Exhibit 99.1
SANDSTORM GOLD LTD.
ANNUAL INFORMATION FORM
FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2015
March 30, 2016
Suite 1400, 400 Burrard Street
Vancouver, B.C. V6C 3A6
SANDSTORM GOLD LTD.
ANNUAL INFORMATION FORM
FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2015
TABLE OF CONTENTS
| INTRODUCTORY NOTES | 2 |
| CORPORATE STRUCTURE | 4 |
| GENERAL DEVELOPMENT OF THE BUSINESS | 4 |
| Public Offerings | 4 |
| Credit Facility | 4 |
| Normal Course Issuer Bid | 5 |
| Mineral Interests | 5 |
| Corporate Takeovers | 14 |
| DESCRIPTION OF THE BUSINESS | 16 |
| Principal Product | 17 |
| Competitive Conditions | 21 |
| Operations | 21 |
| Risk Factors | 21 |
| Risks Relating to the Company | 21 |
| Risks Relating to the Mining Operations | 27 |
| TECHNICAL INFORMATION | 32 |
| CIM Standards Definitions | 32 |
| Santa Elena Mine, Mexico | 39 |
| Chapada Mine, Brazil | 52 |
| Diavik Mine, Canada | 64 |
| DIVIDENDS | 75 |
| DESCRIPTION OF CAPITAL STRUCTURE | 75 |
| Trading Price and Volume | 76 |
| Common Shares | 76 |
| Warrants | 77 |
| DIRECTORS AND OFFICERS | 78 |
| INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS | 81 |
| TRANSFER AGENT AND REGISTRAR | 81 |
| MATERIAL CONTRACTS | 82 |
| INTERESTS OF EXPERTS | 82 |
| AUDIT COMMITTEE | 83 |
| ADDITIONAL INFORMATION | 84 |
| SCHEDULE “A” | A1 |
INTRODUCTORY NOTES
Cautionary Note Regarding Forward-Looking Information
This annual information form (“AIF”) contains “forward-looking statements” or “forward-looking information” within the meaning of applicable securities legislation. Forward-looking information is provided as of the date of this AIF and Sandstorm Gold Ltd. (“Sandstorm Gold” or the “Company”) does not intend, and does not assume any obligation, to update this forward-looking information, except as required by law.
Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is based on reasonable assumptions that have been made by Sandstorm Gold as at the date of such information and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to: the impact of general business and economic conditions; the absence of control over mining operations from which Sandstorm Gold will purchase gold and other metals or from which it will receive royalty payments and risks related to those mining operations, including risks related to international operations, government and environmental regulation, delays in mine construction and operations, actual results of mining and current exploration activities, conclusions of economic evaluations and changes in project parameters as plans continue to be refined; problems inherent to the marketability of gold and other metals; industry conditions, including fluctuations in the price of the primary commodities mined at such operations, fluctuations in foreign exchange rates and fluctuations in interest rates; government entities interpreting existing tax legislation or enacting new tax legislation in a way which adversely affects Sandstorm Gold; stock market volatility; competition; as well as those factors discussed in the section entitled “Risk Factors” herein.
Forward-looking information in this AIF includes, among other things, disclosure regarding: Sandstorm Gold’s existing 132 Gold Streams (as defined below) and royalties, of which 19 of the underlying mines are producing, as well as its future outlook and the mineral reserve and mineral resource estimates for the Santa Elena Mine (as defined below), Chapada Mine (as defined below) and the Diavik Mine (as defined below), and production and cost estimates. Forward-looking information is based on assumptions management believes to be reasonable, including but not limited to the continued operation of the mining operations from which Sandstorm Gold will purchase gold and other metals or from which it will receive royalty payments, no material adverse change in the market price of commodities that the mining operations will operate in accordance with their public statements and achieve their stated production outcomes, and such other assumptions and factors as set out therein.
Although Sandstorm Gold has attempted to identify important factors that could cause actual actions, events or results to differ materially from those contained in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as future actions and events and actual results could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information.
Currency Presentation
All dollar amounts referenced, unless otherwise indicated, are expressed in United States dollars.
