Episode 373: We're Entering a New Bull Market in Gold
On this week's Stansberry Investor Hour, Dan and Corey welcome Rudi Fronk back to the show. Rudi is the founder, chairman, and CEO of Seabridge Gold (SA). With more than 35 years of experience in the gold industry, Rudi is an expert in his field. He joins the podcast to talk all about precious metals mining, future opportunities for gold and copper, and what sets his company apart from the rest.
Rudi begins by giving a brief history of how he got into gold mining. He shares the reason he started Seabridge with shareholder value in mind. He also breaks down some of the risks involved in mining – including working in politically unstable countries – and why he'll never build another mine again. After, he talks a bit about the technical aspects of drilling, exploration, and the process behind estimating how much gold is in the ground. According to Rudi...
I did a presentation looking at all the metal we have in terms of gold, copper, silver, and molybdenum in the ground, not yet mined, still needed to go into production. But all that metal in the ground at today's metal prices is $8,000 worth of metal per common share... [And Seabridge costs] $15 a share.
Next, Rudi discusses potential joint-venture opportunities with leading mining companies for Seabridge's KSM property, mainly thanks to increased demand for copper. He also talks about the importance of permitting, catalysts that could move Seabridge's share price higher, offsetting share dilution, and early-stage projects that are in the works. And Rudi makes his case for why gold is entering a new, interesting bull market.
Right now, you're seeing a huge transfer of physical gold from the West to the East... Central banks, sovereign wealth funds, Asian high-net-worth investors – they don't buy mining stocks or paper gold. They're buying the physical gold... The Western investor has abandoned gold. Investors are coming from around the world, and they're buying gold because it's not the dollar. They want out of the dollar.
Finally, Rudi shares his opinion on bitcoin, talks further about soaring copper demand, and delves into Seabridge's goal of giving back physical gold to investors. As he explains, the KSM property is expected to produce more than 1 million ounces of gold per year for the first 33 years. And 35% to 49% of gold produced will be returned to the company...
People buy gold-mining stocks expecting exposure to the gold price. They're not getting that. If you look over the long term, the large mining companies have significantly underperformed the gold price in a meaningful way. Our goal at KSM is we will take back our share of profits from the project in the form of physical gold... and deposit it at a physical ETF in exchange for shares... and then we'll dividend out those shares that we get back for depositing our gold.
Click here or on the image below to watch the video interview with Rudi right now. For the full audio episode, click here.
(Additional past episodes are located here.)
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 Daily Digest. Today we talk with Rudi Fronk, the chairman and CEO of Seabridge Gold.
Dan Ferris: We've been interested in Seabridge for a long, long time, ever since our good colleague and friend Steve Sjuggerud recommended the stock back in 2002. And it just so happens that I ran into Rudi on a little pleasure cruise in Florida recently, when I attended Rick Rule's annual conference there in Boca Raton. And we talked and talked, and I thought hey, I need to get this guy back on the show.
So, pay attention because Seabridge is an unusual company. Unusually good. And Rudi is an unusually good guy for being in the mining industry. There aren't many people in the industry like that. So I think you're really going to want to pay attention to this one. So let's talk to him. Let's talk with Rudi Fronk. Let's do it right now.
Rudi, welcome back to the show. Good to see you again.
Rudi Fronk: Great to be back, Dan. It's been a while.
Dan Ferris: It has been a while. It's been too long. We should have had you back by now. But it was great running into you. You know, it's funny. It's been a while. But if I hadn't run into you at Rick Rule's conference about a month or so ago, I don't even know if – you might not still be here. So that's my bad.
But it was good to run into you. And I thought that maybe what we'd do this time is since it has been way too long, is sort of reintroduce you to our listeners a little bit. They're somewhat familiar, but I'm willing to bet that they'd like to hear the story once again.
But what I'm sort of more curious about, that I know less about, is Rudi before Seabridge. So before the company that you've been with, that you founded and been with for 25 years. What was that guy doing?
Rudi Fronk: Well, we're going way back in time on that one, Dan. It's been 25 years since we launched Seabridge. But brief history. Born and raised in New York City. Immigrant dad. Got into Columbia University more because of my backstroke versus my grades. They needed a swimmer with backstroke at the time. And at Columbia, I studied mining engineering. Got a B.S. in mining engineering. And then I stayed on and did graduate degrees in mineral economics and finance.
I've been in the gold sector my entire career. Matter of fact, early on in my career I was actually involved on the bullion desk at Philipp Brothers, trading gold contracts and physical gold. I am a follower of the gold market, a student of the gold market. But what I really have been focusing on over the past 25 years is trying to create value to shareholders interested in investing in gold.
And we formed Seabridge back in 1999, trying to build what we thought would be the industry's best leverage play to a rising gold price. And on that we have delivered.
Dan Ferris: I would say so. I just think that, just taking a step back from Seabridge, it's just as we were talking before we hit the record button on this podcast. It's just so unusual. When I think of smaller mid-cap mining company, I think, well, here's a couple of geologists with a piece of moose pasture looking to get paid somehow. They don't care if they create any real value.
So when we find a guy like you who's really interested in creating long-term value like this, and you've been at it for 25 years and have done it, it's sort of unusual. It's like ah, you know? A breath of sanity and fresh air in the mining industry, where you don't expect to find it.
I guess what I'm asking about, like you before Seabridge, it makes me wonder. How did this guy not wind up like all the other geologists looking to get a paycheck? Maybe that's the real question.
