NEW YORK (
is hoping to profit from an exit strategy as
Seabridge is a development and exploration company that doesn't produce any minerals. It buys reserves, explores and then looks to sell its assets at a high price. The company has sold smaller properties to finance exploration but is still hoping for a major miner to buy the whole package.
Seabridge has a market cap of over $1 billion, but the stock seems to have stalled at $27 a share. I sat down with CEO Rudi Fronk at Dahlman Rose & Co.'s recent emerging-mining conference to monitor Seabridge's strategy as gold prices reached new highs.
: We started this business plan a little more than 10 years ago when gold was trading well below $300 an ounce with the view back then that gold did have a future. What we thought would
be the best leverage play to a rising gold price
was buying advance-stage gold assets located in North America. We were able to buy these for pennies on the dollar and then in 2002 when the price of gold began to move we began further exploration on these properties
which has led to some tremendous growth and resources.
Fronk: We're now sitting as a company with 64 million ounces of gold in the ground, all located in North America with less than 40 million shares outstanding; meaning that each of our shares is now backed with 1.7 ounces of gold in the ground. Nobody in the industry comes close to that
Why don't you actually take metal out of the ground
Fronk: Our business plan was to buy low and sell high. We don't intend to build and operate mines. We think that should be left to the experts in the business, the guys that have the big balance sheets and the technical expertise, that want to build and operate mines. Our view is that the extra risks you take on to try to make that transition from explorer to producer are a lot of risk. We'd like to avoid those. So now with the gold price where it's at, our ability to either partner these projects up with well-established companies or be taken out by a larger company is a lot better today than it was 10 years ago when we started.
What's next? What is your long-term goal
Fronk: When you look at our asset base today we have two major assets KSM, Kerr-Sulphurets-Mitchell Project, in British Columbia and Courageous Lake in the Northwest Territories. Of our 64 million ounces, more than 59 million ounces are around those two big projects. The smaller stuff in the portfolio is what we are selling right now as a way of generating funding for our larger projects. This allows us to continue to advance the big projects without equity dilution.
We would prefer to sell the company in its entirety to a larger mining company that wants two big assets to build and operate. We recognize that we don't make that determination. We're open to the ideas of joint ventures at the appropriate time where the majors would come in and build and operate, and we would have some sort of carried interest. But out preferred exit strategy is to be taken out by a major gold company in exchange for their common shares.
Fronk: Well, I think that when you look at the universe of North American gold players there's five or six that have the technical and financial wherewithal to build projects the size of KSM and Courageous Lake. So you would be looking to the majors like
. Those would be the most likely names.
Fronk: I think what's interesting right now is you're seeing a lot of interest for these types of assets being shown by the Asian community. You've seen deals recently done by Xinxing on assets like KSM, bidding for other assets like KSM in Chile by Xinxing and others. So you're now starting
to see not just the North American players but the Asian players coming in and looking as well.
What is your gold price target
Fronk: I tend not to try to predict gold prices. We do believe it will go higher ... one of the things that's interesting is most people think
of gold as a commodity. Gold is not a commodity. Annual supply and demand mean nothing to the price. Every ounce of gold ever mined as supply is available today; it can come back to the market. It isn't consumed, it doesn't go away. And in its simplest form gold is money. It's been money for 6,000 years. It competes against currencies, and right now on a global basis you have central banks around the world increasing the amount of their currencies outstanding by leaps and bounds whereas the quantity of gold isn't going up. So gold relative to just about every other currency on the planet in our view will do better.
What's your price target for your stock
Fronk: It's hard to say. It's what will a buyer be willing to pay. We can point to transactions that have been done on assets like KSM by the majors where they pay $50 to $75 upwards to $100 an ounce. At $50 an ounce valuation, we're looking at a market value of $3 billion, and at 40 million shares outstanding that's a much higher share price than $27 a share.
Written by Alix Steel in New York
Alix joined TheStreet.com TV in February 2007. Previously, she held positions in film and theater production, management, and legal administration. Alix has a degree in communications and theater from Northwestern University.