Commodity Price Information
Gold Prices
The high, low, average and closing afternoon fixinggold prices in United States dollars per troy ounce for each of the three years in the period ended December 31, 2015, as quoted by the London Bullion Market Association, were as follows:
| | Year Ended December 31 |
| 2015 | 2014 | 2013 |
| High | $1,298 | $1,385 | $1,694 |
| Low | $1,049 | $1,142 | $1,192 |
| Average | $1,160 | $1,266 | $1,411 |
| Closing | $1,060 | $1,206 | $1,205 |
On March 29, 2016, the closing afternoon fixinggold price in United States dollars per troy ounce, as quoted on the London Bullion Market Association, was $1,226.00.
Silver Prices
The high, low, average and closing afternoon fixingsilver prices in United States dollars per troy ounce for each of the three years in the period ended December 31, 2015, as quoted by the London Bullion Market Association, were as follows:
| | Year Ended December 31 |
| 2015 | 2014 | 2013 |
| High | $18.23 | $22.05 | $32.23 |
| Low | $13.71 | $15.28 | $18.61 |
| Average | $15.68 | $19.08 | $23.79 |
| Closing | $13.82 | $15.97 | $19.50 |
On March 29, 2016, the closing afternoon fixingsilver price in United States dollars per troy ounce, as quoted on the London Bullion Market Association, was $15.06.
Copper Prices
The high, low, average and closing official cash settlementcopper prices in United States dollars per pound for each of the three years in the period ended December 31, 2015, as quoted by the London Metal Exchange, were as follows:
| | Year Ended December 31 |
| 2015 | 2014 | 2013 |
| High | $2.93 | $3.38 | $3.74 |
| Low | $2.04 | $2.86 | $3.01 |
| Average | $2.49 | $3.11 | $3.32 |
| Closing | $2.13 | $2.88 | $3.35 |
On March 24, 2016, the official cash settlementcopper price in United States dollars per pound, as quoted on the London Metal Exchange, was $2.24.
CORPORATE STRUCTURE
The Company was incorporated under theBusiness Corporations Act (British Columbia) on March 23, 2007. The Company changed its name from “Sandstorm Resources Ltd.” to “Sandstorm Gold Ltd.” on February 17, 2011. Effective June 19, 2015, Sandstorm Gold Ltd. amalgamated, by way of vertical short-form amalgamation under theBusiness Corporations Act (British Columbia), with one of its wholly-owned subsidiaries, Premier Royalty Inc. (“Premier Royalty”). Sandstorm Gold Ltd. is the continuing entity as a result of the amalgamation.
The Company’s head, registered, and records office are located at Suite 1400, 400 Burrard Street, Vancouver, British Columbia, V6C 3A6.
The Company has three principal wholly-owned subsidiaries, Sandstorm Gold Bank Limited, incorporated under the laws of Barbados, Sandstorm Gold (Canada) Ltd., incorporated under the laws of the Province of British Columbia and Sandstorm Metals & Energy Ltd. (“Sandstorm Metals”), incorporated under the laws of the Province of British Columbia.
GENERAL DEVELOPMENT OF THE BUSINESS
Public Offerings
On September 1, 2015, the Company filed a short form base shelf prospectus (the “Base Shelf Prospectus”) in Canada and the United States which allows the Company to offer for sale and issue from time to time common shares of the Company (“Common Shares”), warrants to purchase Common Shares, subscription receipts and units, or any combination thereof, having a total aggregate offering price for such securities, of up to $150,000,000 (or the equivalent thereof in other currencies) during the 25-month period that the Base Shelf Prospectus, including any amendments thereto, remains effective.
On November 3, 2015, the Company completed a bought deal financing with a syndicate of underwriters for 10,087,800 units of the Company at a price of $2.85 per unit (“Units”) for gross proceeds of approximately $28.8 million (the “November 2015 Offering”). Each Unit was comprised of one Common Share and one-half of one common share purchase warrant, where each full warrant entitles the holder to purchase one Common Share at a price of $4.00 until November 3, 2020. The Units were sold pursuant to an underwriting agreement between the Company and a syndicate of investment dealers co-led by National Bank Financial Inc. and BMO Nesbitt Burns Inc. The Units issued under the November 2015 Offering were offered by way of an amended and restated prospectus supplement (dated October 27, 2015) to the Base Shelf Prospectus in all of the Provinces of Canada, other than Québec, and in the United States as part of an effective registration statement. The net proceeds from the November 2015 Offering were primarily used to reduce the balance of the Company’s revolving credit facility, which facility was used in funding the acquisition of productions streams from up to five projects from Yamana (as defined below), and for working capital purposes.
