Sabina to sell Hackett, turns to gold for growth

Nunavut-focused junior explorer Sabina Gold & Silver (SBB-T) is selling its 100%-owned Hackett River silver-zinc project, located near Bathurst Inlet in northern Nunavut, to Swiss mining powerhouse Xstrata (XTA-L).

Xstrata will pay $50 million cash for the volcanogenic massive sulphide deposit and grant Sabina a silver royalty equal to 22.5% of the first 190 million oz. silver produced, and 12.5% thereafter. No other metals will be covered by the royalty. Additionally, Xstrata has agreed to spend at least $50 million bringing Hackett to feasibility over the next four years.

A preliminary economic assessment (PEA) for the project in 2009 calculated an indicated
resource of 43.6 million tonnes grading 128.75 grams silver per tonne, 4.15% zinc, 0.35% copper, 0.58% lead and 0.27 gram gold, as well as inferred resources of 15.9 million tonnes at slightly lower grades. Total recoverable metals are estimated at 183 million silver oz., 4.81 billion lbs. zinc, 311 million lbs. copper, 614 million lbs. lead and 300,000 oz. gold.

The PEA further outlined a daily throughput rate of 12,000 tonnes over a 16-year mine life, using base-case metal prices of US$13.20 per oz. silver and US88¢ per lb. zinc, compared with today’s prices of roughly US$36 per oz. silver and US$1.06 per lb. zinc. Annual production from the proposed open-pit mine over the first 10 years is expected to be 13.6 million silver oz. and 367 million lbs. zinc, in addition to by-product copper, lead and gold.

The high cost of bringing the relatively remote Hackett River into production, however, may have contributed the most to the sale of the project. With projected initial capital costs totalling $686 million and another $343 million required for sustaining capital, bringing in a major to finance mine development and the building of key infrastructure may have made the most sense.

Sabina says it will use proceeds from the sale to advance its nearby Back River gold project, located just 60 km east of Hackett River, toward feasibility. It is currently spending $30 million on exploration, completing 70,000 metres of drilling this year with seven drill rigs. 

The junior’s president and CEO, Tony Walsh, noted in a prepared statement that the transaction provides a higher level of confidence that Hackett will be developed in an earlier time, while giving Sabina continued exposure to further exploration at the project through the royalty scheme. The potential development of Back River would be further enhanced by infrastructure built for Hackett by Xstrata. The agreement contains a clause allowing Sabina to use the infrastructure on commercially competitive terms.

An updated resource estimate for Back River in March 2011 pegged the indicated resource of the banded iron formation deposit at 9.87 million tonnes grading 8.33 grams gold per tonne, or 2.65 million contained oz. Inferred resources totalled 5.6 million tonnes grading 8.65 grams gold for another 1.56 million oz.

Both projects are in the 120-km- long Hackett River greenstone belt within the Slave structural province, a predominantly Archaean granite-greenstone-sedimentary terrain near Great Slave Lake. Their nearest and largest neighbours – though still hundreds of kilometres away – include Rio Tinto‘s (rio-t, rio-l) Diavik diamond mine, BHP Billiton‘s (BHP-N, BLT-L) Ekati diamond mine and Agnico-Eagle Mines‘ (AEM-T, AEM-N) Meadowbank gold mine.

Shares of Sabina closed 19¢ to $6.93 following the June 2 Hackett River announcement on 671,000 shares traded.