The broadcast began with Rick Rule explaining why he expects the gold price, up 24% in 2020, to keep rising. Quantitative easing, federal debts and deficits, and most importantly, negative real interest rates, all of which debase fiat currencies, such as the U.S. dollar, are expected to continue. These factors cause people to worry that the purchasing power of the currency their investment and savings assets are denominated in will decrease. It is during these periods of fear that precious metals and precious metals equities tend to move higher, as shown historically.
"If you believe that the immediate past is prologue and that the government will continue to debase the currency then you need to consider gold," Rule said.
It is possible but unlikely, Rule said, that the gold price does not trend as expected. Perhaps, President-Elect Joe Biden "suddenly adopts fiscal sanity" or savers move their money into a different investment, say, S&P 500 exchange-traded funds.
Rule pointed out that when the gold price rises, gold stocks benefit disproportionately. Thus, gold stocks tend to dramatically outperform gold during bull markets. Further, optionality stocks, greatly leveraged to the gold price, often perform the best. Seabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) is one of those stocks.
During the question and answer session, Rule noted that Sprott is a large holder of Seabridge and has held it for a long time, but Seabridge is not one of its top holdings. This is because, Rule said, not all of the 220,000 investors for whom Sprott manages money have the same desire for gold optionality; some are looking for dividends.
In the broadcast's next segment, Seabridge was the topic. Earlier in the week, the company hit a technical benchmark when its relative strength rating increased to 83 out of 99. Analysts rate Seabridge a Buy and have price targets on it that range from $35–109 per share.
Chairman and CEO Rudi Fronk shared how Seabridge fared in 2020. The year was busy despite having to cut back various programs due to COVID-19. However, work got done at all of the explorer's projects, and not one person at any of its operations contracted the coronavirus. The 2020 highlight was Seabridge's acquisition of KSM-adjacent Snowfield, which has 26 Moz of gold in the Measured and Indicated category and 9 Moz Inferred.
KSM, located in northern British Columbia's Golden Triangle, is the world's largest undeveloped gold project and undeveloped copper project in the world, Fronk described.
Copper now is an important part of KSM. Since 2016, before which Seabridge had a small copper resource, it added about 33 billion pounds (33 Blb) of copper at the Iron Cap and Deep Kerr deposits to the Inferred category. Today, the Measured and Indicated copper resource stands at 17 Blb.
Today, copper is in great demand, as it is used in luxury vehicles and new energy initiatives, but current production is not satisfying demand, Fronk said. Due to this supply and demand dynamic, the copper price is expected to go much higher.
KSM differs from other undeveloped gold-copper projects in that it has the needed infrastructure—power, ports and roads, and Seabridge has all of the required permits to start construction.
The plan for the project is to form a joint venture with a company or a combination of companies to develop it. The partner would mostly invest the upfront $5 billion in capex to get KSM to production. Seabridge would hold on to a share of KSM through a retained interest.
"We would like to take our share of profits back in physical gold and dividend out that physical gold to shareholders," Fronk added.
He noted that only seven or fewer companies exist that have the financial, technical and social capabilities to develop KSM. One of those, mentioned in a question from a viewer, is Freeport-McMoran, the world's largest public copper producer with significant blockading experience. With gold and copper prices "on a tear," Fronk said, the timing is right for the big companies to do deals.
Next, Fronk presented a handful of slides covering the key points about Seabridge.
One, the company aims to increase ounces in the ground faster than shares outstanding, thereby providing to shareholders optionality to the gold price. To date, it has achieved this through acquisitions and exploration. At year-end 2020, Seabridge had 74 million outstanding shares but almost 160 million ounces of gold in all resource categories.
Two, per share metrics matter to Seabridge, which always measures itself in ounces of gold per share in terms of reserves or resources. It owns 0.60 ounce of gold reserves per share of reserves and 2 ounces of gold resources per share.