Credit Facility
On January 12, 2012, the Company entered into a revolving credit agreement with The Bank of Nova Scotia, which allowed the Company to borrow up to $50.0 million (the “Revolving Loan”). The Revolving Loan had a term of three years, which was extendable by mutual consent of The Bank of Nova Scotia and the Company. On February 7, 2013 (as amended July 17, 2014, July 13, 2015 and October 26, 2015), the Company entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”) and amended the Revolving Loan to increase the amount which the Company is permitted to borrow thereunder to up to $110.0 million (the “Amended Revolving Loan”). The term of the Amended Revolving Loan expires July 17, 2019, which is extendable by mutual consent of The Bank of Nova Scotia, Bank of Montreal, National Bank of Canada, Canadian Imperial Bank of Commerce and the Company. The Amended Revolving Loan will continue to be used for the acquisition of Gold Streams. The amounts drawn on the Amended Revolving Loan are subject to interest at LIBOR plus 3.00% to 4.25% per annum, and the undrawn portion of the Amended Revolving Loan is subject to a standby fee of 0.75%-1.05% per annum, dependent on the Company’s leverage ratio. At December 31, 2015, the Company had drawn down $83.5 million on the Amended Revolving Loan and $26.5 million was available.
Normal Course Issuer Bid
On December 17, 2014, the Company commenced a Normal Course Issuer Bid (“NCIB”) in accordance with Toronto Stock Exchange (“TSX”) rules and Canadian securities laws. Under the NCIB, the Company was entitled to purchase up to 5,882,879 Common Shares, representing 5% of the Company’s issued and outstanding Common Shares as of December 11, 2014. The NCIB terminated on December 16, 2015. All purchases under the NCIB were executed on the open market through the facilities of the TSX or alternative Canadian trading platforms and were made at the market price of the Common Shares at the time of acquisition. These purchases were funded by the Company’s working capital and all Common Shares acquired by the Company under the NCIB were cancelled. The NCIB provided the Company with the option to purchase its Common Shares from time to time when the Company’s management believed that the Common Shares were undervalued by the market. Pursuant to the NCIB, the Company purchased a total of 518,123 Common Shares for an aggregate purchase price of $1,708,165 during 2015 and these 518,123 Common Shares were all returned to treasury for cancellation.
Mineral Interests
Aurizona Gold Stream
On May 15, 2009, the Company entered into an agreement (the “Aurizona Gold Stream”) with Luna Gold Corp. (“Luna”) to purchase 17% of the life of mine gold produced from Luna’s Aurizona mine, located in Brazil (the “Aurizona Mine”), for $17.8 million and 5,500,000 Common Shares as an upfront payment, plus ongoing per ounce payments equal to the lesser of $400 (subject to a 1% annual inflationary adjustment beginning on February 9, 2014) and the then prevailing market price per ounce of gold.
In August 2014, the Company purchased 19.5 million common shares of Luna (“2014 Placement Shares”), at a price of C$1.02 per 2014 Placement Share, for proceeds to Luna of C$19,890,000. Upon completion of this acquisition, the 2014 Placement Shares held by the Company represented approximately 19.82% of Luna’s issued and outstanding common shares. The 2014 Placement Share purchase agreement entered into by the Company provides that, as long as the Company owns greater than 15% of Luna’s issued and outstanding common shares, the Company has the right to maintain its ownership percentage in Luna through future private placements or public offerings conducted by Luna.
