Bruce McLeod

Sabina Gold and Silver Corp. ($SBB.TO)  held a conference call Tuesday morning to review its “initial project” feasibility study on Back River, which was released the previous morning.

In case you missed it, Sabina CEO Bruce McLeod outlined the plan for a smaller 3,000-tonne-per-day mill (compared to 6,000 tpd in the May feasibility study) and initial capex of $415 million, compared to $695 million for the larger mine.

The scaled-back FS models production of about 200,000 ounces of gold a year over a 12-year mine life, with an average head grade of 6.3 g/t. All-in sustaining cash costs for life-of-mine are US$620 an ounce.

“This scenario has not only enabled us to drastically reduce the initial capital requirements, but it’s also provided a much simpler project allowing us to start production in the district with significantly decreased execution risk,” McLeod said on the conference call.

With an after-tax IRR of 22.4%, the 3,000-tpd mine will be a stepping stone for future expansion, the CEO said.

“We see this as a viable path for Sabina to start production in the district that will see us mining for many years to come.”

McLeod came on board as chief executive in February, and has since been buying stock both in the open market and in a recent flow-through financing,

He emphasized that Back River is a new mining district, with the 7-million-oz-plus (in all categories) located over just 10 kilometres of an 80-km property. There are inferred resources in all existing deposits that can be converted, and all resources are open at depth and along strike.

With $22 million in cash as of June 30, Sabina has the treasury to de-risk project through permitting, according to McLeod.

“We believe there are very few undeveloped resources of this size and grade in the world today,” he said.

McLeod cited Sabina’s strong relationships with local communities as well as extensive consultations with governments and local groups.

One important streamlining step Sabina took was to base its final environmental impact statement (EIS) on the larger 6,000-tpd mine plan. That’s to dodge the “permitting pipeline” if and when the Back River mine is expanded, McLeod explained.

“We felt it really was the better way to permit what we think is the ultimate project and that will mean we’re not in that permitting pipeline once again every time we think of expansion,” McLeod told National Bank Financial mining analyst Adam Melynk, who inquired about the move in the Q&A.

The most important catalyst for Sabina will be receiving the project certificate, which is anticipated in Q2 2016, McLeod said. “More permits will be required, but receipt of the project certificate “means there is no reason the project should not proceed.”

In summary, McLeod talked frankly about the reasons for the share price plunge from above $7 to well under a dollar.

“Sabina’s had a pretty rough ride of it. We were one of the best and most liquid performing stocks in 2011. A series of events happened: gold entered a bear market, Meadowbank had operational challenges and Newmont wrote down Hope Bay,” he said. “These last 2 events led to a significant Arctic discount, but we believe these issues are no longer relevant.

“Meadowbank is Agnico Eagle’s second-best performing asset and they continue to invest in the North. TMAC has completed a successful IPO, it is now talking about production in Hope Bay in late 2016.”

With an enterprise value of $6 an ounce, Sabina is undervalued compared to peers and due for a re-rating, McLeod asserted. “We believe we will recognize a re-rating, even in a market such as this.”

Haywood mining analyst Geordie Mark asked where the low-hanging fruit is for additional resources or conversion from inferred to measured and indicated.

Angus Campbell, Sabina’s vice-president of exploration, said two obvious places to start would be the underground portion of Umwelt, whose open pit would be mined under the “initial project” FS. Umwelt probably contains more than 400,000 ounces of gold underground, but it’s fairly deep, Carson said. There is further exploration upside at the Llama and Echo deposits, as well as at Goose. “We’re going to keep targeting the shallow, open-pittable ounces.”

The company also plans to investigate a new style of mineralization about a kilometre away from Goose - quartz-vein hosted gold in sediments. The prospect contains a number of showings and outcrops, Campbell said. “It opens up a whole new playing field for us.”

In a research note, Haywood analysts Mark and Mick Carew said Sabina has delivered a feasibility study that is “far more palatable” in current market conditions. Haywood does not have a rating on Sabina.

National Bank Financial recently initiated coverage on Sabina with an “Outperform” rating and a $1.00 price target. Sabina shares last traded at .35, giving it a market capitalization of $67.9 million and an enterprise value of $46 million.

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Forward Looking Information

This news release contains “forward-looking information” within the meaning of applicable securities laws (the “forward-looking statements”), including our belief as to the extent, results and timing of the FEIS, the results of the FS, including, but not limited to, gold price, diesel price and exchange rate assumptions, cash flow forecasts, projected capital and operating costs, metal or mineral recoveries, mine life and production rates; the Company’s potential plans and operating performance; the estimation of the tonnage, grades and content of deposits, and the extent of the resource and reserves estimates; potential production from and viability of the Company’s properties; estimates of future production and operating costs; estimates of permitting submissions and timing, including the anticipated timing for the holding of final public hearings; the timing and receipt of necessary permits and project approvals for future operations, including the timing of the anticipated receipt of a project certificate; access to project funding; and the estimation of cash and equivalents at the end of the year. These forward-looking statements are made as of the date of this news release. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the future circumstances, outcomes or results anticipated in or implied by such forward-looking statements will occur or that plans, intentions or expectations upon which the forward-looking statements are based will occur. While we have based these forward-looking statements on our expectations about future events as at the date that such statements were prepared, the statements are not a guarantee that such future events will occur and are subject to risks, uncertainties, assumptions and other factors which could cause events or outcomes to differ materially from those expressed or implied by such forward-looking statements.
Such factors and assumptions include, among others, the ability of the Company to raise sufficient funds to implement the FS; the effects of general economic conditions; changes in commodity prices including the gold price assumed in the FS; increases in input costs; uncertainty of production and cost estimates for the project; changing foreign exchange rates; actions by government and regulatory authorities; and misjudgments in the course of preparing forward-looking statements. In addition, there are known and unknown risk factors which could cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements. Known risk factors include risks associated with exploration and project development; the need for additional financing; the calculation of mineral resources and reserves; operational risks associated with mining and mineral processing; fluctuations in metal prices; title matters; government regulation; obtaining and renewing necessary licences and permits; environmental liability and insurance; reliance on key personnel; the potential for conflicts of interest among certain of our officers or directors; the absence of dividends; currency fluctuations; labour disputes; competition; dilution; the volatility of the our common share price and volume; future sales of shares by existing shareholders; and other risks and uncertainties, including those relating to the Back River Project and general risks associated with the mineral exploration and development industry described in our Annual Information Form, financial statements and MD&A for the fiscal period ended December 31, 2014 filed with the Canadian Securities Administrators and available atwww.sedar.com. Although we have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. We are under no obligation to update or alter any forward-looking statements except as required under applicable securities laws. This news release has been authorized by the undersigned on behalf of Sabina Gold & Silver Corp.
Disclosure: The author has been accumulating Sabina stock in the market over recent months. It is anticipated that Sabina will sponsor an upcoming CEO.CA Summit, so we are obviously biased. This is not investment advice and we are not investment advisors. Always consult a licensed professional investment advisor and do your own due diligence prior to making any investment decisions. Read Sabina’s profile on www.sedar.com for a full description of risks, including financing risk, commodity price risk, execution risk, and risk of total loss of your investment. Also please note, the following contains forward looking statements which may not come true. Read the disclosure at the conclusion of Sabina’s news release. You are responsible for your trades.