Rudi Fronk: Well, we learn a lot more from our missteps and our mistakes than our successes. And when I look back on my career, I was running a company back in the 1990's called Greenstone Resources. We built three mines in a five year period in Central America: Nicaragua, Honduras, and Panama. We created a lot of value over a short period of time with that success, and then things blew up.
The gold market went from $400 an ounce down to 260 by 1999. Two of our projects were actually expropriated by the governments of Honduras and Nicaragua, learning how real political risk was in our space. So coming off the back of that experience, it was humiliating. It was hard. But I pulled up my pants. I said, "Okay, what did we learn from that? And what could we do next from those learning?"
And that was the basis of Seabridge. Our industry as an industry could be the worst allocators of capital of any industry on the planet. The amount of money that gets spent not just by the junior companies, but also by the senior companies in terms of share hold dilution, is enormous. And yet, they're not offsetting that dilution with value.
So, from day one, one of our guiding principals at Seabridge was to try and minimize equity dilution, willing to take on equity dilution provided we were offsetting that dilution with value. And we defined value simply as growing ounces of gold per common share over time, with the thought being that the more gold we can provide on a per share basis, the better our share price should do in a rising gold prices.
And in addition to that, learning how real political risk is in our space, our entire focus is on North America. We will not go anywhere outside of the United States or Canada.
Dan Ferris: Well, you learned that lesson well, didn't you? Yeah.
Rudi Fronk: It was hard.
Dan Ferris: What happens in that moment? I'm very curious just as to the mechanics. Like, you wake up one day and the government says we own this, and that's all there is to it. Do they show up as soldiers and kick you off the property? Or what happens?
Rudi Fronk: No, so this was an interesting one. So, we had raised a bunch of money at Greenstone using bonds that we thought were secured against the project. So all these bondholders basically bought bonds based on security. That's what financed the construction of the mines.
All of a sudden, the governments say no, you don't own the mines anymore. And the bondholders say well, what about our security? Well, that's no good down here. And basically it sent from a reasonable valuation to essentially zero overnight.
Now, it also didn't help that during that period of time, the gold price went from above 400 down to 260, and we had a hurricane come through Central America, devastating our supply lines. So it was a rude awakening on what risks you face in the mining sector. Not just political risk. Weather risks.
Dan Ferris: Gold price. Yeah.
Rudi Fronk: A lot of risks in mining.
Dan Ferris: It's a risky, risky business. And actually, one of the things that I've done for my readers is I told them, generally speaking, unless we find a really high quality company – and we actually have found some of those – we're going to stay away from the actual business of extraction, of mining itself.
And we're going to stay on the prospect generator end or the royalty end, and of course those two make a good business combination. But that's not your decision, is it, though? You're in the mining business.
Rudi Fronk: In the mining business, but I will never build a mine again.
Dan Ferris: There you go.
Rudi Fronk: I kind of view that as the value destruction phase of the business, when you think you have everything going the right way. And then you find out oops, my metallurgical estimates were not correct. Oops, my tungsten grade was not correct. Oops, it's taking longer to build this mine because of government opposition, or local opposition.
Right from day one, because of my experience at Greenstone, we said we will never build and operate a mine. Instead, we will partner up our projects with established producers at the right time, or sell our assets over time, generating cash proceeds from those sales. And also keeping residual interest in the form of streams, royalties or net profits. And we've done that again and again over the past 25 years with success.
Dan Ferris: All right, I like the sound of all of that.
Corey McLaughlin: Yeah, Rudi, you don't strike me as a particularly stressed out person, given you're a CEO. Now, that may or may not be true, but. Does that just come from these lessons that you've learned, and just, I feel like if you're fully committed to creating shareholder value, that kind of takes care of a lot of other problems, potential problems.
Rudi Fronk: Yeah, I'd be lying if I didn't say there are stressful moments from time to time over the past 25 years. I mean, for sure. But it's having faith in your people. We have an unbelievable team of senior executives at Seabridge that came from the larger mining companies, that have built mines successfully, that know what they're doing.
And also, we've assembled a number of assets that are world class assets. In fact, our key asset is a project called KSM in Northern British Columbia that today is the largest undeveloped gold project as measured by reserves and resources. And if you ignore our gold and just look at the copper at KSM, it's the third largest undeveloped copper project in the world.
So having an asset like that in a time when the gold companies need new reserves because they're running out, and the copper companies need new mines because copper's in huge demand going forward, because of all these green energy initiatives. I sleep pretty well at night.
Corey McLaughlin: Yeah.
Dan Ferris: Yeah, and you have, one of the things I've learned to appreciate over the years is the wonderful leverage that you get with ounces in the ground versus having to actually build yourself and operate yourself – an operating mine. That might be in fact, aside from royalties and prospect generation, just that one fact might be one of the most consequential things that I ever learned as an investor, looking at mining.
And to me, that's what I see, that's how I think of Seabridge. These people seem to understand this insight that I feel has changed my view as an investor. The best leverage is ounces, 2P ounces in the ground, right? That's what it looks like to me.
Rudi Fronk: Yeah. And you look at our ounces per share, right now if you ignore the copper, silver and moly we have at KSM, we have over two ounces of gold in the ground per common share. Today we're trading at $14 to $15 per share.
Dan Ferris: Oh, ignoring the other metals. So it's not equivalent. It's not gold equivalent. It's gold.