In May 2015, the Comany restructured the Aurizona Gold Stream and amended the terms of the Company’s outstanding loan to Luna (the “Loan”). Under the terms of the restructuring, which closed on June 30, 2015, the Aurizona Gold Stream was terminated (effective September 30, 2015) and replaced by two net smelter return (“NSR”) royalties (the “Aurizona Project NSR” and the “Greenfields NSR”) and a convertible debenture. The Aurizona Project NSR is a sliding scale royalty based on the price of gold as follows: 3% if the price of gold is less than or equal to $1,500 per ounce; 4% if the price of gold is between $1,500 per ounce and $2,000 per ounce; and 5% if the price of gold is greater than $2,000 per ounce. The Greenfields NSR covers approximately 190,000 – 220,000 hectares of exploration ground held by Luna and is a 2% net smelter return royalty. Luna has the right to purchase one-half of the Greenfields NSR for $10 million at any time prior to commercial production. The Company holds a right of first refusal on any future streams or royalties on the Aurizona project and Greenfields. The debenture is a $30 million debenture bearing interest at a rate of 5% per annum (the “Debenture”). The Debenture is payable in three equal annual tranches of $10 million plus accrued interest beginning June 30, 2018. Luna has the right to convert principal and interest owing under the Debenture into common shares of Luna, up to a number of common shares held by the Corporation which is below 20% of the outstanding common shares of Luna. The quantum of Luna shares upon conversion will be dependent upon a 20 day volume weighted average price (“VWAP”) and, if the VWAP is less than C$0.10 per Luna share, the Luna shares will be deemed to have been issued at C$0.10 per share. Additionally, the maturity date of the outstanding Loan in the amount of $23,730,306 was extended from June 30, 2017 to June 30, 2021, the interest rate was revised to 5% per annum, payable in cash on the maturity date, and Luna is subject to a default rate of interest equal to 10% per annum.
On June 30, 2015, Luna completed a private placement equity financing of 100 million units (“Luna Units”) with Pacific Road Resources Fund II for C$10 million and a C$20 million senior secured note which, upon closing, resulted in Luna receiving gross proceeds of C$30 million (the “2015 Financing”). Each Luna Unit is comprised of one common share and one Class A common share purchase warrant. Each Class A common share purchase warrant is exercisable at a price of C$0.125 per Luna common share and is exercisable for a term of five years. The Company also participated in the 2015 Financing by subscribing for 24.7 million Luna Units for a purchase price of C$2.47 million. The Luna common shares currently held by the Company represent approximately 18.5% of Luna’s issued and outstanding common shares.
With a re-structured Gold Stream with the Company and a recapitalized balance sheet, Luna announced on June 30, 2015 that it would be in a position to undertake a work program which will have the ultimate goal of restarting operations at the Aurizona Mine. The proposed 18-month work program will involve significant infill drilling, updating of the geological model, calculating a new resource estimate, formulating a new, optimized mine plan, producing an updated prefeasibility study incorporating an upgraded crush and grind circuit and continuing the on-going licensing and permitting process to ultimately secure all the needed permits to restart the Aurizona Mine.
The Aurizona Mine is located in Maranhão State in northern Brazil and is an orogenic gold deposit hosted in a greenstone belt of the São Luis Craton. There are a number of mineralized bodies on the Aurizona property, but work to date has focused on the Piaba and Tatajuba deposits on which the current resource is based. The Aurizona Mine was an active open-pit operation from 2011 to 2015, producing over 275,000 ounces of gold from a gravity and carbon-in-leach plant.
Santa Elena Gold Stream
On May 15, 2009, the Company entered into an agreement (the “Santa Elena Gold Stream”) with SilverCrest Mines Inc. (“SilverCrest”) to purchase 20% of the life of mine gold produced from SilverCrest’s Santa Elena mine, located in Mexico (the “Santa Elena Mine”), for $12.0 million and 3,500,000 Common Shares as an upfront payment, plus ongoing per ounce payments equal to the lesser of $350 (subject to a 1% annual inflationary adjustment beginning on July 13, 2014) and the then prevailing market price per ounce of gold. SilverCrest was also developing an underground mine on the Santa Elena property (the “Santa Elena Underground Mine”) and the Company had the right to purchase 20% of the gold from the underground mine at a per ounce price equal to the lesser of $450 (subject to an Inflationary Adjustment) and the then prevailing market price per ounce of gold. In February 2014, Sandstorm Gold elected to exercise its right to purchase gold from the Santa Elena Underground Mine. For consideration, the Company made a $10.0 million payment to SilverCrest and will continue to make per ounce payments equal to $350 until 50,000 ounces of gold have been delivered to the Company (inclusive of the ounces already received from the open-pit production), at which time the ongoing per ounce payments will increase to $450.
NOTE: Effective October 1, 2015, First Majestic Silver Corp. (TSX:FR; NYSE:AG) (“First Majestic”) acquired all of the issued and outstanding shares of SilverCrest by way of plan of arrangement under theBusiness Corporations Act(British Columbia) and the Company’s rights under the Santa Elena Gold Stream remain intact.
The Santa Elena Mine was successfully transitioned from an open pit heap leach operation to an underground mining and milling operation and commercial production for the 3,000 tonne per day processing plan was declared in 2014. For further details regarding the Santa Elena Mine, see “Technical Information – Santa Elena Mine, Mexico” below.
