News analysis: $2.6 Billion silver for $80M
https://www.silverstonecorp.com/news/index.php?&content_id=31
News: Silverstone (SST - Toronto Venture exchange) agrees to purchase life-of-mines silver stream from Lundin Mining
This transaction nearly triples Silverstone's silver production credits to almost 3 million ounces a year.
The genius of this deal is that at present silver prices, Silverstone is buying $2.65 billion dollars of silver production over time for about $80 million dollars in cash and shares up front, plus about 4.2 million warrants. At $20 silver that is $4 billion. Lundin Mining has about 193.3 million ounces of silver in various categories of confirmation within these two mines, and this figure will grow with further exploration. Obviously, the value of this silver stream will vary depending upon future silver prices, and not all silver in all categories is guaranteed to be mined.
By doing a deal with Lundin Mining, Silverstone has become competition to Silver Wheaton at least as far as these two mines are concerned. Lundin already sells silver to Silver Wheaton from its Zinkgruvan Mine in Sweden.
The $3.90 per ounce cost of silver to be paid Lundin is exactly what Silver Wheaton contracted to pay in its last deal with European Goldfields. Obviously, Silverstone has copied the Silver Wheaton business model very closely here.
Silverstone has minimized dilution by getting a credit facility or loan for $40M of the purchase price of the silver stream. Silverstone has also minimized dilution by issuing shares at a deemed price of $2.42/share, more than the $1.45/share it got when it did its first deal with Capstone in April. As it does more deals in the future, it will be able to issue fewer shares as its share price climbs, and pay a larger portion of the purchase price with savings (earnings) rather than debt. Furthermore, all issued shares are likely to stay out of the public float indefinitely. Together, Capstone Mining and Lundin Mining will control nearly 50% of the fully diluted shares of Silverstone.
This deal more firmly establishes Silverstone as "Silver Wheaton Jr." as there now is a pattern that analysts and investors can point to. Silverstone finalized its first silver stream purchase in April. This second purchase was announced just 2 months later. The average of these two transactions is about 1.5M ounces. If Silverstone can do two more of these transactions this year, they will have contracted for a total of 6M annual ounces of silver, as compared to 15M ounces for Silver Wheaton, but in much less time. Three more transactions would mean 7.5M ounces, or half of Silver Wheaton's current rate. (It is sheer speculation at this point whether Silverstone can sign up further transactions at this torrid pace, but either way my point is to show the scale of progress that may be possible). The market will be watching closely, with skeptics becoming believers as Silverstone puts together every new silver purchase transaction. Investors who like Silver Wheaton's business model and leverage to silver will soon discover that Silverstone offers the same business model but with higher leverage and upside potential.
Tooclassy