SOURCE: [Metal Investment News] Sandstorm (SND-TSX.V) is in the business of funding mines through metal purchase agreements.
With hundreds of advanced stage explorers around the globe looking for financing, Sandstorm is not short of potential partners.
So far Sandstorm has struck deals with five companies: Novadex Assets (NDX-TSX.V), Thunderbird Energy (TBD-TSX.V), Terrex Energy (TER-TSX.V), Royal Coal (RDA-TSX.V) and Donner Metals (DON-TSX.V).
Sandstorm’s mantra is low cost, high margin mines in politically stable jurisdictions.
Since payback depends on timely production, Sandstorm’s involvement constitutes a loud vote of approval from their in-house team of analysts and geologists. Sandstorm simply cannot afford to back a losing horse.
Sandstorm’s partners are typically able to avoid heavy share dilution as they spread the payback over the life of the mine.
Sandstorm’s recent partnership with Donner Metals is of particular note because the purchase agreement involves copper – not zinc, which is the primary targeted metal and remains unhedged.
Donner has a 35% joint venture interest in the Bracemac-McLeod Mine development operated by Xstrata (XTA.L). The Bracemac-McLeod Mine is a high grade volcanogenic massive sulphide (VMS) deposit located in the historical and prolific mining district of Matagami, Québec.
The Matagami district has been actively in production for almost fifty years, with ten previously operating mines and one current working mine called Perseverance. As Perseverance winds down, Xstrata plans to shift operations to Bracemac-McLeod while utilizing the existing Matagami Mill to produce concentrates of zinc and copper.
Bracemac-McLeod will use a ramp decline in the mine, and is expected to be one of the lower cash cost zinc producers in the world. Xstrata has developed the ramp more than 2,300 metres into the Bracemac ore body and is now developing on multiple faces; it is expected to begin production in Q1, 2013.
Current reserves would take the mine life to four years, but the high grade inferred resources on the McLeod Deep orebody have the potential to extend the life materially. Production is expected to be 2,500 tonnes per day.
Mr. Nolan Watson, President & CEO of Sandstorm Metals & Energy, said, "We see great potential in the Bracemac-McLeod mine and are excited that initial production is near-term."
Donner has agreed to sell Sandstorm 17.5% of the copper and precious metals (gold and silver) for which Donner will receive .80/lb if copper is above $2.75 per pound.
Once Sandstorm has purchased 14.8 million pounds of copper, Donner will receive US$1.05 per pound of delivered copper, if the spot price of copper per pound is above US$2.75 per pound, otherwise, the lesser of US$0.80 and the prevailing spot price of copper per pound.
"The metal purchase agreement presents Donner with a unique opportunity to finance the development of the Bracemac-McLeod mine in a way that is least dilutive to shareholders,” states Donner CEO David Patterson.
At full operating capacity, production is estimated to be 175 M pounds of zinc, 20 M pounds of copper over a minimum 4 year mine life.
Approximately 50% of Donner shares are owned by institutions. Donner still has to raise about $10 million dollars, which will likely be done at a premium to market, around 30 cents. Donner currently has 173 million shares fully diluted. Haywood Securities estimates that Donner will have 219 million fully diluted shares outstanding after the financing.
Haywood has a target price of 40 cents per share based on a 4.5 X multiple to Donner’s 2013E 2013 cash flow. The anticipated Life Of Mine Extension to 8 years would create a peer multiple of 6.5 X – with a target of .54 – about a double from the current price.
With several big zinc mines about to shut down - removing 10% of the global supply – some analysts are predicting a strong rebound in zinc prices, which would make Donner even more profitable.
“We are excited about this Donner acquisition because it is good value, good operator, on a low cash cost producing mine,” states Sandstorm CEO Nolan Watson.