Mr. Nolan Watson reports
SANDSTORM METALS & ENERGY AGREES TO ACQUIRE SIX COAL STREAMS AND LAUNCHES A CDN$60 MILLION EQUITY FINANCING
Sandstorm Metals & Energy Ltd. has entered into purchase agreements to acquire six coal streams and one coal royalty on currently operating mines and development assets located in the central Appalachian coal belt of the United States of America. These coal stream and royalty acquisitions launch Sandstorm Energy as an emerging non-precious metal-streaming company in the resources sector.
NovaDX transaction
Sandstorm Energy has entered into a purchase agreement with NovaDX pursuant to which the corporation has agreed to purchase 25 per cent of the first 3.8 million tons of metallurgical equivalent coal (where three tons of thermal coal equals one ton of metallurgical equivalent coal) produced and 16 per cent of the life of mine metallurgical equivalent coal produced thereafter from the Rosa mine, the Rex No. 1 mine and the Ikerd mines for an upfront payment of $38-million (U.S.) and continuing per-ton payments of $75 (U.S.) for metallurgical coal and $55 (U.S.) for thermal coal.
The corporation is not required to contribute to any capital or exploration expenditures in respect of the mining operations of NovaDX. NovaDX has provided the corporation with a guarantee that Sandstorm Energy will receive minimum cash flows of (i) $4-million (U.S.) in 2011, (ii) $6-million (U.S.) in 2012, (iii) $9-million (U.S.) in 2013, and (iv) $9.5-million (U.S.) in each of 2014 and 2015, thus providing a 100-per-cent return of capital within five years.
The corporation can make a payment of $5-million (U.S.) by Dec. 31, 2010, to receive the right to purchase 8.5 per cent of the metallurgical coal from the Rosa mine, for the life of the mine for $75 (U.S.) per ton, and the corporation would still have the right to make an additional payment of $33-million (U.S.) to NovaDX by Feb. 15, 2011, to receive the right to purchase 25 per cent of the first 3.8 million tons of metallurgical equivalent coal produced and 16 per cent of the life of mine metallurgical equivalent coal produced thereafter from the Rosa mine, the Rex No. 1 mine and the Ikerd mines.
The completion of the NovaDX transaction remains subject to the completion of the offering and receipt of all necessary regulatory and other approvals, including acceptance by the TSX Venture Exchange.
NovaDX assets
The Rosa mine in Alabama is a currently producing auger mine expanding its operations to include some strip mine operations in addition to increased auger mining operations. The coal from the Rosa mine is being sold to domestic users as coking coal and activated carbon applications at prices averaging $150 (U.S.) per ton. Although the current mine life under 43-101 mineral reserves allows for 3-1/2 years of operations, additional mineral resources are present in currently permitted land and adjacent properties that will be included under the corporation's transaction with NovaDX in the event that NovaDX produces coal from these properties.
The Rex No. 1 mine in Tennessee is a development asset expected to begin construction in January, 2011, and begin production by mid-2011. The Rex seam is known for its high-quality metallurgical coal -- a volatile bituminous coal with very low ash, very low sulphur and high BTU that is often used in the production of silicon metal. It is one of the largest single continuous resources of metallurgical coal located in the Central Appalachian coal belt. There is opportunity to expand the resource by increased drilling and increasing the lease area in the immediate vicinity.
The Ikerd mines includes the Flatwoods mine, an operating coal mine producing industrial coal, and the Elk Mountain and Little Bushy Creek development projects all located in Kentucky. Most of the current production is marketed as industrial coal through the Ikerd load out station located in Somerset in Kentucky. Sandstorm Energy does not consider the Ikerd mines to be a material mineral project.
For further details regarding the Rosa mine and the Rex mine, see the attached tables which set out the estimated mineral resources and mineral reserves. Technical reports in support of these estimates will be filed within 45 days of the date of this news release and will be available under the corporation's SEDAR profile.