Rudi Fronk: No. I – first of all, I never liked the word equivalent to gold.
Dan Ferris: Me neither.
Rudi Fronk: Because there's nothing in the world equivalent to gold. It's unique. But here's another way to do it. At Rick Rule's conference that we met each other again at was, I did a presentation looking at all the metal we have in terms of gold, copper, silver, and molybdenum, in the ground, not yet mined. Still needed to go into production. But all that metal in the ground at today's metal prices is $8,000 worth of metal per common share.
Dan Ferris: And how much is a common share?
Rudi Fronk: $15 a share.
Dan Ferris: There you go.
Rudi Fronk: This is the concept of optionality and leverage.
Dan Ferris: That's really cool. I'm glad to hear that you're not a fan of gold equivalence. It's always kind of annoyed me. People use it like crazy. And even like, really good people who were there at the conference giving presentations, and have really good assets. It's just a widely used thing that always, it's like when people talk about EBIT, I just get a little hot under the collar. A little uncomfortable with it. But it's nice to find a kindred spirit in that regard.
Corey McLaughlin: I will agree that there's no gold equivalent, Dan. Yeah.
Dan Ferris: All right. We're of one mind. So, maybe – I'd like you to describe for our listeners. We're talking about gold ounces in the ground. And with some amount of confidence, right? How do you get that confidence? Because we're not – there's not a mine dug, right? But there is of course a way to establish with reasonable certainty that there's a lot of metal down there. And maybe just if you could characterize that process just for our listeners, so they know why we're talking about this gold in the ground with such confidence.
Rudi Fronk: Well, the easy answer is because, from the beginning when we acquired KSM in the year 2000 to today, we've now spent over a billion dollars Canadian on advancing the project. Not just in terms of exploration and defining ounces... but also through engineering studies, to demonstrate economic viability. It's one thing to have an ounce of gold in the ground.
What's it going to cost you to get it out of the ground relative to the gold price? That's a critical aspect. And also can you get your project permitted? We've taken this project not only through exploration and engineering, but this is one of the few large projects in the world today that's actually fully permitted. We received our environmental assessment approvals in 2014, and now we're working the government to have those permits valid for the life of the project.
Dan Ferris: So I want to make this a little more tangible. So let me ask you this. How many holes have been drilled in KSM at this point? Put it that way.
Rudi Fronk: Oh. Hundreds and hundreds and hundreds. Hundreds of thousands of kilometers of drilling. What's unique about KSM also. It's not a single deposit asset. We actually have five deposits at KSM. In fact, KSM is a district. It's a district with gold, copper porphyries where we own 100% of the district. So each of the deposits was valued separately with exploration first, and then engineering. Metallurgical test worth.
And then combined into a single project, in terms of defining how the metal would come out of the ground here. The capital that would have to be spent. What the operating costs would be and then what the profitability would be on this project. So all of that work has been done.
Now, we did a pre-feasibility study in 2022 that defined a project that's going to average over one million ounces of gold production a year for the first 33 years of the mine life, as well as a lot of copper and silver. And the all-in costs of production per ounce of gold produced, which includes over $6 billion of upfront capital, over $3 billion of sustaining capital over the 33-year mine life.
The reclamation costs, the closure costs, and the operating costs. Net of copper byproduct credits is at today's copper prices, about $500 an ounce, per ounce of gold produced. With a gold price at $2,400, the margins are phenomenal.
Dan Ferris: How is it that, what's the disposition of KSM? Do you still own 100% of it at this point?
Rudi Fronk: We do. We've made it very clear, many, many years ago, that this is a project beyond our capabilities. This is a project that's going to require the involvement of a major mining company. Either a major gold mining company... or because of the copper we have, a major copper mining company. So we've been engaged with joint venture discussions now with the leading mining companies for many, many years. We've gotten close a few times. We've turned down a number of proposals over the years.
We're now at a point where the work we've done, we think we can put it out in the best light possible. So we're now running a formal joint venture process of being led by RBC Capital Markets for us, and we now have six of the world's largest mining companies at the table looking at this as a joint venture opportunity. Where they would come in and do the heavy lifting, complete a bankable feasibility study, and then make a construction decision and raise most of the capital to build the mine.
Corey McLaughlin: Is the increased like demand for copper part, how big a part of the discussion is that for you?
Rudi Fronk: It's huge. My belief is we're more likely to do a deal with a copper company, or company focused on copper, than perhaps one of the larger gold mining companies. Although we have a number of gold companies engaged with us. You look at this project, we've really just scratched the surface in terms of what this project could produce in terms of metal flow.
We have 12 billion tons of economic resources at KSM. Those 12 billion tons host 160 million ounces of gold and 59 billion pounds of copper. The mine plan that we have out there now is limited by what we have approved in terms of tailings capacity. When you mine the ore, you run it through the mill, you have to dispose of your tailings. And right now we're permitted for 2.3 billion tons of tailings. We have 12 billion tons of economic resources.
Each of the five deposits also have different levels of gold relative to copper. Three of our deposits are gold centric with copper credits. Two of the deposits are more copper centric with gold credits. Depending on who the partner is, they may choose to go after some of the higher grade copper deposits first, which would increase copper production relative to gold or perhaps stay with what we have in the pre-feasibility. Of course, that's what drives the quickest recoupment of the $6 billion of upfront capital.