Ming Gold Stream
On March 4, 2010, the Company entered into an agreement (as amended) (the “Ming Gold Stream”) to purchase approximately 25% of the first 175,000 ounces of gold produced, and 12% of the gold produced thereafter, from Rambler Metals & Mining plc’s (“Rambler”) Ming mine, located on the Baie Verte Peninsula in Newfoundland, Canada (the “Ming Mine”). For consideration, the Company paid $7.0 million in 2010 and $13.0 million in 2011 for a total of $20.0 million in upfront payments. There are no ongoing per ounce payments required by the Company in respect of the Ming Gold Stream. In the event that the metallurgical recoveries of gold at the Ming Mine are below 85%, the percentage of gold that the Company is entitled to purchase will be increased proportionately. Based upon 2014 metallurgical recoveries at the Ming Mine, the Company’s 2015 gold purchase entitlement was adjusted to 31%.
The Ming Mine is a past producing underground massive sulphide copper-gold mine. Production initially began in late 2011 and Rambler is currently producing a copper concentrate. In September 2015, Rambler released a favourable pre-feasibility study which identifies the potential for an expansion of the Ming Mine into its Lower Footwall Zone.
Black Fox Gold Stream
On November 9, 2010, the Company entered into an agreement (the “Black Fox Gold Stream”) with Brigus to purchase 12% of the life of mine gold produced from Brigus Gold Corp.’s (“Brigus”) Black Fox mine, located in Ontario, Canada (the “Black Fox Mine”), for $56.3 million in upfront payments plus ongoing per ounce payments equal to the lesser of $500 (subject to an inflationary adjustment beginning in 2013, not to exceed 2% per annum – the per ounce payments are currently $524) and the then prevailing market price per ounce of gold. Brigus had the option (the “Repurchase Option”), until January 1, 2013, to repurchase 50% of the gold to be purchased under the Black Fox Gold Stream by making a $36.6 million payment to the Company. In November 2012, Brigus partially exercised the Repurchase Option and paid the Company $24,396,668 which reduced the percentage of gold to be purchased by the Company from the Black Fox Mine to 8%. The Company also had the right to purchase, by remitting the per ounce payments (described above), 10% of the gold produced from an area defined under the Black Fox Gold Stream as the “Black Fox Extension”, covering a portion of Brigus’ Pike River property. As a result of the partial exercise of the Repurchase Option by Brigus, the Company’s right to purchase 10% of the gold produced from the Black Fox Extension has been reduced to 6.3%. The Black Fox Mine began operating as an open pit mine and, in 2010, development of an underground mine began.
NOTE: Effective March 5, 2014, Primero Mining Corp. (TSX:P; NYSE:PPP) acquired all of the issued and outstanding shares of Brigus by way of plan of arrangement under theCanada Business Corporations Act and the Company’s rights under the Black Fox Gold Stream remain intact.
Bachelor Lake Gold Stream
On January 17, 2011, the Company entered into an agreement (the “Bachelor Lake Gold Stream”) with Metanor Resources Inc. (“Metanor”) (to purchase 20% of the life of mine gold produced from Metanor’s Bachelor Lake Gold project located outside of Val d’Or, Quebec (the “Bachelor Lake Mine”), for an upfront payment of $20.0 million plus ongoing per ounce payments equal to the lesser of $500 and the then prevailing market price per ounce of gold. Metanor provided a guarantee that the Company will receive a minimum of $1.0 million in pre-tax cash flow in 2012 (which has been met); $5.5 million in pre-tax cash flow in 2013 (which has been met), 2014 (which has been met), and 2015 (which has been met); and $2.5 million in pre-tax cash flow in 2016. The Bachelor Lake Mine is a long hole mining operation with an operating mill and surface infrastructure, which began production in early 2013.
