Sabina Gold & Silver Announces Agreement With Xstrata Zinc Canada to Sell Hackett River Project and Certain Wishbone Claims
Vancouver, BC — Sabina Gold & Silver Corp (SBB.T) is pleased to announce that it has entered into a definitive agreement (the “Agreement’) to sell its 100% owned Hackett River property and certain claims on the Wishbone Greenstone belt (the “Properties”) to Xstrata Canada Corporation, Xstrata Zinc Canada Division (“Xstrata”).
Under the terms of the Agreement, Xstrata has agreed to pay cash consideration of $50 million. Sabina will reserve a silver production royalty equal to 22.5% of the first 190 million ounces of payable silver from the current resource at Hackett River and other properties and 12.5% of all payable silver from the Properties thereafter at no future cost to Sabina. Additionally, Xstrata has agreed to incur not less than $50 million on exploration and other expenditures on the Properties over a four year period in order to advance the Properties and complete a National Instrument 43-101 compliant feasibility study. Sabina will retain Wishbone claims at the south- east of Hackett River covering geological units which are similar to Back River and are potential gold targets.
“This transaction creates significant value for our shareholders and for the Territory of Nunavut. It transforms Sabina into a purely precious metals company, with a potentially significant source of value in our ongoing silver royalty” said Tony Walsh, President & CEO.
“Our goal is to become a mid-tier gold company producing between 300k — 400k ounces of gold per year from Back River, a project scope we believe we can expedite. With a large, well respected mining group like Xstrata taking over the reins at Hackett, Sabina shareholders as well as the stakeholders in Nunavut have an improved opportunity to realize value sooner. Based on our 2009 PEA, 22.5% of 190 million ounces of silver over 16 years at Hackett is approximately 2.7 million ounces annually. At today’s ratio of 40 ounces of silver to one ounce of gold, Hackett silver production alone could add approximately 70,000 ounces of gold equivalent to Sabina’s production profile annually at no cost. This transaction allows us to focus on bringing Back River into production, while retaining our leverage to the considerable silver at Hackett River and the exploration upside of both Hackett and the associated Wishbone claims.” He said.
Xstrata, the world’s largest zinc producer, provides a higher level of confidence that Hackett will be developed and become a producing mine in an earlier timeframe while at the same time continuing to explore the Properties. In addition to potential gold equivalent ounces from Hackett and Wishbone, Sabina operations could be further enhanced by the use of infrastructure built for Hackett by Xstrata.
“This transaction solidifies Sabina’s precious metals focus and poises the Company for a potential market re-rating as a gold company. Certainly having the strength of a major company like Xstrata in close proximity to our projects helps to mitigate against the challenges of mining in the north.” said Tony Walsh
Xstrata Zinc Canada Chief Operating Officer Manuel Alvarez commented: “This transaction, added to the extension of the life of our Brunswick Mine and the development of the Bracemac-McLeod Mine, is consistent with our strategy of increasing the life of Xstrata Zinc’s operations in Canada and demonstrates Xstrata Zinc’s commitment to a growing presence in the country. We now look forward to working with local stakeholders in Nunavut in the coming years as this project moves forward.”
BMO Capital Markets acted as exclusive financial advisor to Sabina and its Board of Directors in connection with the transaction and has provided to the Board of Directors and opinion to the effect that the consideration to be received by the Company is fair, from a financial point of view, to the Company. The Board of Directors also received an opinion from Paradigm Capital to the effect that the consideration received by the Company is fair, from a financial point of view, to the Company.
Rationale for the transaction
Hackett River, located 45 km west of the Company’s Back River gold project in Nunavut, is a silver rich volcanic massive sulphide (“VMS”) project and is one of the largest undeveloped projects of its type. According to a 43-101 Preliminary Economic Assessment completed by PEG Mining Consultants in December 2009, the project contains an indicated resource of 200 million ounces of silver (144 g/t) and 2 million tonnes of zinc (4.65%) along with an additional inferred resource of 64 million ounces of silver (136 g/t) and 652,000 tonnes of zinc (4.46%). The project also contains appreciable copper, lead and gold.
Over the last 18 months the Company’s focus has shifted to its Back River gold assets also in Nunavut. With significant gold resources, exploration success and exploration potential at Back River, Sabina is aggressively pushing forward to become a mid-tier gold producer.
Recognizing that the Company has two potentially world class projects and given the size and complexity of Hackett River, in the fall of 2010 the Company engaged BMO Capital Markets to look for a strategic partner on the project. The objective of this strategy was to allow Sabina to focus on developing its gold assets, potentially enabling production sooner at a smaller scale at Back River, while at the same time continuing to push Hackett River forward.
The process was extensive. A data room was set up and approximately 53 companies were approached, with ten signing confidentiality agreements. Xstrata expressed interest in the project early in the process and were aggressive in completing due diligence and making a bona-fide offer.
Terms of the transaction
Under the Agreement, Xstrata has ten business days to complete confirmatory due diligence with applicable government agencies with respect to Sabina’s title to the Properties and its permit rights.
Following closing, Xstrata is required to spend not less than $50 million on the Properties (“FS Expenditures”) with a view to completing a NI 43-101 compliant feasibility study by the fourth anniversary of the completion date of the transaction. If the feasibility study has not been completed by this date, Xstrata can elect to incur additional FS Expenditures of not less than $10 million by each of the next three anniversaries.
