Sabina Breaks Through Gold Bear Market

Source: September 2015 Sabina presentation

Sabina CEO and mining engineer Bruce McLeod calls it “an opportunity that probably only comes around once in a person’s career.” It’s the reason he took the helm in February.

And McLeod’s career is directly relevant to the task at hand: he’s spent it building junior resource companies and creating shareholder value. He’s accomplished that both in thriving markets as well as struggling markets such as today’s.

“I cut my teeth in an environment where capital wasn’t there, where you had to make more out of less, you couldn’t rely on equity markets,” he says.

Sound familiar? So will some of McLeod’s success stories, which include mine building in Canada’s North.

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He cofounded Stornoway Diamonds, which took over Ashton Mining of Canada and is now constructing the Renard diamond mine in Quebec. McLeod was also founder and executive chairman of Sherwood Copper, which built the Minto copper-gold mine in the Yukon. Construction was finished six weeks early, on budget, and Minto is still producing for Capstone Mining who bought Sherwood in 2008.

One of the first things McLeod did when he joined Sabina was commission an “initial project” feasibility study custom-built for a market with little appetite for financing a large mine. Sabina’s first FS had modelled positive economics on a 6,000-tonne-per-day operation producing 350,000 oz annually for 10 years, but the mine came with a C$695-million construction price tag.

The subsequent “initial project” feasibility study was a nnounced on Sept. 14 and initial capex dropped to C$415 million. Using a US$1,150 gold price and a 3,000-tpd mill, the mine would produce almost 200,000 ounces annually (including 244,000 oz a year for the first 8 years) over an 11.8-year mine life. All-in sustaining cash costs came in at US$620/oz, well below the global average. Back River has a 24.2% after tax IRR using a 5% discount rate.

Sabina’s plan is to start smaller and build momentum and cash flow to keep investing and producing on the Back River belt.

“We see this as a viable path for Sabina to start production in the district that will see us mining for many years to come,” McLeod said.

Almost three-quarters of the ounces in the “initial project” FS would be pulled from 6 g/t open pits, one of the features that has McLeod most excited. Virtually all of the other undeveloped high-grade gold projects in North America use only underground mining, which can be more complicated.

“These are the highest-grade undeveloped open pits in North America,” he noted.

Sabina is about 75% of the way through permitting and McLeod says the company will end the year with about $16-17 million. That’s enough of a cash buffer to ensure Sabina can advance permitting, further de-risk the project and create value prudently — while other juniors hunker down and wait for a higher gold price.

McLeod thinks Sabina’s positives add up to a compelling opportunity, and he’s putting his money where his mouth is. He recently participated in a directors-and-management private placement that raised $1.3 million by selling flow-through shares at 50 cents a share (that was an approximate 25% premium to the market at the time). He’s also been buying stock in the public market, as have other insiders.

“The money is made at the bottom of the cycle,” he said.

Sabina is currently being valued at approximately $6 per ounce in the ground, far below its peers, McLeod pointed out.

“In a market that is normalized, that’s $50 an ounce in the ground. In a market that is at the end of a bull market, that’s $100 to $120 an ounce,” he said. “These are profitable ounces today, at $1,150 US an ounce. There are very few assets in the world that have this quality of deposit.”

Sabina’s challenge now is to increase its share price in order to finance the equity component of the initial-project Back River gold mine. McLeod thinks Sabina may hit a sweet spot to put a mine into production. As the sector has suffered layoffs, experienced qualified people have become available. That human resource capital is vital to building mines on time and on budget, not to mention operating cost-effectively.

McLeod is determined to convey Sabina’s deep value to the investor community.

“The time is right, the asset is right, the people we have involved with this company are right,” he said. “This is a best-in-class asset.”

Please note, I have been accumulating a position in Sabina in the public market this year from prices from 32 to 50 cents and they are going to sponsor an upcoming CEO.CA Summit, which makes me even more biased.

Add SBB to your watch list today and talk to your investment advisor about whether a speculative position in Sabina Gold and Silver is suitable for you. Always do your own due diligence as it’s your money and your responsibility.

Written By: Tommy Humphreys