Entrée Metal Credits Agreement
On February 14, 2013 (as amended February 23, 2016), the Company entered into a funding agreement (the “Entrée Metal Credits Agreement”) with Entrée Gold Inc. (“Entrée”) to purchase, for a period of 50 years (which may be extended), metal credits equal to:
| (a) | 5.619% of the gold, 5.619% of the silver and 0.415% of the copper produced from the Hugo North Extension deposit (Lower Level); |
| (b) | 8.425% of the gold, 8.425% of the silver and 0.623% of the copper produced from the Hugo North Extension deposit (Upper Level); |
| (c) | 4.258% of the gold, 4.258% of the silver and 0.415% of the copper produced from the Heruga Deposit (Lower Level); and |
| (d) | 6.391% of the gold, 6.391% of the silver and 0.623% of the copper produced from the Heruga Deposit (Upper Level); |
(all of which are subject to adjustment upon the occurrence of certain stated events). The above-mentioned deposits are all located in the South Gobi desert of Mongolia and form part of the Oyu Tolgoi mining complex (the lower and upper levels of the Hugo North Extension and the lower and upper levels of the Heruga Deposit collectively referred to herein as the“Entrée JV Project”).
The amendment entered into on February 23, 2016 reduced the Company’s metal credits interests by 17% from the original numbers, for which the Company initially paid $40.0 million in 2013. The metal credits figures set out above are the reduced figures. In exchange for the 17% reduction, Entrée paid the Company $5.5 million in cash and issued 5,128,604 of its common shares to the Company (having an aggregate value of $1.3 million). The Company will make ongoing payments equal to the lesser of the prevailing market price and $220 per ounce for the gold, $5 per ounce for the silver and $0.50 per pound for the copper, until approximately 8.6 million ounces of gold, 40.3 million ounces of silver and 9.1 billion pounds of copper have been produced from the Entrée JV Project (the “Initial Fixed Prices”). Thereafter, the ongoing payments will increase to the lesser of the prevailing market price and $500 per ounce for the gold, $10 per ounce for the silver and $1.10 per pound for the copper (the “Subsequent Fixed Prices”). The Initial Fixed Prices are all subject to a 1% annual inflationary adjustment beginning on the fourth anniversary of the date upon which the Company commences receiving payable gold, silver and copper. Concurrently, the Company entered into a similar back-to-back agreement with Sandstorm Metals whereby Sandstorm Metals purchased the copper portion of the Entrée Metal Credits Agreement (the “Copper Agreement”) from the Company in exchange for issuing $5.0 million in common shares of Sandstorm Metals to the Company. Upon receiving acceptance from the TSX Venture Exchange (the “TSXV”), Sandstorm Metals issued 1,113,333 (post-consolidation) common shares to the Company at a post-consolidation price of C$4.50 per share. As a result of the SND Acquisition, Sandstorm Metals’ interest in the Entrée JV Project under the Copper Agreement has been added to the Company’s asset portfolio (see below under “Acquisition of 100% Interest in Sandstorm Metals”). The Company is not required to contribute any further capital, exploration or operating expenditures to Entrée.
In March 2013, the Company purchased 17,857,142 common shares of Entrée (the “Entrée Shares”) at a price of C$0.56 per Entrée Share, for gross proceeds to Entrée of C$10.0 million (the “Private Placement”). Following completion of the Private Placement and before taking into account any exercise by Rio Tinto International Holding Limited of its pre-emptive rights (which, to date, have not been exercised by Rio Tinto), the Company owned approximately 12% of the issued and outstanding common shares of Entrée. Following the issuance to the Company of the additional 5,128,604 Entrée shares in March 2016, the Company now owns approximately 15.07% of the issued and outstanding common shares of Entrée.
The Hugo North Extension is a rich porphyry copper-gold deposit and the Heruga Deposit is a copper-gold-molybdenum porphyry deposit. Both are located in the South Gobi desert of Mongolia, approximately 570 kilometres south of the capital city of Ulaanbaatar and 80 kilometres north of the border with China. The Hugo North Extension and the Heruga Deposit are part of the Oyu Tolgoi mining complex and are being developed by Oyu Tolgoi LLC and the Government of Mongolia, and its project manager Rio Tinto plc (“Rio Tinto”). Entrée retains a 20% interest in the resources of the Hugo North Extension and Heruga deposits.
