Agnico-Eagle investment a ‘vote of confidence’ in Sulliden

After what Sulliden Gold (SUE-T, SDDF-O) describes as a “thorough technical review,” Agnico-Eagle Mines (AEM-T, AEM-N) has made a $24 million strategic investment in the junior and its Shahuindo project in northern Peru.

In a non-brokered private placement Agnico has subscribed to 26.97 million units of Sulliden at a price of $0.89 per unit. Each unit is made up of a common share and 0.7 of one share purchase warrant. The warrant entitles Agnico to acquire a common share of Sulliden at a price of $1.31 for a period of two years.

The strategic investment means Agnico will own about 9.96% of Sulliden’s outstanding shares on a non-diluted basis and 15.83% of the company’s common shares on a partially diluted basis.

Sean Boyd, president and chief executive of Agnico Eagle, stated in prepared remarks that the investment gives the company an opportunity to gain exposure to another jurisdiction with a well-established mining culture, while Sulliden’s chairman and chief executive, Peter Tagliamonte, said the investment represents a strong endorsement of the quality and potential of the Shahuindo project and will, along with a previously announced debt facility of $125 million, put the company in a strong position to advance the project.

Currently, Agnico Eagle has operations in Canada, Finland and Mexico and exploration and development activities in Canada, Finland, Mexico and the United States.

Kerry Smith of Haywood Securities wrote in a note to clients that he views the investment as “a huge vote of confidence” in Shahuindo. “Agnico-Eagle would have done extensive due diligence on the project, permitting risks, social risks and also potential upside for additional resources,” he writes, adding that Agnico’s decision  “will also provide additional comfort to the banks for the debt funding.”

Smith also pointed out that he had modeled a US$50 million equity financing at $0.85 per share in fiscal 2014, (which begins in May 2013), in order for Sulliden to cover its financial requirements for advancing the project. “The investment from Agnico is therefore at less dilutive terms than we expected and gives us additional confidence in our valuation for Sulliden.”

Sulliden completed a feasibility study on the Shahuindo gold-silver project in September 2012, which outlined an open-pit mine with heap leach recovery. Capex was estimated at $131.8 million, which would support a mining rate of 3.65 million tonnes per year and annual production of about 90,000 gold-equivalent ounces at an average cash operating cost of US$552 per oz.

Sulliden climbed 9.5% or 7¢ per share on the news to close at 81¢ on 3.5 million shares traded. Over the last year the junior’s shares have traded in a range of 68¢-$1.44.

Andrew Kaip of BMO Capital Markets has a target price of $1.25 per share. “The Agnico-Eagle investment alleviates near-term financing risk as Sulliden embarks on a number of predevelopment activities at Shahuindo,” he wrote in a note to clients. “The investment also validates the technical merit of the Shahuindo project.”