Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Equinox Gold (TSX: EQX) and Sandstorm Gold (TSX: SSL) (NYSE: SAND) are creating a new diversified metals royalty company — Sandbox Royalties — which will combine assets in the Americas and Europe.
The $93.4 million transaction will see the two Canadian gold producers sell a portfolio of royalties to privately-held Rosadale Resources. Equinox Gold is offloading royalties worth $28.4 million in common shares of Rosedale, while Sandstorm will sell $65 million in royalties to the new firm. Sandstorm’s portion consists of $32.1 million in common shares, and $32.9 million via a promissory note that is convertible into common shares.
Upon closing, Sandstorm and Equinox will hold 34% and 30% respective interests in Rosedale, which intends to change its corporate name to Sandbox Royalties and seek a public listing on a Canadian stock exchange. It also expects to undertake a non-brokered private placement financing at 70c per share for minimum proceeds of C$5 million ($3.9m).
“Equinox Gold has surfaced tremendous value as a significant and supportive shareholder of Solaris Resources and i-80 Gold, our previous spin-out companies, and intends to continue that track record with Sandbox Royalties,” Equinox chief executive Christian Milau said in the statement.
“With the creation of Sandbox (…) we are taking royalties that don’t currently receive their warranted value within Sandstorm’s existing portfolio and surfacing their value so that our shareholders can benefit now,” Sandstorm Gold president and CEO Nolan Watson said.
The new firm will hold a total of 23 royalty assets, of which nine will come from Sandstorm, four from Equinox and one asset, Cuiu Cuiu, will overlap between the two firms.
It will also own the existing royalties held by Rosedale Resources, the companies said.
Sandbox will have exposure to a range of commodities including gold, silver, copper, zinc, graphite and uranium, as well as cash flow from producing royalties. The company will be led by Greg Smith as president and chief executive officer, and Marcel de Groot as chair.
Smith would transition from Equinox Gold president to the new role at Sandbox and would continue to represent Equinox Gold on the boards of its previous spin-out companies, Solaris Resources and i-80 Gold.
Ross Beaty, Equinox Gold chairperson, said that Smith would focus on building Sandbox, while Equinox would slow its merger and acquisition activities to focus on developing its internal growth pipeline, including the new Santa Luz gold mine in Brazil, and the large expansion projects at Los Filos, Aurizona and Castle Mountain, as well as the Greenstone construction project.
The creation of Sandbox Royalties mirrors a strategy used by Sandstorm in February this year, when it created Horizon Copper.
This transaction saw the Vancouver-based royalty company sell a 30% interest in the Hod Maden copper project in Turkey and other assets, in exchange for a $200 million gold stream on Hod Maden, together with equity and debt consideration.
Earlier this month, Sandstorm acquired Nomad Royalty as well as a package of royalties from Glencore’s affiliate BaseCore Metals Royalty, for a combined total of $1.1 billion.
As part of the deal, Sandstorm agreed to sell a 1.66% net profits interest on the Antamina copper mine in Peru to Horizon, while retaining a long-life silver stream on the mine.
