Episodes

[Music]

Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, Dan interviews Rudi Fronk, chairman and founder at Seabridge Gold.

Dan Ferris: And Carey and I pretty much have to talk about GDP numbers, core PCE numbers, and what we think the Fed will do, because that's what we're obsessed with.

Corey McLaughlin: Remember, if you want to ask us a question or tell us what's on your mind, e-mail us at [email protected].

Dan Ferris: That and more right now on the Stansberry Investor Hour.

[Music ends]

[Music]

Dan Ferris: So make a prediction for me. When will we stop obsessing about the Fed?

Corey McLaughin: We'll stop eventually. I'm confident of that, but I don't know, a year? What would it take, 3% fed funds? I don't even know.

Dan Ferris: A really bad recession followed by cutting rates, and people freaking out and then getting out of the market, and everybody moving on from inflation. Maybe that will be it. And when they go away completely. Definitely that would be the case.

Corey McLaughin: Boy, that sounds like a lot of fun, doesn't it?

Dan Ferris: Yeah.

Corey McLaughin: What do you think?

Dan Ferris: I think that we're going to have to sit down in front of the microphone one day and say, "This is it. We're not doing this anymore." It's just going to have to be cold turkey. Like right when everyone expects us to talk about it, we'll just start talking about other stuff.

But until then, we've got to talk about GDP came in pretty, kind of, hot. I think the expectation was like 4.5%, and it came in at an annual rate of 4.9%, real gross domestic product, in the third quarter of 2023. That's a warmish number. There's no recessing there.

I mean incomes were down or not up as much, but actually down in real terms. So that's not great, but this measure of economic activity is en fuego.

Corey McLaughin: Yeah. It was double what the rate was analyzed the previous quarter, in the second quarter. So if you're looking at that, you wouldn't say a recession is afoot. And consumer spending, the PCE numbers that you mentioned, also were pretty good for September, like 0.7% for the month, which is pretty large.

Dan Ferris: I thought that was pretty hot, too, yeah.

Corey McLaughin: Yeah. These are looking backward, so third quarter, September, but it just shows you what has been happening and if the consumer spending was still holding up for the last couple months. There's a lot of questions about where it's going to be in the future, but for now it's still holding up. Now what that means for the future, I don't know, but for now it's OK, I suppose, although you wouldn't know it by looking at the markets recently.

Dan Ferris: Right. They break down the personal income stats in the GDP report. Current-dollar personal income increased – well let's just call it $200 billion in the third quarter compared to $240 billion in the second quarter, so down.

Disposable personal income was up $96 billion, or 1.9%, compared with 6% in the second quarter. Real disposable personal income decreased 1% in contrast to a 3.5% increase. So even by these backward-looking numbers, there's potential for some slowth in the personal –

[Crosstalk]

Corey McLaughin: – and we see that in other numbers, too, the credit-card numbers and that sort of thing, which to me are alarming at this point. Auto delinquencies are picking up.

If you ask most people on the street, like whether things are going great, I don't think they would. I think they would say inflation is – making a broad-based statement – I think they would say inflation is still pretty strong and my pay is not going up, is what I would suspect. Make of that what you want. That's been going on for a long time, but it seems to be really stretched right now.

Dan Ferris: Yeah. So if we think about this, everybody wants to know: what will the Fed do next? Will there be a hike? Will they stick? The market seems to be saying they'll stick with the current range, the top end of the range, 5.5%. The long end of the curve coming up has effectively hiked.

Corey McLaughin: Right. I've heard that a lot, done the work for them, done the work for the Fed in terms of tightening.

Dan Ferris: But I remain – and I have all through the rally, so I admit my wrongness – but I have to remain really bearish on equities because people look at that 4.9% and say, "The economy is great, so the stock market it going to go up." That makes sense – eh.

What you should think of is GDP, bond yields, and equity returns all rising together. When yields and returns rise, bond prices and stock prices fall. So when the economy is really on fire, the bond yields go up, so bond prices fall, and that creates a knock-on effect, especially – other things being equal, there's a knock-on effect in the stock market, but especially when equities are still at mega-bubble valuations, still at like 28 CAPE, north of two times sales on the S&P 500. We're still in expensive territory here.

Corey McLaughin: Right. I think what we also forget is a strong economy isn't incentive for the Fed to loosen anything any time soon. We still have unemployment. While it's ticking up, the overall rate ticking up a little bit, it has not gone through a terrible decline yet. In terms of job losses, the unemployment rate hasn't spiked yet, when you've got 4.9% GDP.

We know what the Fed does. They're always late to everything. So if they're looking at this and saying, "Oh, the economy is still OK," despite whatever stories we may hear about people stealing all different things from dollar stores or whatever it may be, if we know anything about the Fed, we know they're probably going to do the wrong thing or the thing that should have been done six months ago.

What's also interesting, and I saw this last night on X, formerly known as Twitter, was in 2007, the fourth-quarter GDP was – what do you think it might have been?

