounting applied to Seabridge Gold is consistent with the discounting the current market applies to Yamana Gold (YRI on the valuation chart). Yamana's in situ metal value is approximately 33% from gold and the rest from copper and other base metals. As a result, Yamana (YRI) falls well to the left of the Gold Producer Valuation Line in the current market.
This blog only considers the KSM project and does not consider the other significant gold properties Seabridge Gold holds. As such the projected fair market value on Seabridge Gold stock price is a very conservative floor value. When this blog was initially released, Seabridge Gold stock price could more than double and still be undervalued relative to the projected fair market price. However, the time for the market to recognise and correct the degree to which Seabridge Gold was priced is unpredicatable.
The fair market valuation of Seabridge Gold illustrates the extent to which current gold explorers and gold developers in general, and Seabridge Gold in particular, are undervalued relative to the valuation the market has assigned to Gold Producers.
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Gold Key:
AEM
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| PZG
| RIO
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| TVI
| YRI
Mouse over a key symbol to read graph values
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Reasonable rates and excellent value.
For the chart above, Seabridge Gold Inc. has an average ore value per tonne (y axis) of US$40.73 and a Market Capitalization per ounce of Gold Equivalent of US$13.11.
The Gold Explorer-Producer Valuation Hypothesis is based on the data driven observation that a company's market capitalization per ounce of gold equivalent tends to rise based on the current valuation of the metals contained in an average tonne of ore. For developer/explorers, it is also assumed that the true Explorer-Producer Gap should be large enough (but no larger) to cover the expected future capital expenditures, risk premiums and time discounts.
The original motivation for the Gold Explorer-Producer Valuation Chart was developed in Junior Gold Explorer Valuation Observations. Application steps and the generic factors that need to be considered in applying this valuation method are further described in Gold Explorer-Producer Valuation Exceptions.
This blog is based on the stock fundamentals and current metal prices as documented in the Seabridge Gold Metal Valuation Report.
The Gold Explorer-Producer Valuation chart is updated after the close of trading using closing stock prices, closing spot market metal prices, fully diluted share counts, and NI 43-101 resource and reserve disclosures.
Last update was for the market close on 2010-Sep-08.
This GoldMinerPulse blog is presented for the sole purpose of illustrating how GoldMinerPulse per company metrics may be useful in judging valuation of individual gold and silver mining stocks. This blog should not be considered as investment advise. Anyone using this blog should become familar with the GoldMinerPulse metrics and the underlying assumptions to access their usefulness.
The Major Gold Producer Valuation Line is shown to be linear with respect to increasing ore value. From available data, this assumption appears sound for evaluating Seabridge Gold.
Seabridge Gold web site.
Seabridge Gold NI 43-101 Metal Valuation Report for the company metrics derived using the last close of trading data.
Canadian Insiders for insider trades on the TSX
StockHouse for a Seabridge Gold discussion forum.
StockCharts.com for price charts.
Sedar for all TSX regulator filings. Sorry but you'll have to navigate the Sedar site as they do not allow direct links to company specific lists of document filings.
I have listed the best of links for anyone interested in researching Seabridge Gold Inc. further. If you have a blog or site with Seabridge Gold Inc. specific pages, please send me the link for review and I will include your work in the link section as appropriate.
Got comments? Questions? Please Talk Back.
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