Sabina Gold & Silver Corp. is getting a rousing thumbs-up from analysts for its deal to sell the Hackett River silver-zinc project to Xstrata PLC.
Under the terms of the transaction, Sabina will get $50-million in cash and a 22.5% silver production royalty on Hackett River, which is in Nunavut. Sabina can also get the project back in a few years if Xstrata does not advance it enough.
For analysts, the big advantage of this deal is that Sabina becomes a pure-play precious metals company, and can now devote all of its focus to developing the Back River gold project (also in Nunavut). The deal also reduces the company’s development risk and financing requirements.
“[The deal] puts Hackett River into the hands of a company with the wherewithal to develop it into a mine. It also provides Sabina with an interesting royalty play and allows the company to focus its efforts on the Back River gold property, which we belive has considerable upside potential from the current 4.2 [million ounce] resource,” Desjardins Securities analyst Brian Christie wrote in a note.
Mr. Christie maintained a Buy-Speculative rating on the stock, but lowered his price target to $8.50 (from $9.00), which reflects a reduced net asset value from Hackett River. On the other hand, Dundee Securities analyst Paul Burchell hiked his target to $8.90 a share (from $8.70), noting that Sabina’s stock price should be positively impacted by a “steady stream of news flow” from Back River over the next several quarters.