Dan Ferris: In 2007?

Corey McLaughin: Right before the big crash, 2007.

Dan Ferris: Oh. I don't know. Off the top of my head, 4.9%.

Corey McLaughin: Exactly 4.9%, right before everything went to crap. In 2000, there was a 7.3% GDP, right before the bubble started bursting. So make of that what you will. The point is I think strong economies come before bad economies, when the Fed decides to trigger a recession.

Dan Ferris: Yeah, a little bit of Thanksgiving Day turkey dynamic there, fat and happy until you get your head cut off.

All right. I don't know if I have much to add to all this. I've still got to be bearish on equities because they're just way too expensive, and I think we've been through the most massive mega-bubble in all recorded history, etc., etc., all this stuff you've heard me say a million times. I'm still saying it.

Corey McLaughin: Right. If you look at it, we've been tracking different indicators and whatnot, and the S&P 500 has just recently gone below its 200-day moving average for a couple days in a row, and not great things tend to happen when that happens. There's the Magnificent Seven, leading the stock market higher.

It's becoming very clear now that that has been the case. If you look at equally weighted indexes, they're down at lows for the year. So yeah, it's been a tough couple of months. I wonder if this is the extent of – I see why you're bearing on equities. I wonder if this is the extent of this part of the sell-off we've seen in the last couple of months, but we'll see.

Dan Ferris: Yeah. Every decline is just another buying opportunity, right? Every dip is just another buying opportunity, right? That idea isn't beaten into us for well over a decade, really a couple of decades here. I worry about that. I worry about people thinking every decline is a buying opportunity.

Corey McLaughin: Yeah. I wouldn't be blindly buying dips, as you've written recently in the Digest. I mean if you're going to be buying, you've got to be selective and not just buying every 5% dip.

Dan Ferris: Yeah. That's getting harder. You mentioned the equally weighted indexes underperforming. Actually, the Magnificent Seven are all down, even Microsoft, since the market topped out on July 31. I think five of them are down double-digits since then. OK. Maybe they're done now, too. If so, ugh, boy.

Our friends over at SentimenTrader, I quoted them in the Digest recently. They're finding all kinds of things, like six of the eleven S&P 500 sectors have more than 50% of their stocks in a bear market. Every basic material stock, every stock in the basic material sector, highly economically sensitive in a downtrend.

Just a couple other headlines. NYSE stocks are losing their long-term uptrends. The first year of this bull market has been unlike any other, meaning if a new bull started a year ago in October, this one looks a little different.

Corey McLaughin: I would agree with that.

[Crosstalk]

Corey McLaughin: – small caps, yeah. Small caps have gone nowhere for almost a year. That's not a sign of a new bull market.

Dan Ferris: Anyway, we could probably pile these things up and make ourselves feel really wonderful about being bearish, but you get the point.

Corey McLaughin: I do think eventually, and this is something, if anybody has seen our e-mails and marketing lately, that our founder, Porter Stansberry, mentioned in his presentation last week, that eventually if this recession happens, which he thinks it will, in a bad way in 2024, this will create good buying opportunities that are worth it, you know, in good companies.

I'm looking at Hershey right now, which is no secret. It's been a favorite around here for a long time. I've been watching this for a while. It's down 30% since April. You would not think that that would be happening right now, but it is.

Now Hershey was also up throughout all of 2022 as kind of a defensive stock, I think, but now it's down. I mean that's a signal to me that there's some lowering of expectations for the year ahead, if a company like that is down 30%.

Dan Ferris: Yeah. But, Corey, that stock and others like it are being hit by this weight loss drug sort of panic in the food stocks, which ultimately I don't think that affects Hershey very much.

We had David Cervantes talking about this at the conference in Vegas last week. I don't know. It looks like all the stocks you'd buy to sort of ride it have kind of moved quite substantially. A couple of pharma stocks like Novo and Lilly have really cooked. I don't know. There's just something about it, like I'll have to see it to believe that it's that big of an effect.

Corey McLaughin: Yeah, me too. When I first started seeing those headlines and analysis, I was like, "Really?" The airlines were saying they were going to get a boost because people were going to be way less –

Dan Ferris: Yeah.

Corey McLaughin: That one seems a bit of a stretch to me. I don't know. So yeah, I guess that's my ignorance there on the impact for Hershey's shares, but again, if somebody is going to beat down the stock for that, then it could be a good buying opportunity. They make plenty of different products. They'll be fine, I think, over the long-run. So maybe the time is now for that particular stock.

Dan Ferris: It might be. It's like 20 times – the P/E is like 20 right now.

Corey McLaughin: Right. Anyway, my point was in a big, significant downturn, there will be buying opportunities like this, I think, for the longer-term. At the time, of course it will feel like you should be panicking, but you really shouldn't be, I think, at that point.

Dan Ferris: All right. Well, enough of this bullish dire talk.

Corey McLaughin: Do we want to say what the Fed is going to do?