Dan Ferris: Gotcha. It seems to me that you've got RBC working on this process. You're ready. They're doing it. I would guess, and I'm not asking you to confirm one way or the other because it's just a guess about the share price. I would guess that's a pretty decent little bump when that announcement is made. That's what I'm going to guess.
Rudi Fronk: I sure hope so. As one of the largest shareholders in Seabridge it better be.
Dan Ferris: Yeah. After all this time.
Rudi Fronk: I think, I agree with you, Dan. I think we get a big rerating at that point in time. But I think there's an event that could come before that, that should help even before the joint venture's announced. So I mentioned what's unique about KSM. We're permitted. We have our permits in place. We received our environmental approvals in 2014. Initially those permits were good for 10 years. They were set to expire this year.
But because of COVID, we got a two year extension. So our permits are now valid until July of 2026. Fortunately, there's a mechanism in British Columbia known as substantially started. That if we can get that designation, the permits are then good for the life of the project. You can imagine that any big company looking at KSM wants to ensure that those permits are good for the life of the project. Not that they have to start the environmental assessment all over again.
So we decided two and a half years ago, three years ago, to go out and raise the dollars without equity dilution to fund the early site construction that will get us to a substantially started designation. We've now built roads –
Dan Ferris: I'm just curious. Is there a particular milestone that the government recognizes as okay, substantially started?
Rudi Fronk: Unfortunately, I wish it was a simple formula. I'm a numbers guy. That would make it easy. What I will say is we've now spent the half a billion dollars Canadian on construction activities. Building roads, building camps, tying into the power grid. Another advantage we have is the government of Canada extended the hydro power lines right past our project, so we're now building a switching station to take power off the line, that's all hydro sourced. Building fish compensation area and building bridges.
We applied for substantially started designation in January, showing the government what we did. My experience in Canada, specifically in British Columbia, is that the government is willing to give you the approvals you're seeking provided the First Nations are on side. Along with our application, when strong letters of support from the Nisga'a Nation, the Tahltan Nation, Gitxsan hereditary chiefs, BC Hydro itself, and a bunch of the local communities.
So I'm as confident as I think I can be in terms of saying that this is a designation we should get over the next 30 to 60 days. And when it does, I think that is another unlocking of value to our shareholders. Because that then opens the door for the joint venture discussions we're having. We're at the part that does not need to worry about the permits expiring. With that designation, the permits are basically good in perpetuity.
Dan Ferris: Yeah, that sounds like a serious catalyst to me – potential, right?
Corey McLaughlin: Love lifetime. Yeah.
Dan Ferris: That's, that's actually really, right, right. But it's a catalyst for something to happen between now and whatever date in 2026, right? That's pretty cool. I didn't know about that before.
Rudi Fronk: Yeah, and you can imagine raising a half a billion dollars to do this work. How do you do that without dilution? Well, we were fortunate, we found willing partners in Sprott Royalties, and Ontario Teachers' Pension Plan, one of the biggest pension funds in Canada, where they actually bought secured notes from us, secured against the project. Gave us the cash. And then we use that cash to do this construction activities.
Those notes don't get repaid. They turn into royalties on the project at commercial production, and small royalties. So, we don't really impact the project less than 2% of the project's value is essentially covered by those royalties. So, it was a way to raise these dollars and do this work without, had we raised it through traditional sources of equity, we would have diluted our shareholders by 30%. We did with zero dilution up front.
Dan Ferris: That's a cool structure. I like that. And there, I've heard of various things like that in mining. So maybe it's too early to even think about this. What's beyond KSM for Seabridge? Once that happens, once KSM is on its way, and there's a major mining company, putting billions of dollars, whatever it was, $6 billion of capital or whatever, does Rudi retire and live a life of leisure or what's next?
Rudi Fronk: I think I asked that question to you a few weeks ago: Are you going to retire? And your answer is the same as mine. Why would I retire when I'm doing what I love? What comes next after Seabridge is we're not just a single asset company. We have another big asset called Courageous Lake in the Northwest Territories. We just finished a pre-feasibility study on that that shows a very robust project there as well.
This is an asset that we will likely sell. We think we should be able to get a meaningful upfront payment for that asset. And in addition, keep a stream on it against future production. Where we want to spend dollars is back in the ground in exploration. In 2015, the bottom again fell out in the gold market. We took advantage of that and went out and started acquiring early-stage projects again. And we now have three of them.
In fact, one of them is called Iskut, which is situated only about 25 kilometers from KSM, which we think could be another KSM. We're spending $12 million this year, Canadian, on drilling there, focusing on gold, copper, porphyries like we have at KSM. So there is life after KSM within Seabridge.
Dan Ferris: Right. Yeah, I guess I actually asked two different questions, didn't I? I asked about Seabridge after KSM, then I asked about Rudi after KSM. So it sounds like you got other things you want to do with the company in other words going forward.
Rudi Fronk: Look, I would love to stick around and see first production at KSM. I mean, I've been doing this now for 25 years. This project has advanced well beyond my wildest dreams. Why not stick around to see that first gold and copper come out of the ground? That would be pretty cool.
In the meantime, there are other things we can do because the joint venture will take a long time to get to first production. But there's other things we can do in the other assets we have that we think can continue to drive value through offsetting dilution.
Corey McLaughlin: You just said the project's at – beyond your wildest dreams. What were you envisioning at the beginning of all of this?
