Sandstorm Gold Ltd. (“Sandstorm Gold Royalties”, “Sandstorm” or the “Company”) (NYSE: SAND, TSX: SSL) is pleased to announce that the Company has increased its portfolio of producing assets and immediate cash flow through the execution of a US$30 million gold stream and royalty agreement (the “VGML Stream”) with Vatukoula Gold Mines PTE Limited (“VGML”) and the purchase of a royalty package on a portion of Vale S.A.’s (“Vale”) operations at a net purchase price of US$108 million (the “Vale Royalties”, and collectively with the VGML Stream, the “Royalties”).
“The addition of the VGML Stream and Vale Royalties has strengthened our immediate and long term cash flow projections and fortified our producing royalty portfolio,” stated Nolan Watson, President and CEO of the Company. “The Vale Royalties provide Sandstorm shareholders exposure to high-quality assets with reserve weighted mine lives of several decades, while the VGML Stream adds fixed gold deliveries with operational and exploration upside.”
•Immediate Cash Flow: At consensus prices, the Royalties are estimated to contribute additional revenue of US$12–$15 million per year for the next five years. Revenue from the Vale Royalties are accrued as of January 1, 2021 and the VGML Stream gold deliveries are expected to begin in August 2021.
•VGML Stream: Sandstorm will acquire a gold stream on the operating Vatukoula gold mine in Fiji (the “Vatukoula Mine”) in exchange for a US$30 million upfront deposit. Stream deliveries are fixed for the first six years (the “Fixed Delivery Period”), growing from 2,280 ounces per year in the first 24 months to 5,340 per year for the remainder of the Fixed Delivery Period of four years, followed by a variable stream for the life of the mine.
•Vale Royalties: Sandstorm has acquired 9.3 million units of Vale’s participating royalties (the “Participating Royalties”) which provide holders with life of mine net sales royalties on certain of Vale’s producing and exploration assets. The Participating Royalties are backed by Vale’s long-life, low-cost assets and are expected to contribute to Sandstorm’s portfolio for several decades, including US$11–$12 million of royalty revenue in 2021 based on analyst consensus pricing.
•Increased Production Guidance: Sandstorm has increased its 2021 production guidance to 62,000–69,000 gold equivalent ounces.
•Asset Diversification and Quality: With the addition of the Royalties, Sandstorm’s portfolio now includes 229 streams and royalties, of which 29 of the underlying mines are in production.
VATUKOULA GOLD STREAM AND ROYALTY
Sandstorm has executed a US$30 million gold stream and royalty on the producing Vatukoula Mine in Fiji with VGML.
Under the terms of the VGML Stream, Sandstorm will receive 25,920 ounces of gold over six years followed by 2.55%–2.9% of the gold production from the Vatukoula Mine mining licenses, which cover 12.5 km2 plus a five-kilometre area of interest.
Sandstorm will also receive a 1.0% net smelter returns (“NSR”) royalty on VGML’s interest in certain prospecting licenses, plus a five-kilometre area of interest. VGML currently holds a 45% interest in these licenses, for an effective 0.45% NSR royalty on a 195 km2 land package.
•Fixed Delivery Stream: The 25,920 ounces of fixed gold deliveries is anticipated to begin in August 2021 and will be delivered over a six-year period. During the first two years of the Fixed Delivery Period, Sandstorm will receive 2,280 ounces of gold per year, increasing to 5,340 ounces of gold per year during the final four years of the Fixed Delivery Period.
•Variable Stream: Following the Fixed Delivery Period, Sandstorm will receive a variable proportion of gold production from the Vatukoula Mine for the life of the mine (the “Variable Stream”). The Variable Stream delivery rate will be 2.9% for the first 100,000 ounces of gold produced in a calendar year and 2.55% for the volume of production above 100,000 ounces.
•Ongoing Payment: Sandstorm will pay VGML 20% of the spot price for each ounce of gold delivered from the VGML Stream.
•Security: Sandstorm’s stream interest will be secured by a first ranking lien on all assets of VGML, together with guarantees from certain parent and affiliated entities. In addition, VGML will be subject to certain negative pledges on future indebtedness.
Project and Company Overview
The Vatukoula Mine is an underground gold mine located on the main island Viti Levu in Fiji. The mine has produced more than 7 million ounces of gold over the last 85+ years. Since 2013, annual mine production has averaged 30,000–40,000 ounces per year. VGML plans to expand underground operations with a production target of 50,000–70,000 ounces per year in the next 3–5 years.
