Why Seabridge Says No to Mining Projects

By Eric Jackson07/14/10 - 08:00 AM EDT

Stock quotes in this article: SA , NEM , ABX , GG

Rudi Fronk has been the Chief Executive Officer and President of Seabridge Gold(SA) since 1999. In this recent interview, he talks about the company's history and two key Seabridge projects in Canada.

Tell us how Seabridge started.

Fronk: We launched Seabridge in October 1999. At the time, gold was trading for well below $300 an ounce. The dollar was strong. People wanted to buy technology stocks. Gold had fallen completely out of favor. However, we thought it would eventually rebound.

Seabridge's Advantage

With my partners at Seabridge, during this depressed gold price period, we looked to acquire uneconomic gold assets. We hoped we could convince their owners to sell these deposits to us at low prices. We wanted the gold assets to be in the ground still with low holding costs so we could wait for prices to come back. We wanted them in politically stable countries, where they weren't going to be expropriated by the government on a whim. We wanted projects that had additional exploration upside which could be exploited later. Our concept was to create a public vehicle that supplied our shareholders a high-leverage investment on the gold price.

During the early years from 1999 through 2002, we bought nine deposits after looking at more than 100. We spent $15 million on the nine deposits we purchased at which previous owners had estimated about 15 million ounces of gold still in the ground. The parties we bought the projects from had already spent $300 million to find them, so we really were getting them for pennies on the dollar.

So the approach you took with Seabridge sounds like it directly was influenced by your experience at Greenstone.

Absolutely, experience is the best teacher. I ran Greenstone from 1993 through early 1999. During that time we discovered a number of large gold deposits in Central America, totaling approximately 5 million ounces. We completed bankable feasibility studies on three projects, raised capital to build them and were going through final commissioning on two of them just when the price of gold began to collapse. To make matters worse, in 1998 hurricane Mitch came through Central America devasting our supply chain. To build these mines, we took on significant debt. In 2000, the projects were expropriated by the Honduran and Nicaraguan governments. It is interesting to note that two of these mines are still in production today.

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Gold's Appeal, Even in Deflationary Times

By Eric Jackson
RealMoney Contributor
6/7/2010 5:00 PM EDT
Click here for more stories by Eric Jackson

Last week, I met up with Eric Sprott, a hedge-fund manager who has been a pronounced gold bull and market bear since the 2000 Nasdaq bubble burst. I will post a full interview with him later this week inTheStreet. In the meantime, I want to lay out some of his arguments concerning gold for you to consider.

Gold is seen by some investors as a useless yellow rock. You can't eat it, this line of thinking goes. It was something that people clung to centuries ago, but it has no use today -- especially when there are so many compelling stocks to invest in. Besides, the thinking also goes, if you want safety, you can buy U.S. Treasuries. People who pooh-pooh gold also tend to characterize the gold bulls as kooky, end-of-the-world types.

It was anti-gold thinking like this that drove down the price of gold 10 years ago to $250 per ounce. That drop in the price of the metal also coincided with the ultra-high-risk appetite that investors had at the time for tech stocks.

Many non-followers of gold assume that what drives the value of the metal is inflation. But we've seen the value of gold quintuple over the last decade in a period of deflation -- not inflation. And many are of the view that deflation will be with us for the foreseeable future.

Sprott's view of gold is that the metal is -- and will be -- driven by two fundamental factors: (1) limited supply of the metal and (2) a view that the metal will become increasingly seen as a safe and alternative currency vs. other fiat currencies.

On the first factor, physical scarcity, you might not realize that there are only 162,000 tons of gold in the world today. And all the miners of the world are only extracting another 2,500 tons annually. If suddenly all central banks and investors decided that they wanted to allocate 5% of their portfolio to gold, there would not be enough to go around.

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