Partnership with Franco-Nevada on the Karma Project, West Africa
On August 11, 2014, the Company partnered with Franco-Nevada Corporation (“Franco-Nevada”) (TSX/NYSE:FNV) by entering into a $120.0 million gold stream agreement (the “True Gold Stream”) with True Gold Mining Inc. (“True Gold”) (TSXV:TGM) with respect to its Karma Project located in Burkina Faso, West Africa (“Karma Project”). In exchange for an initial $100.0 million in funding, True Gold is obligated to deliver 100,000 ounces of gold over five years (commencing March 31, 2016) (the “Delivery Period”). Thereafter, True Gold will deliver an amount of refined gold equal to 6.5% of the equivalent production at the Karma Project for the life of the mine (the “Additional Period”). In addition, the Company and Franco-Nevada have provided True Gold with an 18 month option to increase funding by up to $20.0 million (the “Increase Option”) in exchange for eight quarterly deliveries totaling up to 30,000 ounces of gold, based on the pro-rata portion of the amount drawn thereunder, commencing 18 months from when the first tranche under the Increase Option is taken down.
The True Gold Stream is being syndicated between Franco-Nevada and the Company (the “Syndicate”), with Franco-Nevada providing 75% of the funding and the Company providing the remaining 25% of the funding. The Company’s 25% syndicate position will result in True Gold delivering 5,000 ounces of gold to the Company each year during the Delivery Period, for a total of 25,000 ounces of gold. During the Additional Period, the Company’s share will be 1.625% of the gold produced at the Karma Project. During each of the Delivery Period and the Additional Period, for each ounce of gold delivered, the Syndicate will make per ounce payments to True Gold equal to 20% of the market spot price for gold. As of the date of this AIF, the Company has fully funded the initial $25.0 million which it committed to True Gold and has also advanced $1.25 million under the Increase Option.
The True Gold Stream covers all of the concessions within the 856 square-kilometre Karma Project and also includes a defined area of interest of 5 kilometres surrounding its borders. The Karma Project is expected to be an open-pit heap leach operation and is located in north-central Burkina Faso, near the city of Ouahigouya, approximately 185 kilometres north-west of Ougadougou, the capital city of Burkina Faso. True Gold has obtained the necessary construction and mining permits. The Karma Project is anticipated to produce an average of 97,000 ounces of gold over 8.5 years.
In February 2016, True Gold reported that construction at the Karma Project is approximately 94% complete with commissioning activities underway. Over 500,000 tonnes of stockpiled ore are providing the initial feed to the fully commissioned soft rock crusher, agglomeration and stacking circuit. The agglomerated ore is currently being stacked on the leach pad. Other highlights related to True Gold’s progress at the Karma Project are listed below:
| · | piping and solution collection systems for leach pad cells 1 to 3 have been completed; |
| · | construction of the three process solution ponds (pregnant, intermediate, and barren) is complete; |
| · | the ADR plant is nearing completion with the final installation of piping, electrical and instrumentation remaining; and |
| · | Phase I of the grade control drilling program for the Goulagou II pit has been successfully completed and the results are consistent with the anticipated tonnage and grade for the volume drilled. |
Diavik Mine Royalty
On March 23, 2015, the Company acquired a 1% gross proceeds royalty (“Diavik Royalty”) over property in Lac de Gras in the Northwest Territories, Canada, including property constituting the Diavik diamond mine (“Diavik Mine”). Sandstorm Gold acquired the Diavik Royalty from IAMGOLD Corporation (the previous owner of the Diavik Royalty) for $52.5 million in cash and three million warrants of the Company (the “Diavik Warrants”). The Diavik Warrants have a five year term expiring March 23, 2020, a strike price of $4.50 per Common Share and will be exercisable following initial production from the Diavik Mine’s A21 pipe.
The Diavik Mine is owned by the Diavik Joint Venture (“Diavik Joint Venture”), which is an unincorporated joint arrangement between Diavik Diamond Mines (2012) Inc. (“DDMI”) and Dominion Diamond Diavik Limited Partnership (“DDDLP”), where DDDLP holds an undivided 40% ownership in the assets, liabilities and expenses of the Diavik Mine and DDMI holds 60%. DDMI is the operator of the Diavik Mine and is a wholly owned subsidiary of Rio Tinto of London, England. DDDLP is a wholly-owned subsidiary of Dominion Diamond Corporation (“Dominion”).
The Diavik Mine is Canada’s largest diamond mine, located on a 20 square kilometre island at Lac de Gras, Northwest Territories, approximately 300 kilometres from Yellowknife. The Diavik Mine began producing diamonds in January 2003, and has since produced more than 90 million carats from three kimberlite pipes (A154 South, A154 North, and A418). Rio Tinto has approved the development of open pit mining from a fourth pipe (A21), which is targeted for production in 2018.