Gold reserves at the Vatukoula Mine occur in more than 25 current ore bodies. Historically, many other high grade mineralized structures were mined, with production rates of 75,000–100,000 ounces per year. Sandstorm believes the property has significant growth potential based on optimizing current reserves and operations, by expanding known deposits with increased drilling and exploring new target areas within the current mine workings and areas immediately adjacent.
VGML’s beneficial owner is Zhongrun Resources Investment Corp (“Zhongrun”), a public company listed on the Shenzhen stock exchange (SZSE:000506). Zhongrun’s operations are primarily focused on mining investments and real estate.
?PRODUCTION HISTORY AND EXISTING OPERATIONS1
The Vatukoula Mine currently operates a 1,550 tonne per day processing plant. Underground ore is subject to three-stage crushing, a ball mill, and flotation prior to roasting and leaching to a gold recovery circuit. Tailings are also re-processed via a thickener, leach tanks and a gold recovery circuit. Mill operating results for 2019 and 2020 are summarized in the table below. Proceeds from the stream will be invested by VGML in underground operations to increase tonnage and production to a total of 50,000–70,000 ounces per year in the next 3–5 years.
Ore treated (kt) 311 277
Grade (g/t) 4.1 4.5
Recovery 80% 78%
Underground Production (koz) 32.8 31.3
Tailings Reprocessing Production 2.8 3.8
Total Gold Production 35.6 35.1
-RESERVES AND RESOURCES
The historical mineral reserve and mineral resource estimates have been sourced from the report titled “Vatukoula Gold Mine, Fiji, Ore Reserve Depletion Report 2020” dated February 2021. These historical estimates are set out in the tables below.
Historical Underground Mineral Reserves
TONNES (Mt) AU (g/t) CONTAINED METAL (Koz Au)
Proven 0.52 6.1 102
Probable 2.96 5.0 477
Proven & Probable 3.49 5.2 580
1. Historical Mineral Reserves have an Effective Date of December 31, 2020.
2. Reported using an underground cut-off grade of 3.43 g/t gold and a gold price of US$1,500/oz.
3. Figures may not add correctly due to rounding.
Historical Underground Inclusive Mineral Resources
TONNES (Mt) AU (g/t) CONTAINED METAL (Koz Au)
Measured 1.36 7.9 350
Indicated 2.96 7.4 700
Measured & Indicated 4.32 7.55 1,050
1. Historical Mineral Resources are inclusive of Historical Mineral Reserves have an Effective Date of December 31, 2020.
2. Calculated using a cut-off grade based on the product of multiplying the intercept width by the gold grade, with a minimum of 4.0 gram-metres per tonne with at least one assay greater than 2.0 g/t.
The mineral reserves and resources at the Vatukoula Mine are historical estimates and are not considered current according to National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”). The historical estimate disclosed above was based on an internal update by VGML to a NI 43-101 Reserve and Resource Estimate contained in a 2019 VGML report2. This 2019 historical estimate has been updated by mathematically depleting the mineral reserve and mineral resource estimates based on mine production records through December 31, 2020.
A qualified person has not done sufficient work to classify the historical estimate as current mineral reserves or mineral resources, and accordingly Sandstorm is not treating the historical estimates as current mineral reserves or mineral resources. In order to update the historical mineral reserves and resources at the Vatukoula Mine, VGML will need to update the current mineral resource model by incorporating additional drilling and sampling that has been completed since the last mineral resource estimate was prepared and produce an updated Technical Report.
Based on detailed evaluation of this historical data and a site visit by members of our technical team, Sandstorm has identified significant growth potential at the asset.
Closing and funding of the VGML Stream is subject to certain closing conditions including, but not limited to consent of the Reserve Bank of Fiji, approval from the majority of Zhongrun’s shareholders in attendance at a special shareholders’ meeting to approve the transaction, consent from the Minister of Lands and Mineral Resources, and consent from the Fiji Director of Mines. Closing is currently expected within 4-6 weeks.
VALE S.A. ROYALTY PACKAGE
Sandstorm has purchased 9.3 million units of Vale’s Participating Royalties for a net purchase price of US$108 million. The Participating Royalties provide holders with life of mine net sales royalties on seven producing mines and several exploration properties covering a total area of interest of 15,564 km2 (the “Vale Royalties” or the “Vale Royalty Package”).
