(Sandstorm Gold has outperformed the gold miners index)
With limited near-term growth opportunities in the non-precious metals streaming space, Sandstorm Metals and Energy (SND:TSXV) has agreed to be acquired by Sandstorm Gold (SSL:TSX) for cash and shares totaling $49 million. Sandstorm Gold will issue shares based on an exchange ratio of 0.178:1 as well as issue $0.35 in cash for each Sandstorm Metals share. This values Sandstorm Metals at a $1.42/share or a 43% premium to the close today (based on SSL share price of $5.99). As a result, the Sandstorm brand is now focused solely on the junior-to-mid sized precious metals streaming market, which they currently dominate.
Sandstorm Gold has locked up 6.85 million shares of Sandstorm Metals, representing approximately 19.8% of the company.
Sandstorm Metals and Energy has $4.5 million in cash and a total of 3 NSR royalties as well as 1 copper stream. One of their assets is currently cash flowing ~$4 million per year (2.4% NSR royalty on copper and zinc from the Bracemac-McLeod mine). They also have an estimated $7 million in tax-loss carry forwards which can be applied against Sandstorm Gold's future taxable income.
Cormark Securities is acting as advisor to Sandstorm Gold on the transaction.
Sandstorm Gold has 8 gold streams and 27 royalties with 13 producing assets. They are guiding 40-50,000 ounces of gold equivalent production this year and growing that to over 60,000 ounces per year by 2016. The company is well capitalized, with $200 million in available capital which will allow the brilliant team and Sandstorm Gold to acquire more accretive streams and royalties.
Sandstorm Gold's CEO Nolan Watson commented: "Sandstorm's management team is excited to be able to focus all of our future time and attention on gold. The acquisition of Sandstorm Metals will provide Sandstorm Gold shareholders with approximately $4-million of (U.S.) annual royalty revenue from operating mines, as well as royalties on advanced exploration and development assets, including Canadian Zinc Corp.'s Prairie Creek mine and Entree Gold Inc.'s Hugo North Extension and Heruga deposits. In addition, Sandstorm Gold will be able to benefit from the use of Sandstorm Metals non-capital loss carryforwards for tax purposes, as well as cash expected to be received upon the monetization of non-core assets, including various coal, oil and natural gas assets."
The combined company is targeting annual free cash flow of $51 million by 2016 based on their existing stream and royalty portfolio. Sandstorm Gold has a number of cornerstone gold assets including Luna Gold's Aurizona mine which Sandstorm Gold is entitled to 17% of life-of-mine production for $400/ounce fixed cost. Aurizona produced roughly 79,000 ounces of gold in 2013, but the asset is currently expanding to a 10,000tpd CIL plant which will be capable of producing 135,000 ounces per year (22,950 ounces net to Sandstorm Gold).
A conference call will be held on Tuesday, April 22, 2014 starting at 9:30am PDT to further discuss the Arrangement. The webcast will also be available on the Sandstorm website.
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Read: Sandstorm Gold Announces Plan of Arrangement to Acquire Sandstorm Metals & Energy