If at any of the fourth, fifth, sixth or seventh anniversaries, Xstrata has not met the spending requirement and has not completed the feasibility study, Xstrata may elect to pay Sabina the shortfall, failing which, upon notice to Xstrata, Sabina may exercise a right to buy back (“Buy Back Right”) the Properties for a cash purchase price equal to 100% of the FS Expenditures incurred by Xstrata. The Buy Back Right also applies if Xstrata has not by the seventh anniversary of the completion date publicly announced a definitive decision to begin construction of a mine within 12 months following such seventh anniversary.
Xstrata can pre-empt Sabina’s Buy Back Right by electing to pay to an advance royalty of $75 million in three instalments of $25 million over three years.
The royalty rate is 22.5% on the first 190 million ounces of silver produced from what has been defined in a “Known Resource” 3-D block model completed for the purposes of the Agreement. The Known Resource consists of the existing Hackett River resources (as defined in the NI 43-101 Preliminary Economic Assessment) and additional tonnage of approximately 10% as assessed by Xstrata based on their review of Sabina’s 2010 drilling on the project. Reconciliation of silver produced as it relates to the Known Resource will be completed once the Known Resource has been completely mined out. Thereafter, Sabina will be entitled to 12.5% of any additional silver mined from the “Known Resource” deposits and any silver mined elsewhere on the Properties. Once reconciled, and if less than 190 million ounces is mined and milled from the “Known Resource”, any excess royalty paid to Sabina would be offset against future royalty payments. If a deposit other than the Known Resource is developed before the Known Resource, Sabina will still receive 22.5% of the first 190 million ounces of silver produced from the Properties, subject to the reconciliation noted above.
Sabina’s silver production royalty is contained in a separate silver royalty agreement which sets out the terms for the calculation and payment of the silver production royalty and other rights relating thereto. Under the silver royalty agreement, Xstrata will have a right of first refusal if Sabina receives an offer to purchase the silver royalty from an arm’s length third party. However, the right of first refusal will not apply to a sale of the silver royalty to certain purchasers named in the silver royalty agreement or, subject to the prior approval of Xstrata not to be unreasonably withheld, to a purchaser with a market capitalization greater than $500 million. In addition, the right of first refusal will not apply to an acquisition of Sabina, unless the royalty agreement represents all or substantially all of Sabina’s assets.
The Agreement contemplates that an infrastructure access agreement will be entered into setting out the terms upon which Sabina will have the right, on competitive commercial terms, to use the infrastructure built by Xstrata for Hackett River.
The transaction will be completed upon transfer by Sabina to Xstrata of title documents, licences and permits and is subject to a number of other usual terms and conditions. Given the process for dealing with such matters in Nunavut, the transaction is expected to take approximately four and possibly up to six months for final completion.
Once the transaction has closed, an inventory will be taken of all materials at Hackett River and Xstrata will reimburse Sabina for transferred supplies.
SABINA GOLD & SILVER CORP
Mr. Peter Manojlovic, P. Geo, and Vice-President, Exploration of Sabina Gold & Silver Corp is a Qualified Person under the terms of NI43-101 and has reviewed the technical content of this press release and approved its dissemination.
Project management of the PEG PEA was conducted by Gordon Zurowski, P.Eng. He is a Qualified Person under the terms of 43-101. As part of the PEG Study, PEG verified the independent resource estimate and the metallurgical test program that was done for the East Cleaver, Boot Lake and Main Zone deposits prepared by AMEC. A new resource estimate was created by PEG for the Jo Zone. Pierre Desautels, P. Geo — Geology and Todd McCracken, P. Geo — Geology were the qualified persons responsible for the geological resource estimate. Engineering and economic criteria were applied to the geological estimates to establish that mineral resource estimates follow the CIM guidelines of reasonable expectation of economic extraction.
For further information please contact:
Nicole Hoeller, Director, IR:
1 888 648-4218
Forward Looking Statements
Statements relating to exploration, pre-feasibility work and future operations at the Hackett River and Wishbone Projects and the expected results of this work are forward-looking statements within the meaning of securities legislation of certain Provinces in Canada. Forward looking statements are statements that are not historical facts and are generally, but not always, identified by the words “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” ‘projects,” “potential” and similar expressions, or that events or conditions “will,” “would,” “may,” “could” or “should” occur. Information inferred from the interpretation of drilling results may also be deemed to be forward looking statements, as it constitutes a prediction of what might be found to be present when and if a project is actually developed. These forward-looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ materially from those reflected in the forward-looking statements, including, without limitation: risks related to fluctuations in metal prices; uncertainties related to raising sufficient financing to fund the planned work in a timely manner and on acceptable terms; changes in planned work resulting from weather, logistical, technical or other factors; the possibility that results of work will not fulfill expectations and realize the perceived potential of the Company’s properties; risk of accidents, equipment breakdowns and labour disputes or other unanticipated difficulties or interruptions; the possibility of cost overruns or unanticipated expenses in the work program; the risk of environmental contamination or damage resulting from Sabina’s operations and other risks and uncertainties, including those described in Sabina’s Annual Report for the year ended December 31, 2010.
Forward-looking statements are based on the beliefs, estimates and opinions of Sabina’s management on the date the statements are made. Sabina undertakes no obligation to update these forward-looking statements should management’s beliefs, estimates or opinions, or other factors, change.
This news release has been authorized by the undersigned on behalf of Sabina Gold & Silver Corp.
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