Sandstorm snaps up Lundin Gold royalty

The processing plant under construction at Lundin Gold’s Fruta del Norte mine in Ecuador. Source: Lundin Gold Inc.

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The processing plant under construction at Lundin Gold’s Fruta del Norte mine in Ecuador. Source: Lundin Gold Inc.

Sandstorm Gold Ltd. [SSL-TSX, SAND-NYSE American] said Friday January 18 that it has acquired a 0.9% net smelter return royalty interest on precious metals produced from Lundin Gold Inc.’s [LUG-TSX, LUG-OMX] Fruta del Norte mine in Ecuador.

Sandstorm said the royalty was acquired form a private third party for US$32.75 million in cash and covers more than 644 km2, including all 30 mining concessions held by Lundin Gold.

Sandstorm is a royalty financing company that seeks to acquire gold and other metals purchase agreements and royalties from companies that have advanced stage projects or operating mines.

In return for making upfront payments to acquire a gold stream, Sandstorm receives the right to purchase, at a fixed price per ounce, or at a fixed percentage of the spot price, a percentage of the mine’s gold, silver and other commodity production for the life of the mine.

The company has a portfolio of over 188 royalties, producing cash flow from 20 producing mines. Other company assets include a US$225 million credit facility.

The company has said it sold approximately 57,600 attributable gold equivalent ounces in 2018, the highest yearly total in the company’s history.

That number includes approximately 14,150 attributable gold ounces sold during the fourth quarter of 2018.

Approximately 85% of the ounces came from operations run by major and mid-tier mining companies, Sandstorm said in a press release.

On Friday, Sandstorm shares eased 0.67% or $0.04 to $5.94. The 52-week range is $6.95 and $4.61.

The announced Lundin Gold deal represents some new growth in an otherwise flat period of production for Sandstorm over the next few years, said Scotiabank analyst Trevor Turnbull. This is in keeping with his understanding that Sandstorm was looking to buy more near-term production, Scotiabank said.

Fruta del Norte ranks among the world’s highest grade gold projects with probable mineral reserves containing 5.0 million ounces of gold and 7.0 million ounces of silver in 17.8 million tonnes of ore with an average grade of 8.7 g/t gold.

With the first gold pour expected by the fourth quarter of 2019, Fruta del Norte is expected to produce in excess of 330,000 ounces of gold annually during the first 13 years of production at an all-in-sustaining cost of US$583 an ounce.

Current reserves are sufficient to support a mining operation for at least 15 years.

The project is Lundin Gold’s flagship asset and is located 139 km east-northeast of Loja, Ecuador’s fourth largest city.

The operation is designed as a 1.3 million tonne-per-year underground mine. The process plant will use gravity, flotation, and carbon-in-leach circuits to recover gold to both concentrate and doré bars. Combined metallurgical recoveries are estimated at 91.7% for gold.


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