Dan Ferris: I don't know. Yeah. I thought they were going to stick. The market thinks they're going to stick and I think that's probably right.

Corey McLaughin: I think so, too. There may be one more 25 basis point hike by the end of the year, like they've said for a couple months was the plan.

Dan Ferris: Right. Data dependent. We'll see. Between now and then, lots of data comes out and it could change that. I think 5.5%, it seems like it's starting to be enough to do whatever they want to do. It's enough to make investing almost normal again, in my viewpoint. So we'll see.

I'm looking forward to how the next couple of months develop. I'm afraid that it could get really crashy. But who knows? If it does get really crashy, maybe a couple months we'll be really bullish on this show. That would be fun.

Corey McLaughin: Yeah. I will. When it happens, I'm prepared to do that.

Dan Ferris: Yeah, as am I.

So on that note, let's talk to our guest, Rudi Fronk. Full disclosure, folks. We talked to him last week in Vegas. We talked to him all about his company and his career and the assets that his company, Seabridge Gold, owns. It really was, with one of the top guys in the business.

At Stansberry, we've known Rudi for 20-odd years. I mean since the beginning practically of the business. So we know him well. He's just a really great guy, a great mining entrepreneur. Let's go ahead and talk with him. Let's do it right now.

[Music]

Dan Ferris: The Fed wants you to believe they've got inflation under control, but I believe we've only seen the beginning of a devastating new crisis, and if you don't prepare now you could see your savings evaporate as inflation and interest rates soar even higher over the next two years. It all traces back to a golden thread that ties together the biggest financial calamities in America's history.

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I've spelled it all out in an urgent new report. Go to BankRun2023.com to get your free copy. I'll also show you how to get my complete playbook for navigating this crisis, including the three critical steps to take immediately. Again, that's BankRun2023.com for your free copy of my new report.

[Music]

Dan Ferris: Rudi, welcome to the show. I'm glad you could be here and talk with us.

Rudi Fronk: Delighted to be sitting next to you, Dan.

Dan Ferris: All right. So let's see. You are not really new to Stansberry subscribers. However, our podcast listeners are not necessarily all in that group. So I want to familiarize our listeners with you and with Seabridge, the company that you're well-known for.

So maybe you could talk a little bit about Seabridge and then we'll talk a little bit about deposit quality and all those good things that we need to know with a mining company.

Rudi Fronk: Great. I'm a mining engineer. I've been in the business for over 40 years. I've built mines around the world. I've had mines expropriate around the world. Political risk is real in our space.

In 1999, my colleagues and I took a look at the gold market relative to other financial assets and decided it was a good time to get into gold. God was trading at about $260 an ounce back then, and we believed that over time it would go substantially higher. Our goal was to create what we felt would be the best leveraged play to realize in gold price in a public company.

We've done that quite simply by going out and growing ounces in the ground faster than shares outstanding, the thought being that the more gold we can provide on a per-share basis the better our share price should do, if the gold price was going higher.

Dan Ferris: I've learned to love the leverage of well-delineated ounces in the ground, not just for gold, but for copper and other things as well. I assume you love that, too. What's good about that?

Rudi Fronk: What's good about it is, No. 1, we're not mining. Actually building and operating mines is a big challenge. I learned that in my career. It's all about optionality leveraged to a rise in gold price. Now I fully understand that an ounce of gold in your pocket is worth more than an ounce of gold in the ground, and that comes next in our business strategy as we transform our large project in British Columbia into a producing a mine through a joint venture with a major mining company.

Dan Ferris: OK. And the large project is approximately where in British Columbia?

Rudi Fronk: It's north of British Columbia. It's in an areas that's known as the Golden Triangle, right next-door to the Pretium deposit that was taken over by Newcrest recently, and just south of two big projects that are in place with Teck and Newmont.

Dan Ferris: Now as I recall, and correct me if I'm wrong here, there were some interesting issues with the Pretium deposit for a while. There was something about the use of certain statistical measures to identify the gold in the ground there.

Rudi Fronk: Yeah, [laughs].

Dan Ferris: You're laughing and nodding. So I assume I'm on the right track here, but I don't necessarily want to get into that. I just want to know if – the Golden Triangle sounds wonderful. So that was just an issue with that deposit and how they were trying to delineate it.

Rudi Fronk: That was the epithermal top of a core-free environment, where you have a lot of variability over short distances and grade. So you can drill a hole here, drill a hole 10 meters away from it, and you're trying to predict the grade in between, but there is such variability that you could be wrong.

In the case of Pretium, I think their original estimate was 15 grams per ton, and they're actually mining 8 grams per ton. Our project at KSM, it's the in the actual core-free environment, where you have much lower variability over larger distances. So you look at what is known as a variogram, which determines how close your drill spaces have to be, to be able to forecast grade.

Dan Ferris: OK. So my limited knowledge of deposit structure is that the really good ones, many of the really good ones are kind of mushroom shaped. You get this _____ stalk and then it kind of spreads out over the top. What is the general shape of the KSM deposit?