Rudi Fronk: Well, to show you how conservative my exploration guy was at KSM, and he actually came from Placer Dome, which was the company we bought KSM from. When we bought this asset from Placer Dome in the year 2000, they had spent $25 million there. We bought it for $200,000. Again, showing the misallocation of capital by the majors.
When we bought this asset from Placer Dome, they had delineated resources of 3.4 million ounces of gold and 2.7 billion pounds of copper. Bill Threlkeld, my global head of exploration, told me, Rudi, I think we can find another 5 million ounces there. It's probably worth owning. So that's how we went into this, thinking yeah, it's going to grow. It's going to grow maybe two or threefold, but not to where it sits today.
Corey McLaughlin: Yeah, for sure.
Rudi Fronk: I'm glad he was wrong.
Corey McLaughlin: Going back to where we started, where did the fascination with gold itself for you come from? You mentioned back in college and then I guess shortly after you were trading gold, but where does that come from? Because it's not a common thing I hear.
Rudi Fronk: No, it isn't. I hate to be called a gold bug. I believe there are times that you want to own gold. There are times when you don't. And I think right now we're entering into a very interesting new bull market in gold. I came into it as an undergraduate at Columbia.
I had a professor, Malcolm T. Wayne, who was a gold bug. He was an elderly gentleman, mining engineer, a Scotsman. He went through, obviously, the gold market. Nixon showed the gold window in 1971 and what gold was in terms of a financial asset. So he kind of got me caught up on the gold market, studying what it is, what drives gold prices. I kind of got hooked. And I've been hooked ever since.
Corey McLaughlin: Interesting. Yeah. Scottish professor, all right. I got it.
Rudi Fronk: Yeah.
Dan Ferris: A frugal Scot got you interested in gold.
Rudi Fronk: He would come into the classroom every week and say, "What's the price of gold?" And if you didn't know it, you were in trouble.
Dan Ferris: Gotcha. That's pretty cool. And back then, there was probably no Internet to check, so.
Rudi Fronk: Well, think of the 1970's. Gold went from $35 an ounce when Nixon took it off the window, got as high as $852 an ounce by 1980. That was kind of my formative years starting out in the gold market.
Dan Ferris: Yeah, I think it's sort of like all of the asset managers that we talk to who say, "Well, I first got excited during the dot-com boom." And they say, "Well, I got through it. I lost money or whatever, but I learned a lot and I was hooked and that was it," so... Of course, gold peaked at 850 and wound up, like you said, at 260 many years later.
So that's a pretty cool story, actually because nobody, I was a music major, but nobody in my, I can't name anybody who I had in college who excited me about anything but music. Those other classes, I always thought, "God, these people are all communists. I can't stand this. Get me out of here."
So the fact that you had a Scottish guy talking about gold – lucky you is all I have to say. I wish I'd had a Scottish guy talking about gold in one of my classes.
Rudi Fronk: Yeah, that was pretty cool.
Dan Ferris: Yeah, it's great. It's a great college story, considering all the college nightmare stories that we hear. Even from that period. And they get worse over time. So you think we're in the beginning of an interesting new gold bull market. Why?
Rudi Fronk: Well, I think right now you're seeing a huge transfer of physical gold from the West to the East. The last bull market in gold that we can point to was from 2008 to 2012, when gold went from about $750 an ounce when the financial crisis began to about $1,900 at its peak. That bull market in gold was driven by Western investors' speculation in paper gold. They were buying contracts on the COMEX, and they were buying gold mining stocks.
Today, what we're seeing is a bull market that's driven by investors coming in for physical gold. Central banks, sovereign wealth funds, Asian high-net-worth investors, they don't buy mining stocks or paper gold. They're buying the physical gold. And when you look at the Western investors' exposure to gold now, it's down 75% from where it typically is over the long term.
Throughout my career, if you looked at pension funds or other large sources of capital, you would typically have 2% to 3% exposure to gold within a balanced portfolio. Today, it's less than one-half of one percent. If you look at the holdings of physical gold in Western ETFs, like GLD or PHYS, the Sprott Physical Gold, it peaked in 2012 when gold hit 1,900 at about 3,300 metric tons. Today, it's barely above 1,500 metric tons.
Yet gold is at an all-time high, but the Western investor is puking out gold. If you look at gold mining stocks, back in 2012, Seabridge hit, I think, in the mid-30s per share. Today, we're trading at $14, $15 a share. Gold equity valuations have been decimated. The Western investor has abandoned gold. Investors are coming from around the world, and they're buying gold because it's not the dollar. They want out of the dollar, and gold is a great source to get out of the dollar with.
It's actually now starting to find a way to international trade, which is why the BRICS nations and China and Japan and everyone else is loading up on gold. But they don't buy gold mining equities. And there lies the problem with the gold industry, is the typical investors in the gold space are no longer investing in it.
So I think someone that's running a gold mining company like myself, we need the Western investor to come back to the table to I think to generate valuations that we all think we should have with gold at $2,400 an ounce.
Dan Ferris: So two things. It's a great way to get out of dollar, yen, euro, pound, anything. In fact, I wish my dollar-based gold was performing the way the yen-based gold is performing. I wish I had that relative trade. And I've also noticed the same things about the gold trade, right? Gold equities and people puking up gold, as you say. Just the low pension fund holdings and all that.
But what I want to know from you, Rudi, is if you have any thoughts about bitcoin as a gold competitor. No matter what else you might think of it, as a gold competitor, it's got to be – if you think about gold, that has to be on your mind to some degree, doesn't it? Or no?
