Bradford Cooke aims to repeat Endeavour success at Santa Fe

VANCOUVER — Bradford Cooke and Endeavour Silver (TSX: EDR; NYSE:  EXK) have revitalized a number of historic Mexican silver districts, and the team is now looking to take that model into the U.S. with a deal between its Canarc Resource (TSX: CCM; US-OTC: CRCUF) vehicle and beleaguered junior Santa Fe Gold (US-OTC: SFEG). 

On July 15 the companies struck a share-exchange agreement that will result in Cooke and Canarc CEO Catalin Chiloflischi taking the reins at Santa Fe, with the intention of fast-tracking production at the company’s Summit gold–silver mine near the town of Lordsburg, New Mexico.

Santa Fe has been treading water due to US$20 million in outstanding debts to Waterton Global Value and Sandstorm Gold (TSX: SSL; NYSE-MKT: SAND), but those obligations are set to be restructured as the deal moves forward.

Under the agreement Santa Fe will issue 66 million shares to Canarc, while Canarc will issue 33 million shares to Santa Fe.

The deal will result in Santa Fe owning 17% of Canarc’s outstanding shares, and Canarc holding 34% of Santa Fe’s outstanding shares.

For Cooke and his team the deal aligns with Endeavour’s business strategy of picking up distressed near-term assets in historic mining districts, and turning operations around to achieve profitability.

“We had been looking for opportunities to prosper in this market, and I think it’s fortunate we found each other,” Cooke, who will step in as Santa Fe’s chairmain, said during a conference call. “The deal is constructed quite creatively, and offers a way for Santa Fe to find a way forward in dealing with it debts, securing capital and putting the mine back into production.”

Cooke said it was an opportunity for Endeavour “to get into a brand-new material opportunity without getting involved in the Santa Fe debts. We see in Summit an opportunity very similar to what we accomplished with Endeavour in Mexico. That’s basically the model we’ll be trying to emulate moving forward.”

Summit achieved commercial production in 2012, and Santa Fe had planned to ramp up to a target range of between 28,000 and 30,000 equivalent oz. gold annually over five years. The company ended up suspending mining activities in November 2013 after disappointing financial performances. Sales were adversely affected by various equipment issues related to a lack of capital.

Summit’s mine plan was based on probable reserves in Summit’s Footwall zone that total 529,000 tonnes grading 4.13 grams gold per tonne and 290.3 grams silver per tonne for 85,060 contained oz. gold and 6 million contained oz. silver.

The mine is located in a rugged and isolated setting in Grant County, southwestern New Mexico, near the Arizona state line. The property lies within the Steeple Rock mining district, which has recorded historical production of gold, silver, base metals and fluorspar from several dormant mines, including Carlisle, East Camp and Norman King.

“The type of deposit we see at [Summit] is remarkably similar to the types of deposits we found, redeveloped and expanded at Endeavour. These are classic low-sulphidation, epithermal vein deposits that represent classic high-grade underground gold–silver mines,” Cooke continued. “And they’re typically district plays, so even though Summit is just one property we see the Steeple Rock district has a fabulous history of small-scale production, but not much in the way of modern exploration. I think these additional opportunities should drive ongoing growth for the company.”

Since Summit is close to production, Canarc envisions a fairly quick turnaround time to get the mine running.

Chiloflischi reckons that within six months of locking down project financing the company should have Summit back in action, and estimated that capital costs for the restart would total up to US$13 million.

Canarc is looking at a high-grade underground operation that would run at a 400-tonne-per-day throughput rate.

Another upside for Santa Fe is that Cooke and his team can bring their financial power to bear at Summit. The company has entered into an agency agreement with Euro Pacific Capital — which has history of funding Endeavour and Canarc — in a bid to place convertible gold notes with an aggregate principal amount of between US$20 million and US$25 million.

“What we recognized in Mexico were these famous old silver- and gold-mining districts that were fully developed, permitted and staffed, but struggling to operate for various reasons, including: lack of ore, lack of money, low commodity prices, etc. I took the view in the past nine months that 2014 should be a turnaround year for precious metals,” Cooke said. “So I really wanted our Canarc team to have this new material opportunity before precious metals start to take off. I think this is the right one because it’s a brilliant way to accommodate all of our respective needs.”

In terms of the outstanding debt it appears that Waterton and Sandstorm are both behind Cooke’s vision based on the restructuring proposals.

Santa Fe will reportedly pay Wateron US$3 million in cash, after which the outstanding amount under the credit agreement will be reduced to US$6 million, with that balance paid in US$500,000 installments over the next 45 months.

Meanwhile, Sandstorm has agreed to a US$1-million cash payment out of the proposed financing and a rejigged streaming agreement under which it will receive a minimum of 350 oz. gold for US$400 per oz. over 16 quarters.

Shares of Canarc rose 40% over the two trading days after the announcement en route to a 10.5¢ close at press time. They have traded in a 52-week range of 4¢ to 13¢. Canarc has 152 million shares outstanding for a $16-million market capitalization.

Santa Fe jumped 35% over the same period before closing at US7.5¢ per share. Shares have traded between US2¢ to US20¢ over the past year. There are 127 million shares outstanding, for a US$9.5-million market capitalization.