Sandstorm plummets on cheap financing

Shares in Sandstorm Gold Ltd. (TSE:SSL, NYSE MKT:SAND) dropped sharply on Tuesday in heavier than usual volumes, after the company announced the signing of a production streaming deal with fellow Canadian miner Yamana Gold Inc (NYSE:AUY, TSE:YRI) and bought deal financing with a syndicate of banks.

During lunchtime trade the Vancouver-based junior was trading at $3.50, down 10.9% on the Toronto Stock Exchange, recovering somewhat from a 12.6% plunge at the open. More than 420,000 shares in the $423 million company changed hands and the day's trading wiped out all counter's gains for the year. Yamana added 2.2% affording the Toronto-based gold miner a $3.3 billion market capitalization.

What hurt the shares of Sandstorm was a $25 million bought deal with with a syndicate of underwriters co-led by National Bank Financial and BMO Capital Markets with the banks buying 8.77 million units of Sandstorm for $2.85, well below the ruling price. In addition, Sandstorm granted underwriters an option to purchase up to an additional 1.3 million units on the same terms. Each unit will consist of one common share of Sandstorm and one-half of one common share purchase warrant which entitle the holder to acquire one common share of Sandstorm at a price of $4.00 within five years.

The streaming deal appeared to be on better terms with the agreement with Yamana including production streams from up to five of Yamana’s projects. According to a company statement for $148 million cash upfront, $4 million in cash payable in six months and 15 million Sandstorm warrants, the company will receive a silver stream on Yamana's Cerro Moro development project in Argentina that includes interim silver deliveries during years 2016 to 2018 from currently operating mines, a copper stream on the operating Chapada mine in Brazil and a potential gold stream on the Agua Rica project in Argentina.

The Sandstorm warrants issued to Yamana have a strike price of $3.50, a term of 5 years and are exercisable upon achievement of specific milestones with respect to the construction of Cerro Moro.

Streaming transaction highlights according to Sandstorm include:

• Imminent Cash Flow: New silver and copper streams expected to contribute US$10 million of cash flow annually starting in 2016, increasing to US$20 million annually by 2019 representing a 55% increase in the Company’s 2019 cash flow;
• Asset Diversification: Multi-asset silver stream that includes production from Chapada, Minera Florida and Cerro Moro, a copper stream on Chapada, and an Early Deposit Gold Stream on Agua Rica;
• Downside Protection: 24-month silver stream backstop from the El Peñon mine if Cerro Moro does not reach production by 2019;
• Asset Quality: The projects underlying the Transaction are low cost, economically robust assets with significant exploration upside;
• Improved Counterparty Profile: 90% of Sandstorm’s cash flow to come from majors, mid-tiers and debt-free junior mining companies by 2019;
• Precious Metal Focus: Precious metals and diamonds to make up approximately 83% of the Company’s cash flow by 2019.

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