Rudi Fronk: Look, I think at the margins, they overlap. But you have to understand that the gold market is much larger than the bitcoin market, just in terms of scale of assets under management. One is a risk-on asset, one is a risk-off asset. Gold has a 6,000-year history for preservation of wealth. Bitcoin is more of a trading instrument. The greater fool theory that if I buy it today, I can sell it at a higher price to some person down the road.
Gold is a way to preserve wealth. That's what it's been used for, for a long period of time. And that's no different today. I wish I was smart enough to have invested in bitcoin when it evolved. Most guys either love gold or they love bitcoin, but not both. There's one individual who I think you read on a regular basis, Dan, is Luke Gromen. Luke Gromen is one of the few macro strategists that actually is bullish on both gold and bitcoin at this point in time for different reasons.
I missed the bitcoin trade, quite honestly. I had people try to explain why I should own it, what's really supporting the value there. I don't get it, and if I don't get it, I can't invest in something.
Dan Ferris: Right. You're taking it seriously anyway. You're not investing in it, but you understand that it's out there, it's serious. Yeah, we're trying to get Luke. I've tried to get Luke on the show before. He won't. He's just not interested. If you know him, nudge him for me.
Rudi Fronk: I think I can help on that. I'll give it a shot.
Dan Ferris: Thank you. I'd appreciate it. All right. What I want to know is, and I was headed this way with my previous question about what's after KSM. But, making a deal that gets KSM developed and turned into a mine, that is a major – like that's the milestone of milestones for you. And at that point, it's sort of what you've been working toward.
But the company looks different at that point, doesn't it? I mean, you're no longer simply developing the asset. You've partnered with someone and in one way or another, you're in the mining business. I know you're not going to build and operate a mine. But I wonder, and this is sort of typical in this space. I've seen companies evolve and their business model evolves even if they say, doing the same basic thing. Do you see Seabridge evolving the business model? We know what it looks like right now. What does it look like in 10 years, do you think? Very similar? Very different?
Rudi Fronk: Oh, I love that question, Dan, because what we have in mind is very different than what you get investing in other gold mining stocks. People buy gold mining stocks expecting exposure of the gold price. They're not getting that. If you look over the long term, the large mining companies have significantly underperformed the gold price in a meaningful way.
Our goal at KSM is we will take back our share of profits from the project in the form of physical gold. We'll take that physical gold and deposit it at a physical ETF in exchange for shares, like Sprott's physical gold ETF. And then we'll dividend out those shares that we get back from depositing our gold to our shareholders in the form of the dividends.
So you as a shareholder of Seabridge, you get a share of this physical ETF. You can sell it if you want the cash. You can hang on to it because it'll give you further exposure one-to-one to the gold price or you can turn it into physical gold. PHYS is the one physical ETF that allows you to turn in your dollars and take back physical gold that's backing you.
So we're truly looking to create the company that when you invest in Seabridge, the ultimate endgame is you're going to get back physical gold for your investment.
Corey McLaughlin: I love that.
Dan Ferris: Man, that's cool. Why did I never hear, I've never heard you say that. I guess I haven't paid enough attention to Seabridge over the years. That is really cool. Who came up with that?
Rudi Fronk: It's been tried in other companies before. There was a silver company not too long ago that tried to do that. There was a small gold company in the U. S. that was trying to do that but not to the scale that we can. So when you look at KSM, when in production, this project will produce over a million ounces of gold a year for the first 33 years and then probably another 50 years beyond that in terms of mine life and then we still haven't even exhausted the known resources today.
We're trying to keep somewhere between 35-49% percent of this project, meaning that we'll have back to us 35-49% percent of the physical gold with some of that gold having to be sold to cover the operating costs and the cost of production. So when you look at 35% of a million ounces coming back to Seabridge, that's a lot of gold flow every year. That's a meaningful amount of gold that'll have a meaning to our shareholders.
Put it in dollar terms, at today's metal prices, this project generates over $2 billion of free cash flow a year right out of the gates. If we can keep 35 percent of that, that's $700 million of value coming back to us in the form of physical gold. Our market cap today is $1.3 billion. Give me a multiple on that of 15 times. You can kind of see where the share price can go over time.
Dan Ferris: Oh, man. I'm sitting here wondering, let's see, do Stansberry's, Stansberry's rules don't let me buy Seabridge if I recommend it in my newsletter, but what about if I talk about it in the podcast? Because it just sounds like something you want to be a part of, you know?
Rudi Fronk: Yeah, so one of your gold guys... You know John Doody.
Dan Ferris: Oh, absolutely.
Rudi Fronk: John Doody retired recently. I've known John for over 30 years. I think he was one of the best gold analysts on the planet in terms of the work he did. He couldn't own Seabridge because it was listed in one of his top 10. He's now out on his own again with his new newsletter. And I think I can tell you pretty confidently that he now wants to whack Seabridge.
Corey McLaughlin: Yes, right. I didn't think of that, but he would always say that he always wanted to own these things.
Rudi Fronk: Yeah. And now he can. Although he's reduced his top 10 list to his fav five list now, as he calls it.
Dan Ferris: I noticed that.
Rudi Fronk: And yes, we're on that list.
Dan Ferris: I noticed that. It's pretty cool. I haven't talked to him since then, but I'd be curious to know why he reduced from 10 to five. I guess there's only five that he likes anymore, maybe. But I agree. He's one of the all-time greats. One of the great, certainly just in our business, the top gold guy, as far as I'm concerned.