Rudi Fronk: We have five deposits at KSM. We call it a project that's really a district. Four of the five deposits have over two billion tons of economic resources. These are massive deposits that host not only gold, but also copper, silver, and molybdenum.

Dan Ferris: OK, gold, copper, silver, and molybdenum. What's the main metal that you go after? Are they all in equal proportions or what?

Rudi Fronk: Each deposit is different in terms of gold versus copper makeup. The pre-feasibility study we now have completed with the mine that's permitted, focuses more on the higher-grade gold deposits. So if you look at our mine plan, that gives you 33 years of mine life now. That's probably 70% gold, 25% copper, and then some silver and some moly.

Interviewer: And no mining taking place at all?

Rudi Fronk: At this point in time, no. One of our guiding principles, which comes from my experience in the past, is we will never build a mine ourselves.

Dan Ferris: Good for you, because I've seen people do this thing where their business model kind of morphs. I thought they were one thing, and then a few years later they say, "We're going to put all our capital into this one flagship project." That's when you sort of know they've sort of screwed the model and it's not a good thing to see it. So I applaud you for sticking to your guns and not getting into mining.

Rudi Fronk: You'd think as a mining engineer I should, but I've learned the lessons the hard way. So our goal instead will be to bring a major mining company in as a partner to co-develop this asset, but they'll do all the heavy lifting, and we will retain somewhere between a 40 to a 49% interest in the project, as they spend most of the capital to build the mine.

Dan Ferris: We being Seabridge?

Rudi Fronk: Seabridge, correct.

Dan Ferris: And Seabridge, is the ticker still SA?

Rudi Fronk: SA. I'd say it's South America, but the SA actually is S for Seabridge and A for the symbol for gold. I couldn't get SAU.

Dan Ferris: OK, darn it, so SA, Seabridge. When did you start Seabridge? How long have you been doing this?

Rudi Fronk: I formed Seabridge in October of 1999. I had not yet turned 41. I'll be 65 next month.

Dan Ferris: Good timing.

Rudi Fronk: So this has been 24 years of my life dedicated to building value for shareholders.

Dan Ferris: Wow. And gold in 1999, wasn't it still like $250 or something?

Rudi Fronk: Correct. It was a great time to be buying assets. I personally believe that the gold industry, as an industry, could be the worst allocators of capital of any business on the planet. If you look at the major mining companies, they do all their deals at market tops. They overpay. Then when the market goes against them, that's when they're selling non-core assets for pennies on the dollar.

That's what we did. From 1999 to 2002, we scoured the portfolios of the major mining companies. We wound up buying nine deposits. These nine deposits initially gave us 15 million ounces of gold in the ground. The previous owners had spent over $300 million defining them, and we bought them in the aggregate for $15 million.

Dan Ferris: Whoa.

Rudi Fronk: So that's, again, misallocation of capital by the –

[Crosstalk]

Dan Ferris: – discount to the original, I'm not saying that was the original value, but it was the original price.

Rudi Fronk: Yeah.

Dan Ferris: That's pretty typical. Rick Rule makes the point often that the gold industry on the whole – I forget the period in time. It was a couple of decades at least. It produced zero free cashflow. They consumed capital during the period. It's always been a highly cyclical thing, hasn't it? I mean all resources are like that. It's sort of normal, I hate to say.

Rudi Fronk: Agreed. Gold is a bit different in that. It's not annual supply and demand fundamentals that determine the gold price. It's what is gold worth relative to other financial assets. It's very different. Every ounce of gold ever mined from the beginning of time is really available as supply today.

Dan Ferris: What is gold worth relative to other financial assets, Rudi? I'd like to know that myself.

Interviewee: That's a good question. I've heard some people talk about the price of gold should equal basically what you would go and buy a very expensive tailored suit for. I hear the argument in the U.S. that it's a handgun. That's what should be the price of an ounce of gold.

Dan Ferris: Let me tell you something, 1,800 bucks will get you a nice handgun.

Rudi Fronk: Yes it would. Maybe not too much of a nice suit anymore.

Dan Ferris: No. I mean I've bought rifles for that that were really nice.

Rudi Fronk: I mean our view is that with what's going on in world today, the price of gold is going to go substantially higher. As a matter of fact, we're forecasting that by the end of this year, which is only a couple of months away, gold will break through and be above its all-time high, which was about $2,063 an ounce. Then over the next few years beyond that, we're going to see gold trading at multiples of where it's trading at today.

Dan Ferris: I'm real curious about the inputs in the forecast. I mean we're talking near-time. You've got very little time for this thing to come true, so I'm really curious about the inputs.

Rudi Fronk: We believe that a recession is inevitable. That's not what's going to drive gold. It will at some point, but I think the canary in the coal mine right now is the Treasury market.

When we look at the amount of Treasurys in the U.S. that have to be purchased next year, if you add it up it's $10 trillion. Historically, Japan, China, and Europe bought those Treasurys. They're now sellers.

