Darren Pylot on Minesite UK SSThttps://www.minesite.com/nc/minews/singlenews/article/silverstones-plan-to-buy-up-silver-by-product-streams-is-paying-off/1.html
The company already has a ten-year silver purchase contract with Capstone’s Cozamin mine in Mexico, as well as life-of-mine agreements with Lundin Mining to buy 100 per cent of payable silver from the Neves-Corvo and Aljustrel mines in Portugal. There are several base metals companies producing silver as a by-product of their mining operations. The silver usually contributes less than 15 per cent of the gross revenue so these companies prefer to forward sell the by-product silver and use the proceeds to cover production costs, to expand production and to continue exploration. Silverstone purchased the right to acquire the silver from Lundin and Capstone by paying agreed sums upfront in cash and shares, plus an average price of US$3.92 per ounce when silver is delivered. As a result both companies are significant shareholders in Silverstone.
The deal with Aquiline is rather different, as it is not in production, nor even at the feasibility stage. Sure, Navidad looks like a big, high grade project, but there is no guarantee that it will ever get into production. The odds, however, are in its favour as the most recent resource estimate for Loma de la Plata last November showed a near surface, high grade deposit of 9.1 million tonnes grading at an average grade of 225 grammes per tonne silver and 0.09% lead, giving 66 million ounces of contained silver in the indicated category. There’s a further 17.3 million tonnes at 159 grammes per tonne silver giving an additional 89 million ounces inferred. And this is just a part of the whole Navidad resource which is several times bigger.
Silverstone does not have to make a decision about converting the shares until the sooner of either two years, or the confirmation of mine development supported by permits and a feasibility study. Those terms looks fair enough as the company is in pole position to procrastinate over a decision to mine if it so wishes. The point should not be overlooked, however, that what appears to be quite a small deal – C$17.5 million – is part of something a lot larger. The crucial words in the agreement about buying 12.5 per cent of production from Loma de la Plata are “life of mine”, closely followed by the words “with a minimum of one million ounces of silver per year.” Thus the C$17.5 million face value of the debenture will form part of a total phased payment of US$50 million which will be completed 12 months after construction starts. Thereafter Silverstone will pay US$4 per ounce for the silver delivered to it as production proceeds.
The simple sum goes as follows: if the mine delivers one million ounces of silver for 10 years Silverstone will already have paid US$5 per ounce and it will then top this up to US$9 per ounce. Not a bad deal with silver currently at a price of around US$19 per ounce and showing no sign of retreating. It’s hard to imagine production starting before 2010 at the earliest, but interesting to see that by that time Silverstone is expecting to be selling 3.5 million ounces of silver delivered through its present deals at Cozamin, Neves-Corvo and Aljustrel. The addition of Navidad would take it up close to five million ounces. And there’s little doubt that Darren Pylot will have agreed some other deals with shorter time frames by then.