Royal Coal transaction
Sandstorm Energy has entered into a purchase agreement with Royal Coal pursuant to which the corporation has agreed to purchase 18 per cent of the first six million tons of coal produced and 12 per cent of the life of mine coal produced thereafter from the Big Branch mine, the Big Branch extension and the SID mine for an upfront payment of $11-million (U.S.) plus continuing per-ton payments of $55 (U.S.), subject to certain adjustments.
The corporation is not required to contribute to any capital or exploration expenditures in respect of the mining operations of Royal Coal. Royal Coal has provided the corporation with a guarantee that Sandstorm Energy will receive minimum cash flows of (i) $2-million (U.S.) in 2011 and (ii) $2.5-million (U.S.) in each of 2012, 2013, 2014 and 2015, thus providing a 100-per-cent return of capital within five years.
Sandstorm Energy has also entered into an agreement, for an upfront payment of $3-million (U.S.) (to be paid by Dec. 17, 2010) to purchase a gross royalty of 2.7 per cent of revenue, decreasing to 1.35 per cent (once the corporation has received a return of capital equal to 150 per cent of its initial investment), on all of Royal Coal's current assets.
The completion of the Royal Coal transaction remains subject to the completion of the offering and receipt of all necessary regulatory and other approvals, including acceptance by the TSX Venture Exchange.
Royal Coal assets
All of the Royal Coal assets are located near Hazard in Kentucky and include the Big Branch mine, the Big Branch extension and the SID mine. All assets are strip and contour mining operations mining multiple seams of low sulpher, low ash, high BTU thermal coal. The town of Hazard is the centre of a prolific coal mining district with an abundance of skilled labour and coal-mining-related infrastructure.
The Big Branch mine is currently an operating strip and contour mine accessing multiple coal seams. The operation is currently operating at a run rate of 40,000 tons per month and is expected to ramp up to 50,000 tons per month in the first quarter of 2011 with the potential to expand production beyond that level. The coal is trucked a short distance to Royal Coal's self-operated load-out facility. The coal does not need to be washed resulting in lower cost of production. The current coal resource would provide a 10-year mine life at the expected production rate but there are opportunities to expand resources by additional permitting and an increased leased land position.
The SID mine is located to the south of Big Branch and is expected to mine at a rate of 35,000 tons per month by the end of 2011. After the initial access, the strip ratio is expected to be 16:1. The asset is permitted for strip and contour mining, but could also continue with auger and high wall mining methods. Ample opportunities exist to increase the resource through additional permitting and pursuing leases contiguous with the currently planned mined area. Royal Coal has been very successful in marketing the high-quality coal coming from this asset. Coal from the SID mine will be trucked to the nearby Wolverine load out for use as thermal and industrial coal.
For further details regarding the Big Branch mine and the SID mine, see the attached tables which set out the estimated mineral resources and mineral reserves. Technical reports in support of these estimates will be filed within 45 days of the date of this news release and will be available under the corporation's profile on SEDAR.
Equity financing
The corporation has entered into an agreement with a syndicate of agents led by Cormark Securities Ltd. and including Paradigm Capital Inc. and NCP Northland Capital Partners Inc. to issue, on a private placement basis, a minimum of 44.5 million special warrants and a maximum of 133.5 million at a price of 45 cents per special warrant for gross proceeds of between approximately $20-million and approximately $60-million.
Each special warrant will entitle the holder thereof to receive one unit on the exercise or deemed exercise of the special warrant without payment of any additional consideration. Each unit will consist of one common share of the company and one-half of one common share purchase warrant. Each warrant will entitle the holder to acquire one common share at a price of 70 U.S. cents for a period of two years following the date of closing of the offering, subject to adjustment as described below.
The corporation will use its commercially reasonable best efforts to file a prospectus qualifying the distribution of the common shares and warrants and to have a receipt for a final prospectus issued by the securities commissions in Canada by Jan. 21, 2011. In the event that the corporation has not received a receipt for a final prospectus within 60 days of closing, the terms of the warrants will be extended from two years to five years and the exercise price per warrant will be reduced from 70 U.S. cents to 65 U.S. cents.
