CRG has superb Investment in SBBThe sale of Hackett River to Xstrata, while seemingly cheap on the surface, has substantially increased the net asset value of Sabina.
Lets face it.
Sabina could not have developed Hackett River by itself.
The $50 million in cash, boost the cash position to $150 million which gives Sabina a sparkling balance sheet.
But. more importantly, Sabina has 22.5 % royalty on the first 190 million oz of silver produced by Xstrata at Hacckett.
At current silver prices, the annual free cash flows will be about $100 million per year.
Silver producers trade at very high cash flow multiples ( over 10 times ).
That is, a valuation in excess of $7 per share...................and its cost free.
Further, Sabina has an option for use of Xstrata's mining infrastuture which will assist in the development of Sabina's world class Back River gold deposit.
Back River has 4.6 million oz in its 43-101 categories.
Of this amount, 3 million oz are open pittable.
That resource level will grow significantly once the recent ( and superb ) drill data are included.
That will happen in early 2012 when a PEA of the open pittable deposits will be produced.
Almost certainly, that PEA will show sparkling economic indices
Back River has some of the highest grades ( averaging over 5 gms/ton ) observed for an open pit mine ( typical open pit mines have grades less than 2 gms/ton ). The strip ratio also looks to be very favorable.
Those two factors will greatly influence cash costs which will probably be in the lower quartile of gold producers ( ie less than $400 per oz ).
The sizeable resource that can be mined by open pit also means that annual production should be well above 150,000 oz per year and perhaps as high as 200,000 oz per year.
At those levels of annual production, Back River will be cash flowing nearly $200 million per year at current POG.
Normal valuations for gold stocks are about 10 times annual cash flows, altho those valuations have shrunk over the past 2-3 months but gold stocks should regain their valauation multiples once the recent EU debt flux is removed.
Thats major potatoes and makes Sabina a very attractive takeover candidate.
In addtion, Sabina has several other very attractive projects which..............as one option....it can spin out to shareholders.
Putting all of these outstanding attributes togetjher, a valuation well above $2.5 billion is easily foreseeable.
That means many multiples of upside over the next 2-3 years and almost certainly a retracement of 2011 highs as we approach the new 43-101 and PEA in 2012...
BACK RIVER MINERAL RESOURCES -- SEPT. 9, 2011