Saturday, November 08, 2008

Silverstone Resources SST.v - Bull in Silver continued.

This is the place to be and accumulate if you do not buy deflation argument and that Silver will go below 5.0 USD again. Finally we have great news for the company:
"The Northern Miner, 11/7/2008
Silverstone moves into gold, may double 2009 sales
Vancouver – Silverstone Resources (SST-V) secured the life-of-mine silver and gold production from Sherwood Copper’s (SWC-V) Minto mine in the Yukon.

The move should more than double Silverstone’s silver equivalent sales in 2009 to 4.5 million oz. and, as Silverstone president and CEO Darren Pylot notes in a conference call, it marks Silverstone’s first foray into gold.

The Minto mine, though primarily a copper mine, has proven and probable reserves of 9.13 million tonnes grading 0.74 gram gold per tonne and 7.73 grams silver per tonne. That translates into 204,000 oz. gold and 2.1 million oz. silver - or around 16.4 million silver equivalent oz. assuming Silverstone’s 1:70 ratio of gold to silver oz.

In 2009 Sherwood forecasts production of 30,000 oz. gold and 300,000 oz. silver as a by-product of copper processing.

To get its hands on that and future production Silverstone will pay Sherwood US$37.5 million upfront and US$300-per-oz. gold and US$3.90-per-oz. silver on production up to 50,000 oz. gold. Over 50,000 oz. gold Silverstone has the right to 50% of gold and silver.

Sherwood will immediately receive US$12.5 million with the rest to follow within 14 days of signing a letter of intent.

To make the payments Pylot says Silverstone will draw about US$10 million from a US$15 million line of credit and the rest from its US$28 million cash reserves.

As part of the deal Silverstone also gets the right of first refusal on potential silver and gold production from Sherwood’s Kutcho copper project in northern BC. Pylot says, if it goes to production and Silverstone was on board, Kutcho would be about 80% the size of Minto in terms of contained metal as a by-product. It would primarily come as silver.

Prior to the agreement with Sherwood Silverstone was focused on buying silver by-product.

Although Silverstone didn’t have an explicit goal to diversify into gold, Pylot says it was becoming difficult to find quality silver assets “with zinc and lead prices the way they are and silver suffering.”

That primarily accounts for its interest in the Minto mine where he says Sherwood can still operate at prices as low as about US$1-per-lb. copper.

Gold, in other words, just happened to be the main by-product (in terms of value) at a project where, more importantly, the underlying fundamentals impressed Silverstone.

“We want to get bigger by minimizing risk by getting mines that will run at all times of the cycle,” Pylot says. Minto fit that criteria.

With Minto on its roster, gold and silver’s share of Silverstone’s 2009 sales will respectively be about 40-60. Pylot says that the company does not have an explicit goal to diversify further but won’t say no to good deals outside the “silver space”.

“If gold comes up again, we will do that,” he says.

Pylot estimates that Silverstone will generate about US$27 million from Minto over the first 12 months.

For his part Sherwood president and CEO Stephen Quin says in a statement that given Sherwood and Capstone’s pending merger, "Some of the benefit to Silverstone from this transaction should flow back to Sherwood…since Capstone owns approximately 22% of Silverstone."

On news of securing production from the Minto mine Silverstone’s share price increased 6¢ to close at 74¢.

Silverstone has similar off-take agreements with Capstone Mining (CS-T) for silver from its Cozamin Mine and Lundin Mining (LUN-T) for silver from its Neves-Corvo and Aljustrel mines. It also has the right to purchase 12.5% of the potential life-of-mine silver from Aquiline Resources’ (AQI-T) Navidad project.

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