Sandstorm Gold Ltd. (SSL:TSX; SAND:NYSE.MKT) has agreed to purchase a 2% net smelter return (NSR) royalty for $45 million in cash from Acacia Mining Plc (ACA:LSE) on the Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE)-operated Houndé gold mine, "providing for immediate cash flow starting in 2018 and upside potential through additional exploration efforts," BMO analyst Andrew Kaip noted in a Dec. 20 research report.
The deal is expected to close in January 2018. The NSR royalty covers Kari North and Kari South, almost the whole mineral reserve, according to Sandstorm.
The Houndé project, which likely will become Endeavour Silver's flagship asset, declared commercial production on Oct. 31, two months ahead of schedule and $15 million under the initial budget. Now, the company will concentrate on exploration results, "which are likely to become increasingly important in demonstrating potential to maintain production rates, extend the mine life and deliver further value," reported Kaip.
Given that Sandstorm finished Q3/17 with $6.1 million in cash and cash equivalents, "we expect the company to draw on its revolver in the near term" to fund the $45 million NSR royalty purchase, wrote Kaip.
BMO Capital has a Market Perform rating on Sandstorm Gold.
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Disclosures from BMO Capital Markets, Sandstorm Gold, Dec. 20, 2017
Analyst's Certification: I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
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Company Specific Disclosures:
Disclosure 2: BMO Capital Markets has provided investment banking services with respect to Sandstorm Gold within the past 12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Sandstorm Gold within the past 12 months.
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Sandstorm Gold.
Disclosure 6A: Sandstorm Gold is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services
Disclosure 6C: Sandstorm Gold is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 8A: BMO Capital Markets or an affiliate has a financial interest in 1% or more of any class of the equity securities of Sandstorm Gold.
Disclosure 8C: BMO Capital Markets or an affiliate has a financial interest in 0.5% or more in the issued share capital of Sandstorm Gold and Endeavour Mining.
Disclosure 9: BMO Capital Markets makes a market in Sandstorm Gold.
Disclosure 16: A BMO Nesbitt Burns Inc. research analyst has extensively viewed the material operations of Sandstorm Gold.For Important Disclosures on the stocks discussed in this report, please click here.