You had commercial banks buying for a while. They're no longer buying because it almost broke the banking system. The buyers of the Treasurys right now are hedge funds, and they're using tremendous amounts of leverage to build positions.

Remember long-term capital management? What could possibly go wrong?

Dan Ferris: That's right, highly leveraged. They were doing that on/off _____ in treasury trade. What could possibly go wrong? Yeah.

Rudi Fronk: So our view is that the Fed is going to actually have to come in and be the buyers of Treasurys, because the rest of the world is not doing that. When that happens, that's when gold catches a bid that is really hard to believe.

Dan Ferris: I almost want to say, gosh, I hope not. Rick made that point from the podium in Las Vegas when he was there in our conference, and it's true, isn't it. We really don't want all this to happen, but its inevitability – [inaudible] – to have quite a career.

Rudi Fronk: Well, career and also hopefully a nest egg. I've got 95% of my family's net worth in Seabridge common shares.

Dan Ferris: Wow. Skin in the game. "Skin in the game" has become a thing since Nassim Taleb wrote a book of the same title a few years ago.

Rudi Fronk: It's been my baby for 24 years. I have a very patient wife. If you look at the history of our share price, it started out at about $0.10 per share. Steve Sjuggerud recommended us in 2002 at $2 a share. It was Steve's best recommendation ever in his career, going from $2 a share to over $20 a share return to Stansberry readership of 995%. It was No. 1 on the Hall of Fame for a number of years at Stansberry –

Dan Ferris: I remember.

Rudi Fronk: – which is topped now with cryptos. Then we went from high 30s down to single digits again, and then high 30s again. Then coming out of 2011, when gold went from $1,900 down to $1,05, our share price went from high 30s down to single digits.

Dan Ferris: So ultimately, maybe you're going to wind up – maybe you get some more gold price appreciation, which gives you equity price appreciation, and sell it to a big mining company. Sell the whole thing, lock, stock, and barrel to a big mining company.

Interviewee: No. Our preference is a joint venture. If you look at KSM today with the mine plans that we have in place, we can show a mine that's going to produce over a million ounces of gold a year, with 33 years upfront, and that's only capturing about 20% of the known deposits there. But that mine will have an all-in cost of production of about $600 an ounce, including all of the upfront capital, the sustaining capital, the closure costs, and the operating costs.

The industry today is making gold at $1,300 an ounce. The first seven years of mine life at KSM at today's metal prices generates over $2 billion of free cashflow a year. If we can hang on to 40% to 49% of that in a joint venture, that's a big number relative to our market cap today. Give me a multiple on that. That's why John Doody at the Gold Stock Analyst has a $75 target price on our shares, when today we're trading at $11 per share.

Dan Ferris: What's the market cap now?

Rudi Fronk: About a billion U.S.

Dan Ferris: About a billion U.S. Wow. I didn't know that about John. That's a big call.

Rudi Fronk: It's been a 24-year overnight success.

Dan Ferris: Yeah, a 24-year overnight success.

Rudi Fronk: Think of it this way. If you ignore copper, ignore silver, ignore molybdenum, we have 170 million ounces of known gold resources in the ground. We have 83 million shares outstanding. Each one of our shares is backed by over two ounces of gold in the ground per common share. At $11 a share, it means we're trading at about $5 or $6 per ounce in the ground.

If you look at all the metal we have in the ground on a per share basis, it's over $6,000 per share, the gold, the copper, the silver, and the moly. That's where the optionality and leverage comes from. But more importantly, when these ounces start coming out of the ground it's going to really create value to our shareholders in terms of cashflow and gold flow.

Dan Ferris: Yeah. And just for our listeners' sake, the really great parts of the mining investing spectrum are what Rudi is talking about, plus at the other end, like a producing royalty would be a great thing. It's a one-time capex. It's a one-time investment. Then you're never on the hook for expenses or – you know, there's a _____ expense – but you're never really on the hook for expenses or capex ever again. That can be wonderful. We've seen that produce wonderful returns.

But we're back at sort of the earlier end with you, looking for answers in the ground. It's a wonderful thing.

So would you call yourself – I've covered Altius Minerals, a well-known prospect generator, which is at both ends. They are generating original prospects, retaining a royalty, and every now and then a mine gets built and they have this wonderful stream of income. What do you call yourself in that spectrum?

Rudi Fronk: How about a gold hoarder?

Dan Ferris: A gold hoarder, yeah. We've seen other people do this, too, with copper and other assets over the years.

Rudi Fronk: It's been the business plan from day one. We took advantage of those early years, from 1999 to 2002. We bought a bunch of assets. We grew those ounces and pounds of copper through exploration.

Before anything happened in 2015, valuations got decimated again. Gold went from $1,900 a few years before that to $1,050, and equity values got destroyed. We backed up the truck again starting in 2015, and have now completed three new acquisitions to start Round 2 of gold hoarding, by buying an earlier stage project with no mineralization, and we're now starting the drilling programs to start to define reserves and resources at our new projects.

