A year ago, Sandspring Resources (TSXV: SSP; US-OTC: SSPXF) “couldn’t beg, buy or steal money,” CEO Richard Munson says, “and there was a period of time when I was lending money to the company from my home line of credit.”
But in April this year, a multimillion-dollar private placement was oversubscribed “ten minutes after we announced it was available.”
The $6.5 million raised will finance the junior well into 2017, Munson says, including a moderate exploration program in 2016 at its 6.9 million oz. Toroparu gold deposit in Guyana, 225 km west of Georgetown, the country’s capital city.
“We believe in the property,” he says in a telephone interview from Guyana. “It’s hard to walk away when you see one that you’re convinced is going to be in production.”
Sandspring’s Toroparu deposit is located within its 626 sq. km concession in the Upper Puruni River region of western Guyana and Munson describes the project as “the fourth-largest undeveloped, multimillion oz. gold deposit owned by an independent junior company in South America.”
A prefeasibility study completed on Toroparu in May 2013 by SRK Consulting envisioned an open-pit mining operation from two pits producing 200,000 oz. gold a year over an initial 16-year initial mine life.
At US$1,400 per oz. gold, the study estimated that the company could pay back preproduction capital expenses of US$464 million, in just under three years, with a 23.1% after-tax internal rate of return and a US$691-million net present value at a 5% discount rate.
Ore tested from Toroparu includes saprolitic and hard rock, and the initial mine plan laid out in the study included 5 million tonnes of saprolite ore containing 148,000 oz. gold at an average grade of 0.91 gram gold per tonne that would be processed via conventional cyanide leach. Another 52 million tonnes of fresh rock containing 1.93 million oz. gold, with an average grade of 1.17 grams gold and 0.2% copper, would be processed by flotation concentration, and another 70 million tonnes of fresh rock containing 2.01 million oz. gold, with an average grade of 0.89 gram gold and 0.1% copper, would be processed by cyanide leach.
Toroparu’s proven and probable reserves stand at 127.1 million tonnes grading 1 gram gold per tonne and 0.1% copper, for 4.1 million contained oz. gold and 211 million lb. copper. The reserves are based on a gold cut-off price of US$1,070 per oz. for fresh rock and US$970 per oz. for saprolite, and a cut-off grade of 0.38 gram gold for the fresh rock and 0.35 gram gold for the saprolite.
Measured and indicated resources — at a cut-off grade of 0.30 gram gold — stand at 240.2 million tonnes grading 0.89 gram gold per tonne, 0.08% copper and 0.82 gram silver per tonne.
Sandspring is also excited about its Sona Hill prospect, a potential satellite deposit 5 km southeast of Toroparu. Sona Hill is open at depth and along strike, and lies within a 20 by 7 km regional hydrothermal alteration halo that surrounds Toroparu.
On Nov. 3 the company released drill results from Sona that it says suggest that the Sona Hill anomaly hosts higher grade and shallow mineralization that could complement the economics of the Toroparu project.
Highlights from drilling in July and August includes 30.4 metres of 3.56 grams gold per tonne starting from 64.5 metres deep, including 9.4 metres of 9.85 grams gold from 73.6 metres. Another intercept starting from 44 metres deep returned 6 metres of 5.91 grams gold.
In addition to the drill campaign, Sandspring is undertaking a soil geochemistry and IP geophysical survey west of Sona Hill, in an effort to identify gold mineralization zones and “find the geological link” with the main Toroparu deposit.
Mineralization was discovered at Sona Hill in 2012 during the company’s exploration of a cluster of 10 gold features surrounding the Toroparu deposit.
“We think there’s more there,” Munson says. “Sona Hill doesn’t show any copper and in addition, it is very shallow. We’re drilling on a hill, and as you see from the drill intervals, it’s a completely different mineralization style than Toroparu.”
“It’s a much more difficult deposit to get your hands around geologically,” Munson says of Sona Hill. “It’s a vein-lode deposit and by the end of this drill campaign, we’ll have enough data to let SRK do a fairly reliable resource estimate on it. We worked with them last year to ensure we’re drilling enough metres and with a density sufficient to allow them to do a good modelling effort. So we’ll see what comes out of that.”
Adding Sona Hill, he says, would change the operating plan for the entire project. “If we come up with a decent resource, it would logically be the first place we would begin operations because it’s gold only,” Munson says.
“We’d be able to start operations with just a cyanide-leach circuit, instead of the flotation, so our capital expenses would change dramatically. I wouldn’t say it would cut it in half, but if you look at Guyana Goldfields’ Aurora mine in Guyana, which is gold and leach only, their upfront capital was $240 million and our upfront at Toroparu — with leach, flotation and concentrate production — is $450 million. So it wouldn’t cut $200 million off that number, but it would make a significant dent in it and allow us to fund a lot of that flotation cost by using cash flow from producing gold. It would be a big change in final feasibility components.
Guyana Goldfields’ (TSX: GUY) Aurora mine is 50 km north of Toroparu.
Munson also notes that the involvement of the International Finance Corp. at Aurora gave other companies in the country a shot in the arm.
“If you can get the IFC comfortable enough in a country … those that come after are going to have a much easier task in convincing other banks to do business in Guyana.”
Munson points to other encouraging signs about Guyana, too.
During the first quarter, Barrick Gold (TSX: ABX; NYSE: ABX) formed an exploration partnership with Alicanto Minerals (ASX: AQI) at the junior’s Arakaka gold project in a relatively underexplored area of the highly prospective Guiana Shield.
The project has a 12 km strike length, of which less than 5% has been drill tested, according to Barrick.