When I first, I remember years and years ago, I first opened that newsletter, and I'm telling you, it was just pages of tiny type with data everywhere. I'd never seen anything like it. But you get used to it pretty quick when you realize what he's trying to do for you. And nobody has that kind of a track record either with gold stocks. He really was quite unusual. Quite unusual.
Rudi Fronk: Very much so. And still is, I think.
Dan Ferris: Yeah, he's still John.
Rudi Fronk: Not many people start a newsletter at the age of 80.
Dan Ferris: That's right. Not many people start a newsletter at the age of 80. That's well said. So, I guess we have an idea of where we're going to wind up in 10 years, and it sounds amazing. I can't wait to have you back on the show when that starts. I hope I'm still here to do that. What about the question you asked me? We mentioned this earlier. What about the question you asked me?
And pardon me, my audio has been going in and out through this entire interview, so if I sound like an idiot half the time, that's because I haven't heard a lot of what you said. But the question you asked me when we caught up in Florida recently was, are you ever going to retire? And it seems like you never are. If I had to guess right now, I'd say –
Rudi Fronk: I love what I do. I've got decent balance in my life. We have two grown children. Hopefully we'll have grandchildren one of these days. Everything we hear from our friends about having grandkids, it's like the next best thing in life. It's the gift of God for not killing your children.
No, I don't see myself retiring, Dan. What I'd like to do, in my career, I look back over my career, and I had three very influential mentors over my career. Each one building a different skill set that I think I have today. I'd like to maybe start to fill the role of mentorship with other people in the industry.
One problem with our industry is we're not graduating enough people interested in mining these days. It's a shame. When I went to school, Columbia University had the oldest school of mines in the Western Hemisphere, dated back to the early 1800s. Nobody knew that, and yet they don't have a school of mines anymore.
We don't have enough people graduating with mining engineering degrees, metallurgical degrees, geophysical degrees. We need to bring more youth into the industry. So I'd like to spend more time in the classroom, maybe at a young age. And I'd like to serve the role at some point of mentoring people that would like to build their career as they go forward.
Dan Ferris: I think I heard the average age of people in the mining industry today is like mid-50s or something.
Rudi Fronk: Yep, I think that's right.
Corey McLaughlin: You hear about that in a lot of different industries now with Baby Boomers, with small businesses and whatnot, like children not being as interested in them and that sort of thing. I guess it's not unique to your industry, but yeah.
Rudi Fronk: No, I think a lot of that revolves around environmental groups going into classrooms at a young age and teach that mining is bad. Without really fully appreciating that we need mining, how important it is in everyday life. I think we need to do a better job as an industry to get into the classroom early to open the eyes.
We're all talking about the build-out of green energy initiatives, electric-powered vehicles. How much copper is going to be needed going forward in the next 10 to 20 years? I'm not sure where these estimates are made where this copper is going to come from.
I can tell you first hand that from discovery to first production of a major copper mine is 25 years. There are no shortcuts. So to think that we're going to have all this demand for copper and all of a sudden the mines are going to supply it, it's laughable. It's absolutely laughable.
Dan Ferris: I love the Friedland quote from a couple of years ago. He said, we're going to need eight new Escondido mines, the largest copper mine in the world in Chile. I think it's like a 1.4 million production per year. And he said, we're going to need eight of those by 2035 or 2050 or, I forget the date. Pretty soon. And we don't have time to get eight of them. And by the way, the eight deposits don't exist.
Rudi Fronk: Right, exactly.
Dan Ferris: Yeah, that's an interesting part of that story. And even with that, if you listen to what Friedland says, he's talking about normal GDP growth. He's not talking about necessarily like green energy transition or anything else. It's like normal GDP growth, eight Escondidos. We don't have them. So it's hard to sort of make this case. And unfortunately, history tells us that you won't make the case until copper is 10 bucks a pound. And then you'll go, now do you get it? Right? Like, that's the way it'll be.
Rudi Fronk: Yep. No, it's very true. You asked me earlier on, Corey, how important is copper in our joint venture discussions? It's critical. It's a critical metal. And it's important in terms of, for new sources of copper need to come from safe jurisdictions. And here's KSM situated in Canada, one of the best mining jurisdictions in my view in the world. And a project that can produce a lot of copper from multi-generations.
Corey McLaughlin: Yeah. No, all of our stuff, all the stuff we use has to come from somewhere.
Dan Ferris: Like the green guys going into classrooms saying mining is bad and then pushing windmills and solar panels and electric cars and batteries. You're just like scratching your head going, do w how much mining this takes? And none of it makes any sense. But they'll learn, won't they? They'll learn.
I want to ask you my final question, Rudi. It's the same question for every guest, no matter what the topic. Financial, non-financial, any topic. It's always the same question. If you've already said it, by all means, feel free to repeat your answer. And the final question is simply, if you could leave our listener with a single thought today, what would it be?
Rudi Fronk: It's a loaded question, a single thought. So if you believe that the gold price is poised to go higher. If you believe the Western investor will finally wake up and want some exposure to gold. If you believe that the world's going to need a lot more copper in the foreseeable future, Seabridge in one-stop shopping gives you everything you need.
