Sandstorm Gold Pays $10 Million to SilverCrest for Extension

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On Tuesday, Sandstorm Gold (NYSEMKT:SAND) and SilverCrest Mines (NYSEMKT:SVLC) announced that the former company is paying the latter company $10 million in exchange for an extension of a streaming agreement on SilverCrest’s Santa Elena mine in Sonora Mexico.

The original agreement dates back to 2009 when Sandstorm Gold first bought a streaming deal on the Santa Elema mine that entitled it to purchase 20 percent of the gold it produced for $350/ounce. Part of the agreement limited this to only the gold that was produced on the surface. At the time, SilverCrest was fairly certain that it would be able to expand the mine so that it produced underground ore, although the company only recently released an economic assessment that estimates the amount of gold that will be produced, the cost of producing this gold, and the cost of expanding the mine.

Since there was uncertainty regarding the underground resources back in 2009, the streaming agreement between Sandstorm Gold and SilverCrest Mines included a clause that gave Sandstorm Gold the right — but not the obligation — to fund 20 percent of the construction of the underground mine in exchange for the right to purchase 20 percent of the gold produced at $450/ounce.

The $10 million that Sandstorm Gold is paying to SilverCrest Mines is going to go toward the development of the underground mine at Santa Elena. This means that the streaming agreement will be extended, and starting later this year, SilverCrest will be selling gold to Sandstorm Gold at $450/ounce from its newly producing underground mine.

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