Interviewer: All right. What percent is KSM of everything you own?

Rudi Fronk: In terms of market cap, probably 99.9%. In terms of gold in the ground, probably about 90%.

Dan Ferris: At this point, do you still drill it? Are you still delineating the resource?

Rudi Fronk: No. With 11 billion tons of known resources, we actually can show a mine life that goes for 200 years. There are targets there to go after. Don't get me wrong.

Dan Ferris: Which is insane, by the way, 200 years.

Rudi Fronk: Yeah. But why drill off more material unless you can convince yourself this is going to be much higher grade? If it's not and it's likely not to be, it's likely to be very similar, any mine life beyond year 200 doesn't make a lot of sense.

Dan Ferris: OK. So if I went there, what would I see? Is there anybody there doing anything? I'm just curious how this all works.

Rudi Fronk: Funny you should ask that question. We've been talking about a joint venture for a number of years. I think one of the reasons we trade at the valuation we do is because we have not yet achieved that joint venture.

One of the stumbling blocks over the past few years is we have this project now permitted. Those permits are good till – they were good till 2024. Because of COVID, we got a two-year extension. As we have partnership discussions, any large company was really hesitant to put dollars into a project knowing that the permits could expire before they really go going on the project.

So in late 2021 we decided to go raise dollars ourselves to ensure that the permits don't expire. There is a concept in British Columbia known as substantially started, and if we can get that designation our permits are then good for the life of the project.

So we went out and raised $375 million in two tranches. Using the project itself were the secured notes we issued to raise these dollars, convert into royalties at commercial production. So it's debt that doesn't have to be replaced. It's a 1% charge against the project for the last royalty deal we did, but it also provides the capital for construction.

By the end of this year, we will have over $300 million expended over the last two years on early site construction. We're building camps. We're building roads. We're building fish compensation areas. We're trying into the power grid, and we're building bridges.

Dan Ferris: OK. Does Seabridge have revenues?

Rudi Fronk: No.

Dan Ferris: No revenues. So you must have a slug of cash.

Rudi Fronk: At our last reported quarter-end, we had about 200 million CAD in the bank. We'll spend a chunk of that by the end of the year. We are fortunate that we have a shareholder base that, year in and year out, has continued to support us.

I think we've been very disciplined with our share account. When I look back at the 24 years at the company, I sometimes pinch myself. How do we only have 84 million shares outstanding today after doing what we've done, building this asset base, and now doing the work we're doing on the ground?

Again, if you look at the mining industry as a whole, the amount of shares that get issued by these companies, without offsetting that dilution with value, is remarkable. And I'll point to the biggest companies in the world as being the biggest culprits of that.

Look at Newmont. Over the past 15 years, their share count has gone from 300 million shares outstanding to 800 million shares outstanding. Yet they have less reserves today, maybe not after the Newcrest acquisition. They also have more shares outstanding, but they have less reserves and less production than they did back at 300 million shares.

The same thing with Barrick. They've gone from 500 million shares to 1.8 billion shares with less reserve today and less production. Their per share metrics have been destroyed. That's why the major gold companies have underperformed the gold price in a big way over the past two decades.

Dan Ferris: So don't buy those.

Rudi Fronk: No, I don't think so. Short those and buy Seabridge.

Dan Ferris: There you go. Short those and buy Seabridge. I don't know if I would short any of them because if the gold price gets – you know, when the wind blows, even the turkeys fly.

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[Music]

Dan Ferris: All right. So that gets us up to where we are now. You're looking for this joint venture for KSM. Is there another project that you think has this enormous potential? I assume at some point in the beginning, KSM was not seen to be practically a district. Am I right?

Rudi Fronk: Yeah.

Dan Ferris: Yeah. How long would you say it went from being a kind of a mini or real district?

Rudi Fronk: We did our first exploration – we bought the project in the year 2000 from Placer Dome. Placer Dome had spent $25 million at KSM before we bought it, and we bought it for $200,000. We did not do any work at KSM until 2006, with our first drill program.

But prior to that, we actually were working in another project called Courageous Lake in the Northwest Territories, where we grew that deposit from 5 million ounces to 11 million ounces, and did a prefeas on that in 2012. Unfortunately, at a that time, showed a marginal project. A big part of that was the Canadian dollar was essentially on par with the U.S. dollar, which is not good for Canadian assets.

Our costs are in Canadian dollars. Our revenues are in U.S. dollars. So we shut that project down because we were really advancing KSM in a big way.

We are now back at Courageous Lake. We updated the prefeas. We'll have that done early next year. We'll be able to show a project that can produce a little over 200,000 ounces a year for the initial decade at much better capital efficiency than we saw in 2012. And there's probably nothing in our share price today for Courageous Lake.

Dan Ferris: Just for our listener's sake, prefeas means prefeasibility study, which is – well, you tell them.