More ounces of gold per common share, more pounds of copper per common share in a market right now in terms of gold equities being very depressed. Stansberry put me on the map, Steve Sugar at first recommending the stock in 2002. And I think last time I looked, we're still in the top 10 Hall of Fame at a 995% return. I believe that the future for gold and copper is phenomenal. And if you want exposure to higher copper and gold prices, I can think of no better way to get that than, other than owning a share of Seabridge.
Dan Ferris: Well said. I know you have a lot of people in Stansberry agreeing with you on that one. Listen, Rudi, thanks a lot. I'm so glad I ran into you and that we could get you back on the show. I'll try not to make it so long next time.
Rudi Fronk: I don't mind the length. And Corey and Dan, really appreciate it. It was really fun to catch up. And these podcasts are very enjoyable for me.
Corey McLaughlin: Thanks. Good to have you.
Dan Ferris: Glad to hear it.
[Music plays]
Dan Ferris: I'm so glad I ran into Rudi. We were on the little speakers cruise that Rick Rule has at his conference just about a month ago in Florida. Hey, there's Rudi. I'm on the boat. I'm looking to get a drink and relax, and there's Rudi. And we talked for a while. And I just leaned over and said, OK, we need to have you on the podcast again because I didn't even look up how long it's been. It's probably been years.
And there's just nobody quite like him. And the fact that that guy is in, of all industries, the mining businesses. You just don't find people like that in mining a lot. I'll just leave it at that. Just a really decent, great guy trying to do the best for his shareholders. His long-term plan, getting physical gold back to the shareholders is awesome. It's definitely worth hanging around for that with all the gold in that deposit.
And just the 35% or 40% that they'll wind up with of production from KSM, that's a big gold mine by itself. If it were only producing that much, that would be, that's a big gold mine. So you're basically getting the gold from a big gold mine if you hang on to your Seabridge shares long enough to see it through to that point. It's pretty cool. I was blown away with –
Corey McLaughlin: Yeah, it was great to hear that future outlook and all the developments that they're working on right now, including trying to get that joint venture with copper playing a big role as well. That was interesting to hear. As far as maybe being a way to also attract that Western investor into his gold stock, at the very least. Because that is what you're hearing a lot with central banks buying gold and China where it's a cultural thing.
Why aren't these gold stock companies following the price of gold higher to these new highs? As far as him as a CEO or as a leader of a company, that's just somebody you believe. I believe. And that's why I asked him, you don't seem very stressed out about it. I met him a couple of times. Like, he doesn't seem very stressed out. He knows what he wants to do. He has confidence in what they have, the assets they have. It's just refreshing to hear.
Dan Ferris: Actually, Corey, you make a very good point when you say, I believe him. Because I asked him for the final question and he basically gave us a pitch for Seabridge. With most people, if all they did was kind of pitch their company, I'd be like, eh. I'd almost say, "What else you got?"
But with Rudi, I'm like, yeah, that's what he needs to say for the final question, because we can't say enough. We can't underscore it enough that this guy is different. If you're into mining stocks and you don't know about Seabridge, you got a big hole in your knowledge that you need to fill up immediately. Period. So I was glad that he did that. I was glad that that was his final takeaway for the listeners.
Corey McLaughlin: Yeah, it was cool to hear how he got into it too, from back in his college days. I love the origin stories of the Scottish mining professor. I mean, you've got to find out, you've got to find these things somehow. You've got to get exposed to them. So that was fun to hear too.
Dan Ferris: Yeah man. Being a music major at a regular liberal arts school, we just, nobody was talking about gold. It was a wasteland of anything. It was all like teaching degrees and stuff and music degrees, frankly. And it was, when you went into your economics class, you didn't get anything like that.
You got, as a matter of fact, I remember one of my economics professors was an avowed actual Marxist. Proud to say, I'm a Marxist kind of guy. Teaching economics at an American university. And like, the lower introductory course, because I was a music major. I wasn't taking a lot of economics.
But anyway. That aside, I'm really glad we talked to Rudi. I'm really glad that he told us everything he did about the KSM deposit and where it's headed. And that substantially started bit is important. I never heard that before, that you had to get substantially started and you could basically just – then you're permitted for the life of the project.
That is a major catalyst. Here we are more than halfway through 2024. It's in two years when that catalyst is up. Anybody, and every major company is looking at this deposit because it's enormous. That million-ounce production he's talking about for 33 years? Nobody talks about that amount of production, really. If it was hundreds of thousands for 10 or 12 years, everybody would say, "Wow, that's really great!" But a million for 33 is amazing. Something's going to happen between now and 2026.
Corey McLaughlin: Yeah, and I agree with you on, I mean, when you mentioned to him that you thought if they make a deal with a copper company, that'll get people's attention I think for sure. But then he points to the practical nature of the permitting as the catalyst. He's got a couple different things going for it, potential catalysts going on, the permitting and then the copper.
Dan Ferris: I hate to sound like I'm pounding the table on it, but if you were interested in Seabridge, it does sound like a pretty timely move. If you're the kind of person who can hold a stock past a long weekend, it's not a trading vehicle. But between now and the next three years or whatever, it could get interesting.
Let's maybe just leave it at that. But man, that was a fun, I feel like we're getting away with something with these interviews. I mean, they're too much fun. They just are. Every week I wind up finishing up with the same words. I hope you enjoyed that as much as we did. That's another episode of the Stansberry Investor Hour. And that's another awesome interview that we absolutely really did have this much fun doing. I promise you.
We do provide a transcript for every episode. Just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word transcript and enjoy.
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