The diversified Vale Royalty Package includes the sales royalties as follows:
-COPPER AND GOLD
•0.03% net sales royalty on the Sossego copper-gold mine; and
•0.06% net sales royalty on copper and gold and a 0.02% net sales royalty on all other minerals from certain assets.
•0.04% net sales royalty on iron sales from the Northern System; and
•0.04% net sales royalty on iron sales from a portion of the Southeastern System after the cumulative threshold is met (currently expected by Vale in 2024). Sandstorm estimates the royalty will cover approximately 70% of Southeastern System production after the threshold is triggered.
•0.02% of net sales proceeds in the event of an underlying asset sale on certain assets.
While production attributable to the Vale Royalties is expected to increase through 2025, analyst consensus iron ore pricing declines over that period. Using a long-term iron ore price of US$75 per tonne (a decrease of more than 60% compared to current iron ore price of US$200+ per tonne), combined with the growth in production from Sandstorm’s existing portfolio, iron ore is currently anticipated to account for 3% of revenue long-term.
Project and Company Overview
Vale is one of the world’s largest3 low-cost iron mining companies4, contributing approximately 15% of global iron ore supply. Vale’s iron ore production is in the first quartile of the cost curve4 and the Northern and Southeastern Systems have reserve weighted mine lives of 30 years.
The Northern System is comprised of three mining complexes: Serra Sul, Serra Norte, and Serra Leste located in the Carajas District. In 2020, the Northern System produced 192 Mt of iron ore. Production capacity was 206 Mt at the end of 2020. Vale expects capacity to increase to 230 Mt by the end of 2022, with a long-term target of 260 Mt, which would be achieved via the approved expansion at Serra Sul and other growth projects5.
Mining commenced in 1984 at Serra Norte and, based on current Mineral Reserves, is currently expected to run through the late-2030s. Serra Sul began production in 2016 and is expected to produce through the late-2050s.
The Southeastern System is comprised of three mining complexes: Itabira, Minas Centrais, and Mariana located in Minas Gerais. These complexes will start contributing to the Vale Royalties once a cumulative sales threshold of 1.7 billion tonnes of iron ore has been reached, which Vale most recently estimated would occur in 2024. Approximately 70% of iron sales from the Southeastern System are covered by the Vale Royalties. Vale expects production capacity to increase to 101 Mt by the end of 20225 from current levels of 77 Mt in 2021.
History of Vale Royalties
The Participating Royalties were issued in 1997 as part of the privatization of Vale to provide pre-privatization shareholders exposure to long-term growth. The Participating Royalties are economically equivalent to royalty interests with no maturity until the underlying mining rights are extinguished. The Government of Brazil and the Brazilian Development Bank were among the original holders of the Participating Royalties.
Royalty payments are paid by Vale on a semi-annual basis on March 31 and September 30 of each year, reflecting production in the preceding half calendar year period (January 1–June 30 and July 1–December 31, respectively). Sandstorm will accrue the royalty revenue quarterly.
With the addition of the Royalties, Sandstorm is forecasting attributable gold equivalent production between 62,000–69,000 ounces in 2021.
Sandstorm remains focused on precious metals and continues to estimate approximately 80% of revenue coming from gold and silver. Using consensus iron ore prices, the Company is currently expecting iron ore to account for 10% of revenue in 2021, dropping to 3% long-term.
Statements regarding performance and expectations and Sandstorm’s 2021 guidance and outlook are based on public forecasts and other disclosure by the third-party owners and operators of our assets or on our assessment thereof including certain estimates based on such information.
1. Source: Information provided by VGML
2. Report provided by VGML titled “Updated Mineral Resource and Reserve Estimate NI 43-101 Technical Report on the Vatukoula Gold Mine, Viti Levu, Republic of Fiji” effective date June 10, 2019
3. S&P Global Market Intelligence, Metals and Mining Companies Ranked by Current Market Capitalization
4. S&P Global Market Intelligence, 2021 Iron Ore Total Cash Cost (CFR China)
5. Vale Day 2020 Presentation, December 2, 2020
Keith Laskowski (MSc), Sandstorm’s Vice President, Technical Services is a Qualified Professional (#01221QP) of the Mining and Metallurgical Society of America and a Qualified Person as defined by Canadian National Instrument 43-101. He has reviewed and approved the scientific and technical information in this press release.
For more information about Sandstorm Gold Royalties, please visit our website at www.sandstormgold.com or email us at firstname.lastname@example.org.
Nolan Watson Kim Bergen
President & CEO Capital Markets