As part of the agreement, Barrick has the option to earn a 65% interest in the project after meeting $10 million in funding requirements, including $8 million in exploration expenses over four years, and $2 million paid to Alicanto upon completion of the exploration earn-in expenses. Initial drill testing under this agreement is scheduled to begin in the second quarter.
Munson notes that the deal was “meaningful,” given Alicanto is “a small company from Australia” that was “able to entice Barrick” to enter a small joint-venture on the project. “It’s just a few million dollars for Barrick, but it’s still an indication they’re interested in the jurisdiction,” he says. “Alicanto has an interesting property position in northwest Guyana. We were intrigued with the area and came close to doing a deal with their predecessor but couldn’t put it together, and Alicanto came in and took it at the last minute, before the group went bankrupt.
“There has to be something there,” he adds. “There has been so much local production that there has to be a deposit of significance somewhere in that area.”
The mining executive also notes that it’s just a matter of time before the mining companies that are already there face growing competition, including around Toroparu and Guyana’s Aurora mine.
“You’re not going to have two deposits of significant size like Aurora and Toroparu that are 50 km apart, and have nothing in between,” he says.
Sandspring is not without support from key players. In November 2013, the company signed a gold-purchase agreement with Silver Wheaton (TSX: SLW; NYSE: SLW), and in 2015 added a silver by-product stream to the agreement.
“They came in and did a significant due diligence review of Sandspring, and elected to do the first streaming deal Silver Wheaton had ever done with a junior company,” Munson says. “it provided 30–35% of the upfront capital to build the project, so for a junior that was a big step.
“For those of you who know Silver Wheaton,” he says, “you know how methodical they are in terms of putting together and looking at projects. In fact, they took our prefeasibility study, tore it down to first principles, and built their own model. They came back and agreed to do this deal. We worked through 2014 with them on final feasibility and at the end of all that they agreed to expand the streaming deal to include silver, which gave us a fair amount of cash when we really needed another infusion of cash.”
Other investors include mining entrepreneur Frank Giustra, whose Fiore Capital owns 13% of the company’s stock, according to Sandspring.
Munson and Sandspring cofounder John Adams made their first trip to Guyana as private investors in 1999. Their plan initially was to operate a small gravity recovery operation and generate enough money to explore the property. By 2007 they had invested US$25 million of their own money, drilled 30 holes, and ended up with an inferred resource of 3 million oz. gold. At that point, Munson says, the pair decided to go to the public market.
Munson, a lawyer by training, initially became a tax litigator, representing taxpayers in fights with the U.S. Internal Revenue Service and other countries.
He met Adams when he got involved with the Adams family through a tax case and enjoyed “a significant victory.” Adams’ father, Robert, was one of the founders of the U.S. uranium industry, and John served as chairman and president of the privately held and family owned Energy Fuels Corp. group of companies, which owned and developed Colorado’s largest coal mine.
He also served as CEO of Energy Fuels Nuclear Inc., the largest producer of uranium in the U.S. during the 1980s and 1990s, Munson says.
“We got along very well and had similar views of business, and so I went to work for the family and became a partner in some ventures, and then John and I started doing things, just the two of us, as we got out of the bigger company.
One of the first ventures Munson and Adams tried was looking for minerals in the former Soviet socialist republics, but that was short-lived. “We got kind of scared away fairly quickly from the mining side of things there because the period of time from discovery to production can be long in this business and challenging, and we really saw things changing almost daily when we were there, so we started looking for business opportunities that didn’t take so long to mature. We were interested in the area but we didn’t have the horsepower as a private group to watch it for 10 years, so we looked at a whole variety of things.”
One of the less capital-intensive businesses the pair tried was food processing and focusing on poultry and egg production. They got into a partnership with a group from Turkey and started developing projects in Turkey, Azerbaijan, Kazakhstan and Turkmenistan.
The businessmen built up good government relations, Munson says, but after the terrorist attacks in New York on Sept. 11, followed by the U.S.-led invasion of Afghanistan, they exited the region.
At that point, they found themselves looking at mining projects in Guyana.
“It’s a supportive government,” Munson says. “The only thing that’s left to be done on the Toroparu project in terms of permitting is to fill in a blank in the mining licence [giving] the date we will start construction. We’re just not able to comfortably commit to a date, given the markets. The government said, ‘why not put in a date and then change it later,’ but we don’t think that’s a prudent way of doing business.”
Guyana, on the northern coast of South America, is the only nation on the continent whose official language is English. The country was originally colonized by the Netherlands, but later became a British colony, which it remained for more than 200 years. It achieved its independence in 1966.
Guyana is bordered by Suriname to the east, Brazil to the south and southwest, Venezuela to the west and the Atlantic Ocean to the north.
“Its ties are to the rest of the British and French colonies in the Caribbean, so there are different levels of energy than you would find in Brazil or Venezuela, and maybe a little more relaxed and Caribbean-like,” Munson says. “They’re good people, and it’s a well-educated workforce, and quite friendly.
Munson notes that the big news recently, apart from starting up Guyana Goldfield’s Aurora mine, is Exxon’s recent offshore oil strike. “They’re just finishing the third well and about four months ago the company confirmed that it’s a billion-barrel discovery at this point … so that stands to really change everything here,” he says.
“The big struggle for the country right now — and it’s like every country when you have a huge economic opportunity, is that you go through a little bit of a period of paralysis, you don’t know what to do. There’s no in-house expertise in the country to sit down and negotiate with companies like Exxon and Repsol, and all the other players, and despite all of our urging … there’s a resistance on the part of government to not hire the best and brightest to help them, because it leads to frustrations on both sides. But it’s just growing pains.”
At press time Sandspring traded at 59¢ per share within a 52-week range of 11¢ to 94¢. The company has 114 million shares outstanding for a $67.3-million market capitalization.