Updated: Jun 12, 2022
Sabina Gold & Silver Corp. (SBB) announced a long awaited financing package earlier today which will cover the Nunavut-based Goose Mine from construction to eventual production expected by Q1/2025. The $520M package (C$660M) was put together by Wheaton Precious Metals ($125M upfront for 4.15% of production declining to 2.15% and finally 1.5% after certain delivery milestones, and a C$25M equity issue for 19.4M shares at C$1.30, done on a private placement basis) and Orion Mine Finance ($225M credit facility, $75M gold prepay facility and a C$95M equity issue for 72.7M shares at C$1.30). Note that the Project has an estimated 15+ year LOM with expected annual production of approximately 223,000 gold ounces/year at a relatively low AISC of $775/ounce.
With the financing overhang now lifted, work towards meeting that Q1/2025 production timeframe will be key. Though finally an interesting starting point to potentially look at the stock, we would still prefer to pick and choose a more strategic entry point seeing as recent history has proven that large scale projects in Nunavut can no longer count on a takeover premium from an international mining conglomerate (regardless of whether in production or not). One simply needs to revisit the TMAC Resources/Agnico Eagle takeover which closed almost a year ago to the day, following a ruling from the Canadian Federal Government (announced on December 23, 2020) preventing China based Shandong Gold Mining Co. from going through with its initially planned takeover of TMAC (and take ownership of the flagship Hope Bay project located in Nunavut). As can be seen below, the blocked foreign bid for TMAC's Nunavut based project has impacted Sabina’s share price ever since the landmark ruling was announced. As the spot gold price held its own (GC=F), Sabina’s declined dramatically.
At the time, the decision from Innovation, Science & Economic Development Canada (the Federal Department responsible for the Investment Canada Act) prohibited the Shandong takeover stating national review interests. TMAC was subsequently taken over a few weeks later (and at a premium to Shandong’s bid – C$2.20/share comparted to the original C$1.75/share) by Canadian based Agnico Eagle. Though an outright comparison for a takeout transaction (TMAC Resources) and a financing transaction (Sabina) is not easily comparable, a head to head asset quality comparison of both Hope Bay and the Goose Project is summarized below:
Ultimately, unless extremely bullish on the gold price, on the road to construction and ultimately production, the risk is now on the downside for cost inflation or timeline extensions. We also know that the list of potential future bidders (if any) will be limited to a handful of Canadian based players, most of whom likely have already done their due diligence on the project. The takeover story has been essentially removed from the equation since the December 23, 2020 announcement. Does the removal of the financing overhang change the equation ? The question now is if management has the capability and know-how to actually be mine builders rather than just mine developers. Building a mega project gold mine in the Canadian arctic is no easy task. What we can be pretty confident about is that the pre- Investment Canada Act valuation multiples of the past will no longer be applicable to such projects in Nunavut going forward.