Sandstorm Gold Ltd. [SSL-TSX; SAND-NYSE American; SDDXF-OTC] has entered into a US$60-million financing package with Bear Creek Mining Corp. [BCM-TSXV, Lima; BCEKF-OTCQX] to facilitate Bear Creek’s acquisition of the producing Mercedes gold-silver mine in Mexico from Equinox Gold Corp. [EQX-TSX, NYSE American].
The financing package includes a US$37.5-million gold stream, together with a US$22.5-million convertible debenture. Bear Creek has agreed to acquire a 100% of Mercedes from Equinox. The transaction is expected to close by March 31, 2021, and gold deliveries to Sandstorm will commence immediately thereafter.
Immediately accretive to cash flow: Sandstorm expects gold deliveries of 5,400 ounces in 2022 and 7,200 ounces per annum in the first three years post-closing. Sandstorm expects the Mercedes stream to be 13% accretive to 2022 to 2024 average cash flow per share.
Gold stream with fixed deliveries: Sandstorm will receive 25,200 ounces of gold over the initial 3.5 years and a 4.4% gold stream thereafter. This is expected to increase the company’s attributable gold equivalent ounces by 8% in 2022 and 11% in 2023/2024.
Increased production guidance: Sandstorm has increased its 2022 production guidance to be between 65,000 and 70,000 gold equivalent ounces.
Exploration upside: Mercedes has a strong record of reserve replacement, complemented by an expansive regional land package, which remains relatively untested. The stream covers all 69,285 hectares of mineral concessions at Mercedes, plus a 5-km area of interest.
Fully financed transaction: The transaction will be financed via a combination of cash reserves and Sandstorm’s $350-million ESG-linked (environmental, social and governance) revolving credit facility.
In exchange for US$37.5-million, Sandstorm will receive 25,200 ounces of gold over 3.5 years, followed by 4.4% of the gold production from Mercedes for the remainder of the life-of-mine.
The fixed deliveries will begin on the earlier of the closing date or April, 2022, and be delivered over a period of 3.5 years. During the fixed delivery period, Sandstorm will pay Bear Creek 7.5% of the spot price of gold for each ounce of gold delivered by Bear Creek. Beginning 42 months after the commencement of the fixed delivery period, the variable stream will begin, and Sandstorm will pay Bear Creek 25% of the spot price of gold for each ounce of gold delivered by Bear Creek.
The payment of US$37.5-million will occur upon closing of the transaction.
The US$22.5-million convertible debenture bears an interest rate of 6% per annum and has a term of three years. Sandstorm has the right to convert the principal amount of the debenture into common shares of Bear Creek, at any time prior to the maturity date, at a 35% premium, or as approved by the TSX Venture Exchange, to Bear Creek’s share price on closing of the transaction.
The Mercedes gold-silver mine is approximately 250 km northeast of Hermosillo, Sonora State. Commercial production commenced at Mercedes in 2011 and the mine has produced over 800,000 ounces of gold.
Proven and probable reserves as at December, 2020, totalled 2.6 million tonnes grading 3.9 g/t gold and 29.2 g/t silver, containing 325,000 oz gold and 2.45 million oz silver (2.1 g/t gold cut-off, except Diluvio at 2 g/t gold cut-off).
Sandstorm Gold is a gold royalty company that provides upfront financing to gold mining companies looking for capital and, in return, receives the right to a percentage of the gold produced from a mine.