Streaming and royalty firm Sandstorm Gold (TSX: SSL; NYSE-MKT: SAND) is buying Mariana Resources (TSX: MRY; LON: MARL) at an 84% premium to get its hands on the high-grade Hot Maden gold-copper project in northeastern Turkey.
Mariana owns 30% of the development-stage joint venture project, 1,050 km east of Istanbul. Its Turkish partner Lidya Madencilik holds the other 70%.
A January 2017 preliminary economic assessment outlines that Hot Maden could produce 2.6 million oz. gold and 142,000 tonnes copper over a nine-year mine life. Developing a mine — envisioned as a straightforward, low-cost underground operation — would cost US$261 million, including US$169 million in upfront capital. Estimated all-in sustaining costs are below US$400 per equivalent oz. gold.
Seeing the potential at Hot Maden — where 15,000 metres of resource drilling outlined a high-grade indicated resource of 3.4 million equivalent oz. gold (7.1 million tonnes at 15 equivalent grams gold per tonne) — Sandstorm proposed a cash-and-share bid for Mariana on April 26 to create a leading mid-tier streaming company.
It is offering 28.75 pence in cash and 0.2573 of a share for each Mariana share it doesn’t already own. This implies a value of 110 pence per Mariana share, an 84% premium over the junior’s April 25 closing price, and an 88% premium over its 20-day, volume-weighted average price.
Sandstorm currently owns 7% of Mariana and already has a 2% net smelter return royalty on Hot Maden that it picked up from Teck Resources (TSX: TECK.B; NYSE: TECK) last January.
The project has “stood out as a unique asset, with a robust cash profile,” Sandstorm’s president and CEO Nolan Watson said on a joint conference call. Sandstorm intends to convert the 30% interest in Hot Maden into a gold stream, after further de-risking the project.
Hot Maden could become an “anchor asset” with the “potential to more than double Sandstorm’s attributable gold-equivalent production once the mine is in full operation” in 2022, Watson explains.
Lidya, owned by Turkish conglomerate Calik Holding, will remain the project’s operator.
Sandstorm has a portfolio of 155 streams and royalties, including 20 producing and 23 development-stage assets, and predicts its gold-equivalent output will jump to 135,700 oz. in 2022 from 61,600 oz. in 2019. This year it forecasts production of 45,000 to 55,000 equivalent oz. gold.
Besides Hot Maden, Mariana holds three exploration packages in Turkey, Argentina and Côte d’Ivoire. Its most advanced exploration asset is Las Calandrias in Argentina. Las Calandrias has an indicated resource of 381,000 oz. gold and 6.6 million oz. silver (11.8 million tonnes at 1 gram gold and 17.4 grams silver).
Sandstorm intends to spin out Mariana’s exploration properties into a separate company, while retaining royalty interests over the properties and equity in the new company.
On the call, Mariana CEO Glen Parsons reiterated that the acquisition provides Mariana shareholders a significant premium and the ability to participate in Sandstorm’s diversified asset base, while eliminating the financing risk associated with developing Hot Maden.
Once the transaction closes, Mariana shareholders will hold 19% of the enlarged Sandstorm, which has a strong balance sheet and a US$110-million revolving credit facility. A shareholder vote should occur in June.
On the day of the acquisition, Mariana shares soared 66% to $1.71, before settling two days later at $1.63. Meanwhile, Sandstorm shares declined 9% to $4.94 and continued to weaken to close April 28 at $4.73. The stock fell 13% over the ensuing two days.
“Understandably, shares are down … as investors grapple how a streaming/royalty company can acquire an exploration company with development and operating risk,” BMO analyst Andrew Kaip states.
That said, Kaip notes the transaction is 25% accretive on a net asset value per share basis, assuming Sandstorm converts its interest in Hot Maden into a gold stream before production starts.
“The challenge for Sandstorm will be to convince investors given the time frame to realize this goal, with a number of future milestones yet to be realized,” Kaip cautions.
Reached by email, Watson said he was prohibited from commenting further until the deal closes because of the U.K. takeover rules.