Rudi Fronk: It's not bankable yet, but it's basically done enough engineering to estimate capital and operating costs within a certain variance. Then you build on top of that contingency to take care of the variance that might exist in your estimates.

Dan Ferris: How does it go from where it is now to bankable? What are the key variables?

Rudi Fronk: Dollars, more detailed final engineering, more detailed costing. Not really so much more drilling. It's really more detailed engineering work.

Dan Ferris: Detailed engineering work, figuring out the economics of a mine that would be built on this deposit?

Rudi Fronk: Correct.

Dan Ferris: Which you'll never own and operate it.

Rudi Fronk: It's interesting. People invest in gold stocks because they want exposure to gold. Our industry is hellbent on turning gold into cash, and doing a horrible job at that. If you look at the returns of our industry, it's pathetic.

Our goal at Seabridge, over time, is to take back our share of profits from these mines with a joint venture partnership in the form of physical gold, and then "dividending" that physical gold to our shareholders.

Dan Ferris: It sounds good to me.

Rudi Fronk: That's why we have a loyal shareholder base.

Dan Ferris: Would you say that – just going back to a minute ago, I've been thinking here as we've been talking – would you say the real key to not having an out-of-control share count was having this sort of deeply value-based strategy of waiting for things to go from $300 million to $15 million? I just don't see – like what else could one possibly do but that to avoid –?

Rudi Fronk: I think it was also the discipline we showed in terms of – we were willing to suffer equity dilution if we were able to convince ourselves and our board that that dilution would result in growing ounces per share. I think it was that discipline that kept our share count as low as it has been.

We also took advantage of market tops. The big companies buy high, sell low. When market environments were strong, we sold non-core assets for cash, and kept streams and royalties on some of the things we sold, and then sold those later on.

We've now probably generated over $75 million in cash proceeds by selling non-core assets that we didn't think we could drive any more value with.

Dan Ferris: OK, interesting. So the real answer is discipline. The value strategy is important, but the real answer is that ingredient in mining that people who know what they're doing always talk about, which is people. Is there another industry that has so much – I'm sorry. I just don't have any other word – fraud and waste, especially sort of the exploration end? It's kind of rampant, isn't it?

Rudi Fronk: Yeah. Lots of times we're equated to biotech. We have all these research and dollars that go in on the frontend, before you even have anything to do with revenues. It's the same thing in mining. A lot of dollars have to be spent before that first dollar comes out of the grounds. Most of the projects, quite honestly, where dollars are being spent, you'll never get any dollars out of the ground.

Dan Ferris: That sounds bad.

Rudi Fronk: It is bad. Again, I don't have a high respect for most of my industry.

Dan Ferris: Yeah. There's I want to say a handful of you that – I don't know. I could probably name a dozen of you that are like that. I've learned a lot. I've been really lucky. I got really lucky meeting Rick Rule early in my career. I can't tell you... It must be hundreds of names that I've run by him over the years, and he's just shaking his head and said, "No, crook. No. Not a bad guy, highly competent, but you won't make any money. He'll make all the money," and one after another.

Paperhangers is another name that I've learned to call certain people. It will be one guy with multiple public entities, and he just happens to be the CEO making money.

Rudi Fronk: Run away from those.

Dan Ferris: Yeah, run away. That's right. But you just have one company that you operate in a highly disciplined manner. Good for you, Rudi Fronk. You're a good guy. You're one of the good ones.

Rudi Fronk: Thanks, Dan. Thanks for saying that. I'm just tickled by the support we've also gotten over the years from Stansberry, and not just from Steve Sjuggerud, but Brett Eversole made a very nice recommendation from the podium yesterday on Seabridge, and then having John Doody at the Gold Stock Analyst, us being on their Top 10 list for a number of years now. So Stansberry has done a lot for me in my career as well.

Dan Ferris: I'm glad to hear that. I'm glad to hear that we can pick the good actors and tell the world about them. I feel like I did the same with Altius, some of the best guys in the business. Whenever I go to the conferences and I mention the prospect generator model, Altius has taught me how to think about it.

As soon as somebody says, "flagship project," they're not doing the model right, and I wouldn't know that if it weren't for them, just that one simple thing. And when I do talk to people who know, the name Altius always comes up.

Rudi Fronk: It's funny you should mention Altius. I attended the Jim Grant conference a few weeks ago, and one of the speakers there listed Altius as one of his top picks.

Dan Ferris: Really? I didn't know that. Or maybe I – it sounds vaguely familiar, but I don't think I knew. I'm glad to hear that.

Rudi Fronk: Jim Grant has been a shareholder of Seabridge for a number of years. The first time I met him, it's a great story. Jim and I were invited to present at this investor conference for one individual. He brings talent into the room. He wants to hear about different topics. So I was the gold guy, myself and John Hathaway.

