Sabina raises funds for Back River’s exploration

Sabina Gold & Silver (SBB-T) is raising $20 million to keep the drills turning on its advanced-stage Back River gold project in Nunavut’s West Kitikmeot region, a move that has one analyst scratching his head.  

“SSB ended first-quarter 2013 with $104 million in cash — an enviable cash balance within the gold exploration sector that should have been sufficient to advance the Back River project through feasibility and permitting over the next two years,” Andrew Kaip, a BMO Capital Markets analyst, comments in a note.

Before markets opened on May 28, the junior announced a private placement where it would sell up to 14.4 million flow-through shares at $1.40 a piece for $20 million in proceeds. The funds should help fuel Back River’s 2013 exploration. The debt-free firm has nine drills active on the project’s George and Goose properties.

Sabina says the drilling is de-risking and boosting the attractiveness of its flagship project, where it intends to complete a prefeasibility study (PFS) in the third quarter. It adds that the cash injection will cool off the pressure on its balance sheet. The company expects to end the year with $90 million. 

But given the unfavourable market conditions that have left many companies with depressed share prices, Kaip argues the junior should have trimmed its expenditures by reining in exploration costs instead of taking a 9% equity dilution.

He adds the financing — expected to close on June 10— was done at a share price “not seen since second-quarter 2010.” The last raise the Vancouver-based outfit completed was in late June 2012, where it offered 11.9 million shares at $2.90 apiece for $34.5 million. It also concluded a non-brokered placement under the same terms for another $600,000 in proceeds.

But since last June, the company’s share price has dropped nearly 40%. The most recent financing represents a 6% premium over its May 27 closing price, the day before the announcement was made.

“We were presented with the opportunity to finance, and in this market where access to capital is hard to come by, it is better to take the money,” says Nicole Hoeller, the company’s vice-president of investor relations.

As part of its 2013 work program at Back River, Sabina intends to complete 50,000 metres of drilling as well as wrap up the PFS and start a feasibility study. It has allocated $65 million to the project this year. Hoeller says the company could increase the budget depending on drilling success.

Infill drilling is focused on Back River’s Llama, Umwelt and Goose deposits to upgrade resources within the pits, while exploration drilling is selectively following up on 2012 results, as well as various target areas on the property.

The company is also completing environmental and baseline work, and anticipates filing a draft environmental impact statement by year-end.

On May 23, Sabina reported more high-grade assays from the Llama deposit from its infill drilling. Some notable hits were 20.9 metres grading 15.2 grams gold per tonne, including 13.5 metres of 22.7 grams gold and 16.7 metres of 19.86 grams gold with 9.5 metres of 35.39 grams.

Sabina says all planned 33 holes at Llama are done, with assays from four still pending.

Along with drilling, Sabina is upgrading the camp site and has recently put in an all-weather air strip to improve accessibility and logistics.

In February the company enhanced the project’s resource for the PFS. Back River now hosts 24.2 million measured and indicated tonnes grading 6 grams for 4.7 million oz., and 7.6 million inferred tonnes of 7.8 grams gold for 1.9 million oz.

A preliminary economic assessment released last May estimates Back River could produce 300,000 oz. gold a year  over a 12.3-year mine life. Life-of-mine capital and total cash costs are pegged at $838 million and $542 per oz.

Back River is slated to reach production in 2017.  

Sabina closed May 28 down 9% to $1.20. Kaip has a $3.25 target price and an “outperform” rating on the stock.