The net proceeds of the offering will be used to finance the upfront consideration for each of the NovaDX transaction ($38-million (U.S.)), the Royal Coal transaction ($11-million (U.S.)), the royalty ($3-million (U.S.)), and for future streaming acquisitions and for general corporate and working capital purposes.
In the event that Sandstorm Energy does not raise the maximum amount of $60-million under the offering, the corporation will endeavour to raise the additional capital by Feb. 15, 2011. In the alternative, the corporation will endeavour to increase the size of the minimum NovaDX transaction ($5-million (U.S.)) so that the majority of the funds raised under the offering can be applied to the minimum NovaDX transaction and the Royal Coal transaction.
The offering is expected to close on or about Dec. 14, 2010, and is subject to certain conditions including, but not limited to, the receipt of all necessary regulatory approvals, including the approval of the TSX-V.
Summary of mineral resource and mineral reserve estimates
NovaDX -- Rosa mine
The attached table sets forth the estimated mineral resources and mineral reserves for the Rosa mine as of March 18, 2010.
NOVADX -- ROSA MINE
MINERAL RESOURCES AND MINERAL RESERVES AS OF MARCH 18, 2010
Coal Resource in-situ tons Coal reserve in-situ tons
Area Measured & indicated Inferred Proven Probable
Phase 1 783,000 0 453,000 0
Total 783,000 0 453,000 0
NOVADX -- REX NO. 1 MINE
MINERAL RESOURCES AND MINERAL RESERVES AS OF JULY 21, 2010
Coal resource in-situ tons Coal reserve in situ tons
Area Measured Indicated Inferred Proven Probable
1 1,410,000 3,697,000 13,552,000 1,410,000 3,697,000
2 3,409,000 5,699,000 9,749,000 3,409,000 5,699,000
3 7,963,000 10,025,000 4,341,000 7,963,000 10,025,000
Sum 12,782,000 19,421,000 27,642,000 12,782,000 19,421,000
ROYAL COAL -- BIG BRANCH MINE
MINERAL RESOURCES AND MINERAL RESERVES AS OF JAN. 21, 2010
Mineral resource tons Mineral reserve tons
Seam Measured Indicated Inferred Proven Probable
5 Top 447,767 182,881 0 406,102 155,449
5 Middle 928,788 325,328 0 789,470 276,529
5 Bottom 1,351,884 306,816 0 1,149,101 260,794
7 1,492,389 64,913 0 1,268,531 55,176
8 Top 294,674 0 0 250,473 0
8 Middle 505,454 0 0 429,636 0
8 Bottom 398,992 0 0 339,143 0
Subtotal 5,449,948 879,939 0 4,632,456 747,948
ROYAL COAL -- SID MINE
MINERAL RESOURCES AND MINERAL RESERVES AS OF JAN. 20, 2010
Mineral resource tons Mineral reserve tons
Seam Mining type Measured Indicated Inferred Proven Probable
Fireclay Contour 234,000 841,000 0 199,000 715,000
Auger 223,000 747,000 0 67,000 224,000
Haddix Point removal 54,000 0 0 46,000 0
Contour 260,000 529,000 0 221,000 450,000
Auger 150,000 177,000 0 45,000 53,000
Hazard 5A Point removal 71,000 0 0 60,000 0
Contour 388,000 172,000 0 330,000 146,000
High-wall miner 756,000 196,000 0 340,000 88,000
Hazard 7 N/A 0 0 0 0 0
Hazard 8 Point removal 20,000 0 0 17,000 0
Area 198,000 0 0 168,000 0
Hazard 9 Point removal 9,000 0 0 8,000 0
Area 104,000 0 0 88,000 0
Total surface 1,338,000 1,542,000 0 1,137,000 1,311,000
Total auger/HW mining 1,129,000 1,120,000 0 452,000 365,000
Subtotal 2,467,000 2,662,000 0 1,589,000 1,676,000
Sanford M. Hendon, PE, vice-president of McGehee Engineering Corporation, and Philip Lucas, PE, PLS, vice-president
of Summit Engineering, Inc., are the qualified persons as defined under NI 43-101. They have reviewed and approved the scientific or technical information included in this news release.
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