I walk in and sitting next to me is Jim Grant. I walked up to Jim and I said, "Mr. Grant, I want to introduce myself to you. I'm Rudi Fronk," and before I could say another word he said, "Seabridge Gold. Grow ounces in the ground faster than shares outstanding. Why hasn't anybody else thought of that?" He said, "I've been a shareholder of yours for many, many years."

Dan Ferris: Actually, that's a pretty good question, isn't it? I'm painting a picture, like the difference between you and everybody else is they're liars and they're just trying to get money out of me. But let's say there are plenty of good folks in the industry who would like to do this. What's hard about it? Once you're a good guy and you want to do right by your shareholders, what's hard about this? Why don't more people do it?

Rudi Fronk: Because you need luck. You need luck. There's no question about it. We saw opportunities early on that we thought we could grow through exploration. KSM is the perfect example.

When we bought this project from Placer Dome, they had delineated a resource of 3.4 million ounces of gold and 2.7 billion pounds of copper. Our in-house geologist thought there was upside to add another 5 million ounces. KSM today has 150 million ounces of gold. So a lot of that was luck.

Now you make your own luck by going after and recognizing opportunities, but never in our wildest dreams did we think we would have a project of this scales. Today it's the largest undeveloped gold and copper project in the world as measured by reserves and/or resources.

Dan Ferris: Let's talk about that for a second. I've learned to listen to words like reserves and resources and make a difference between the two. What are we calling reserves at KSM?

Rudi Fronk: A material that is permitted and very profitable. We have 11 billion tons of material available to us, to look at in terms of reserves. However, we're only permitted for 2.3 billion tons of tailings. Where are you going to put the material after you process the ore?

So we're limiting our mine plans right now by what's permitted. So we actually cap our reserves to that 2.3 billion tons. So of the 2.3 billion tons, our reserves capture 47 million ounces of gold and just over 7 billion pounds of copper, but there's a lot more gold and copper in the ground that over time will be mined.

Dan Ferris: OK. And is this so-called 2P –

Rudi Fronk: 2P, correct, proven probable. Actually, I think 60-something percent of our reserves are proven. If you look at the industry, that's a lot higher than you would even see at Newmont and Barrick in terms of percentage of reserves that are proven versus probable.

Dan Ferris: OK. I'm sorry. I just want to get the numbers right generally. Is that 60% of 150?

Rudi Fronk: Sixty percent of 47 million.

[Crosstalk]

Dan Ferris: OK, gotcha, of the reserves. I see. The 150 million is like a resource.

Rudi Fronk: It's a resource. It's a constrained resource that had economics applied to it to show that it could be economic, but it's not yet at prefeasibility study level.

Dan Ferris: I find this interesting, because you're basically – these are probabilities. You're saying, well, 2P is higher probability, and then the 150, this massive resource is less probability, but enough to – how does one say – get excited about.

Rudi Fronk: Do you remember Bre-X?

Dan Ferris: Oh, yeah.

Rudi Fronk: So Bre-X changed the game in terms of how companies have to report resources and reserves. There is a whole national instrument in Canada called NI 43-101, that now dictates what a company has to do to be able to define reserves and resources. So at least there's some structure to it now.

The problem is that any person that can call themselves a qualified person can actually do those calculations. I can give the same set of data to three different guys and I'll get three different answers. There's still a lot of – I wouldn't call it guesswork, but what are you going to allow your search distance on drill holes to define measured versus indicated versus inferred or proven and probable? There's still a lot of moving.

Even in the case of engineering studies, you have three levels of engineering studies. You have a preliminary economic assessment, where you're allowed to use inferred resources in that calculation, which usually makes projects look a lot better than they really are. Then there's the prefeasibility study, where you actually start defining reserves, because you're only allowed to look at measured and indicated resources to become proven and probable. Then there's the bankable study.

It's amazing. If you look at the histories of these studies as they move up the food chain, capital costs, operating costs, and contained metal go in the wrong direction, because the preliminary economic assessment was too – what's the word I'm looking for?

Dan Ferris: Optimistic.

Rudi Fronk: Optimistic.

Dan Ferris: Simply put. I invite listeners to Google all these terms. We don't want to sit here and try to become a glossary for you. Just Google them. They're all very common mining terms, measurement indicated, inferred, the PEA, the preliminary economic assessment. You can learn about them in five minutes.

So, Rudi, I think we're at a period here in time where I can ask you my final question, which is the exact same question for every guest, no matter what the topic, even if it's not a financial topic. If you could leave our listeners with a single thought today, what would you like to leave them with?

Rudi Fronk: Being a CEO of a gold mining company I'll be a bit promotional here.

Dan Ferris: Feel free.

Rudi Fronk: If you believe in higher gold prices or if you want to have exposure to higher gold prices as part of a balanced portfolio, Seabridge Gold has a 24-year track record in delivering outperformance relative to gold and other gold equities. The gold price is going higher on our shares.

Dan Ferris: Period, boom, very simple. Thank you for that and thanks for talking with us today.

Rudi Fronk: Thank you, Dan. It's great to be here.

[Music]

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