Sandstorm remakes itself as a silver stream business

Vancouver – Two former directors of Silver Wheaton (SLW-T) are trying out the precious metal stream business again, remaking a junior resource company into a small-scale gold stream outfit with two contracts to buy future gold production from as-yet unbuilt mines.

Sandstorm Resources (SSL-V) just signed letters of intent to buy a portion of the future gold production from Luna Gold‘s (LGC-V) Aurizona project and SilverCrest Mines‘ (SVL-V) Santa Elena project. In return, Sandstorm will pay and loan each company a chunk of the funds they need to develop the mines in question.

To finance its end of the deal, Sandstorm also announced a best-efforts financing that could bring in as much as $60 million. The company is offering 150 million receipts at 40¢ a piece; each receipt is exchangeable for a share and half a common warrant. Each warrant is exercisable at 60¢ for five years.

In the Luna agreement, Sandstorm is paying US$17.8 million for the right to buy 17% of the payable gold produced at Aurizona over its life-of-mine. In addition to the upfront payment, Sandstorm will pay the lesser of US$400 per oz. gold or the prevailing market price of gold. In the deal Sandstorm also secures the right to buy 17% of the gold produced from an underground operation at Aurizona, if Luna decides to build one, for US$500 per oz.

Sandstorm will also advance Luna a US$7.2-million senior secured loan, to be used for development at Aurizona. The debt will be repaid with 50% of Luna’s free cash flow from Aurizona and will outstand no longer than four years.

Luna says that the gold stream payment and the loan will provide it with all the remaining funds it needs to develop Aurizona into an open-pit mine with a gravity and carbon-in-leach milling operation. The mine is expected to produce 62,000 oz. gold annually. The company wants to commence construction in the upcoming Brazilian dry season and hopes to have the mine operational within 12 months.

Aurizona, which is in Maranhao state, hosts 11.3 million tonnes grading 1.37 grams gold per tonne as proven and probable reserves, 21.2 milion tonnes grading 1.33 grams gold as measured and indicated resources, and 11 million tonnes grading 1.14 grams gold as inferred resources.

Sandstorm’s letter of intent with SilverCrest outlines a similar deal. The deal would see Sandstorm pay US$12 million for the right to buy 20% of the payable gold produced at SilverCrest’s Santa Elena project, over its mine life. In addition to the upfront payment, Sandstorm will pay SilverCrest the lesser of US$350 per oz. gold or the prevailing market price of gold.

As in the Luna deal, Sandstorm’s agreement with Silvercrest would also see it advance a US$6-million senior secured loan to Silvercrest, to be used to advance Santa Elena. Half of the loan is convertible at any time into SilverCrest shares at 80¢, at Sandstorm’s election. The other half will be convertible at any time into ounces of gold at US$1,000 per oz.

When built, Santa Elena will operate as a conventional open pit, heap leach gold-silver operation. The mine will produce 2,500 tonnes of ore daily for eight years, producing some 30,000 oz. gold and 500,000 oz. silver each year. SilverCrest expects development costs at Santa Elena to total US$20 million, which means the company still needs to find additional funding.

Interestingly, in announcing its conversion to a gold stream company Sandstorm made clear it will not compete with Gold Wheaton (GLW-V). The junior says Gold Wheaton will focus on larger transactions while it anticipates dedicating its efforts to “completing smaller scale yet accretive mineral purchase agreements.” The company also said it will not compete with Silver Wheaton in purchasing silver streaming transactions.

Sandstorm’s president, Nolan Watson, is the former chief financial officer for Silver Wheaton. Another Sandstorm director, David Awram, is a former director of investor relations for the silver stream major.

Both of Sandstorm’s gold stream deals remain contingent on several key achievements, including Sandstorm raising $60 million in its financing, SilverCrest obtaining all necessary permits and the remaining funds needed to build Santa Elena, and Luna getting Aurizona into production within 30 months, among others.

On news of the major change in direction Sandstorm’s share price remained unchanged at 50¢. The company has a 52-week trading range of 25¢ to 75¢ and has 18 million shares issued.

Luna’s share price gained 1.5¢ on the news to close at 16.5¢. SilverCrest shares gained a penny to close at 52¢.