Today, Seabridge is trading at about $35 per ounce of reserves and about $10 per ounce of resources. The company bought the Snowfield resources for about $3 an ounce in the ground, "which makes it immediately accretive to us because the economics of the project will be well beyond that," Fronk said. Snowfield allows for open pit as opposed to blockade mining, in which few companies have experience. Including Snowfield in the KSM mine plan should boost gold reserves, net present values and internal rates of return. With Snowfield, Seabridge expects that the KSM project can be mined via open pit for 30 years and produce 1 Moz of gold annually.
Three, Seabridge has a 21-year track record of significant outperformance in a rising gold market, so if the gold price is going up, so will the company's shares. Since inception in 1999, Seabridge's share price has increased almost 10,000% whereas the gold price during that period rose just over 500%.
Four, all of Seabridge's projects are in the political risk-free jurisdictions of Canada and the U.S., and the company intends to stay in those regions only.
Five, 30% of Seabridge's stock is and has been long owned by insiders.
Fronk then, in fielding questions, said that Seabridge's long-term plan is to turn cash into gold and distribute it to the shareholders. This means raising cash by selling noncore assets or shares and then reinvesting that money into projects prospective for gold via acquisitions or exploration.
As for potential Seabridge stock catalysts on the horizon, a major one is an updated prefeasibility study on KSM that incorporates Snowfield, expected to be completed in 12–14 months. Another catalyst is exploration success as the company intends to explore at Iskut, Snowstorm and 3 Aces this year.
"We have a busy year in front of us," Fronk said. "I think the most important aspect I want to get done this year is a joint venture on KSM."
According to Rule, investors should take note of Seabridge's past performance, its inside ownership and Fronk's 20 years of developing relationships with various Indigenous groups in Canada and the U.S.
In terms of the market, Rule pointed out that precious metals and precious metals-related assets are "underowned despite their attractiveness," accounting for only 0.5–1% of savings investment assets in the U.S.. Should all precious metals assets revert to the 30-year mean market share of 1.5–2%, demand for them "will triple in the U.S., which is sort of what I think is going to happen."
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Disclosure for Streetwise Reports:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures for StreetSmart Live:
1. The following companies discussed in this broadcast have paid a fee to participate: Seabridge Gold.
2. This broadcast does not constitute investment advice. Each viewer is encouraged to consult with his or her individual financial professional and any action a viewer takes as a result of information presented here is his or her own responsibility. This broadcast is not a solicitation for investment. StreetSmart Live does not render general or specific investment advice and the information should not be considered a recommendation to buy or sell any security. StreetSmart Live does not endorse or recommend the business, products, services or securities of any company mentioned here.
3. Statements and opinions expressed are the opinions of the presenters and not of StreetSmart Live or its officers. The presenters are wholly responsible for the validity of the statements. StreetSmart Live requires presenters to disclose any shareholdings in, or economic relationships with, companies that they write about. StreetSmart Live relies upon the authors to accurately provide this information and StreetSmart Live has no means of verifying its accuracy.
4. From time to time, StreetSmart Live and its directors, officers, employees or members of their families, as well as persons interviewed for broadcasts and interviews on the site, may have a long or short position in securities mentioned. As of the date of this broadcast, officers and/or employees of StreetSmart Live (including members of their household) own securities of the following companies discussed in this broadcast: Seabridge Gold. Seabridge Gold does not have a consulting relationship with StreetSmart (description available at https://www.streetwisereports.com/disclaimer/html#consulting).
5. Rudi Fronk is the CEO of Seabridge Gold and owns securities of the company.
6. Disclosures for Rick Rule, senior managing director of Sprott Inc. and president and CEO of Sprott U.S. Holdings:
I, or members of my immediate household or family, own securities of the following companies discussed in the broadcast: None
I personally am, or members of my immediate household or family are, paid by the following companies discussed in the broadcast: None
My company has a financial relationship with the following companies discussed in the broadcast: None
Funds controlled by Sprott Inc. hold shares of the following companies discussed in the broadcast: Sprott holds shares in managed accounts
7. Disclosures for Cyndi Edwards:
I, or members of my immediate household or family, own securities of the following companies discussed in the broadcast: None
I personally am, or members of my immediate household or family are, paid by the following companies discussed in the broadcast: None
My company has a financial relationship with the following companies discussed in the broadcast: None
