Canadian Zinc gets some cash from Sandstorm

Capital may be scarce, but Canadian Zinc (CZN-T) has cut a deal that will inject US$10 million into its coffers.

With cash reserves shrinking down to $2.3 million in March and some key permits missing, the company turned to an emerging name in the metal-streaming and royalty business: Sandstorm Metals and Energy (SND-V).

Canadian Zinc has agreed to sell Sandstorm a 1.2% net smelter return royalty on its world-class Prairie Creek mine in the Northwest Territories.

The deal comes with the proviso that Canadian Zinc can buy back the option within the next 30 months for the same $10 million that Sandstorm is paying, so long as it signs a metal-stream agreement with Sandstorm — which is the sort of deal that Sandstorm is best known for.

A streaming agreement would see Sandstorm provide at least US$90 million towards developing the Prairie Creek mine in return for production at a reduced cost.

More details would be worked out after Canadian Zinc gets its necessary permits, which it expects in the coming months.

But the current deal shows that despite the lean conditions in capital markets, financing options are still available to companies with robust assets, as Canadian Zinc has secured capital without diluting shareholders.

The company’s board will meet in the coming weeks to discuss how to deploy the new capital. The board will likely look to strike a balance between advancing the project and conserving cash.

The Prairie Creek mine is a zinc-silver-lead project located in the Nahanni National Park in the Northwest Territories. The site is host to proven and probable reserves of 5.2 million tonnes averaging 9.4% zinc, 9.5% lead and 151 grams silver.

The reserves come out of a mineral resource estimate that outlines measured and indicated resources of 5.4 million tonnes grading 10.8% zinc, 10.2% lead and 160 grams silver.

The deposit has additional inferred resources of 6.2 million tonnes grading 14.5% zinc, 11.5% lead and 229 grams silver.

A prefeasibility study completed last June estimated that building the mine would cost $193 million.

The net present value clocked in at $253 million using an 8% discount rate, and the internal rate of return came in at 40.4%.

These numbers were generated using long-term metal prices of US$1 per lb. zinc, US$1 per lb. lead and US$26 per oz. silver.

On the permitting front, the company is anticipating a water licence and land-use permits from the Mackenzie Valley Land and Water Board in the coming weeks. After the board’s recommendation, the permits will be submitted to the Minister of Aboriginal Affairs and Northern Development Canada for final approval.

The company expects initial construction to create 200 jobs, with a hiring process that would give preference to local residents, followed by northern residents.

A future mine at the site is expected to turn out 60,000 tonnes zinc concentrate containing 76 million lb. zinc, and 60,000 tonnes lead concentrate with 90 million lb. lead per year.

The two concentrates would hold over 2 million oz. silver, most of which would be in the lead concentrate.