The Gold Report - Thu, Jan 3, 2019

Investors Keep Explorer's Gold Project Advancing But More Slowly

A BMO Capital Markets report discussed the firm's recent financing and changes to the development plan for its Nunavut asset.


In a Dec. 21, 2018, research note, BMO Capital Markets analyst Andrew Kaip reported that Sabina Gold & Silver Corp. (SBB:TSX; RXC:FSE; SGSVF:OTCPK) will use proceeds from its recent CA$28.1 million bought deal financing to advance its Back River project and for general corporate expenses. BMO resumed coverage on this name after the financing restriction period ended.

Kaip relayed that the "offering looks to have been well received" with the initial CA$20 million target increasing to $25.3 million and Zhaojin International Mining, to maintain its 9.7% interest, investing an additional CA$2.8 million. The financing was done at CA$1.20 per share with 23.4 million shares issued, representing 8% dilution on a fully diluted basis.

The financing amount plus existing cash and cash equivalents at the end of Q3/18 minus the company's estimated Q4/18 expenditures of CA$20 million should leave Sabina with a total of $47 million on the balance sheet at year-end 2018, wrote Kaip.

BMO revised its forecasted 2019 capital outlay for Sabina to CA$35-40 million from its previous estimate of US$120 million, Kaip indicated. This is due to the explorer having to take a more "staged development approach to Back River" because of the fact "the window for procurement and a larger sealift in 2019 has now passed."

This slower approach, Kaip explained, means the company has added 12 months to its development schedule, with the start of production now slated for 2022. It also means a bit more capital will be needed; BMO now estimates that to be CA$462 million versus CA$450 million. The delay, however, is positive, Kaip wrote, because it will allow Sabina "to complete detailed engineering and lock down key construction contracts with more certainty."

Kaip noted this change drops BMO's estimated net present value 5% on Sabina by 13%, or to CA$1.45 per share. Even at this share price, the stock is "attractively priced relative to peers." Thus, BMO maintains its Outperform rating and its CA$2.50 per share target price on Sabina, whose current share price is CA$1.25 per share.

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