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By Dennis Boyko
Created on: February 3, 2010
Current version 2.0: January 26, 2012 -- Updated model parameters to account for the market changes. Specifically, Yamana Gold is now trading
at a significant premium to the Gold Producer Valuation Line estimate. Also due to Agnico-Eagle specific (Goldex mine) and Kinross (write down
of African assets) the Gold Producer Valuation Line estimate is extremely pessimistic. Therefore adjustments to the Seabridge valuation model
were warranted and over due.
Metrics have been updated with closing prices available on 2012-Feb-03.
Projected fair market stock price for Seabridge Gold Inc. at the close of trading on 2012-Feb-03 was C$62.63. The actual closing stock price was C$22.7.
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$8.22 per ounce of Au Eq.
projected fair market valuation as a gold producer: US$75.78 per ounce of Au Eq.
Seabridge Gold in situ metal value is approximately 62% 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 65% 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$75.78 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: 45% -- this discount accounts for the expected metals lost in the mining process as Measured + Indicated resources are moved into the Proven + Probable category and also accounts for the expected discount that a major would expect to see when purchasing a major project such as KSM. Given that much of the in situ metal content at KSM is already in the Proven + Probable category, this discount assumes that a major would be buying KSM at close the 45% below the fair market value. Clearly, this model is pricing the company at an extremely attractive discount for a major.
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.
It is important to note that this valuation model has not assigned any value to the other company properties. Given the size and exploration potential of Courageous Lake, as well as the exploration potential at KSM, this is a very conservative estimate.
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 very conservative relative to the current market applies to senior producers (KSM in production would make Seabridge a senior producer) such as Yamana Gold (YRI on the above chart) and Newmont Gold (metrics available in the GoldMinerPulse TSX/TSXv Gold/Silver Mining company report -- on January 25, 2012, Newmont had an average ore value of $50 per tonne and a market capitalization of $197 per ounce of gold equivalent (83.8% gold and 16.2% copper). Clearly valuing Seabridge against the Gold Producer Valuation Line Estimate is very consservative given that Yamana and Newmont in production have much higher valuations. I believe that the GoldMinerPulse choise of Agnioc-Eagle and Kinross as reference points has proved to be unreliable (ultra conservative) because of the issues Agnico-Eagle and Kinross currently have in the market (Goldex and Africa acquisition writedowns respectively).
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, is extremely undervalued to the valuations the market is currently assigning to gold/copper producers. Comparing the Seabridge KSM to Yamana and Newmont is warranted in my opinion. KSM is a much larger deposit than Yamana's flagship Chapada project. As well, KSM has approximately the same copper reserves or reserves plus resources that you will find in the entire set of Newmont current mines (5.06Mt reserve plus resources for Newmont versus 7.22Mt reserves + resources at KSM).
Gold Key:
AEM
| AND
| AUQ
| G
| K
| RIO
| TVI
| YRI
Place mouse over each key symbol to read graph values.
If the key symbol is shown in bold, click to view the GoldMinerPulse valuation blog
for that company.
For the chart above, Seabridge Gold Inc. has an average ore value per tonne (y axis) of US$53.27 and a Market Capitalization per ounce of Gold Equivalent of US$8.22.
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 2012-Feb-03.
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
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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