For further details regarding the Diavik Mine, see “Technical Information – Diavik Mine, Canada” below.
Multi-Asset Stream with Yamana Gold Inc.
On October 27, 2015, the Company entered into three agreements with Yamana Gold Inc. (“Yamana”) that include production streams from up to five of Yamana’s projects (the “Yamana Transaction”). For upfront consideration of $148 million in cash, $4 million in cash payable in six months, and 15 million warrants of the Company (the “Yamana Warrants”), the Company received a silver stream (the “Silver Stream”) pursuant to a silver purchase agreement dated October 27, 2015 (the “Silver Purchase Agreement”) on the Cerro Moro development project in Argentina (the “Cerro Moro Project”) that includes interim silver deliveries during years 2016 to 2018 from currently operating mines, and a copper stream (the “Copper Stream”) on the operating Chapada mine in Brazil (the “Chapada Mine”) pursuant to a copper purchase agreement dated October 27, 2015 (the “Copper Purchase Agreement”) and a potential gold stream on the Agua Rica project in Argentina (the “Agua Rica Project”), at the Corporation’s sole option (the “Early Deposit Gold Stream”). The Yamana Warrants have an exercise price of $3.50, a term of five years expiring on October 27, 2020 and are exercisable upon achievement of specific milestones with respect to the construction of the Cerro Moro Project. The Yamana Transaction provides the Company with asset diversification through the Silver Stream which includes production from the Chapada Mine, the Cerro Moro Project, and the Minera Florida mine in Chile (the “Minera Florida Mine”), as well as the Copper Stream, and the Early Deposit Gold Stream. In addition, the projects underlying the Yamana Transaction are low cost, economically robust assets with significant exploration upside.
In February 2016, the Company received its first silver and copper payment from Yamana. The Company expects to receive approximately 300,000 silver ounces from the silver streams in 2016.
The Silver Stream
In exchange for $70 million, pursuant to the Silver Stream, the Company agreed to purchase an amount of silver from the Cerro Moro Project equal to 20% of the silver produced, up to a maximum of 1.2 million ounces of silver annually, until Yamana has delivered 7.0 million ounces of silver to the Company; then 9% of the silver produced thereafter, for the life of the mine. The Company has also agreed, pursuant to the Silver Stream, to purchase an amount of silver from the Minera Florida Mine and the Chapada Mine on an interim basis during the years 2016 through 2018, equal to: 38% of the silver produced, up to a maximum of 200,000 ounces of silver annually from the Minera Florida Mine; and 52% of the silver produced, up to a maximum of 100,000 ounces of silver annually from the Chapada Mine. The Company agreed to make ongoing payments for each ounce of silver received under the Silver Stream equal to 30% of thespot price per ounce of silver. If by January 1, 2019, the Cerro Moro Project has not averaged 80% of its daily nameplate production capacity over a 30-day period (the “Commencement of Production”), then the El Peñon mine in Chile (the “El Peñon Mine”) will provide a 24-month backstop until the Commencement of Production is satisfied. During the 24-month backstop, if applicable, the Company will purchase an amount of silver equal to 16% of the El Peñon Mine’s silver production up to a maximum of 1.2 million ounces per annum, which is expected to generate $12 million of cash flow per year to the Company. If the Cerro Moro Project has not achieved the Commencement of Production and the Company has not received cumulative pre-tax cash flow equal to $70 million from the Silver Stream, then the First Chapada Delivery Threshold and the Second Chapada Delivery Threshold (each as defined below) will cease to be in effect and the Company will continue to purchase 4.2% of the Chapada Mine’s payable copper production, up to a maximum of 3.9 million pounds of copper annually, until such time as the Company has received cumulative pre-tax cash flow equal to $70 million, or the Cerro Moro Project has achieved the Commencement of Production.
The Cerro Moro Project is located approximately 70 kilometres southwest of the coastal port city of Puerto Deseado in the Santa Cruz province of Argentina. The Cerro Moro Project contains a number of high grade epithermal gold and silver deposits, some of which will be mined via open pit and some via underground mining methods. In February 2015, Yamana announced that it would proceed with the construction of the Cerro Moro Project. The current plan indicates average annual production in the first three years of 135,000 ounces of gold and 6.7 million ounces of silver, with the life of mine annual production averaging approximately 102,000 ounces of gold and five million ounces of silver at a throughput of 1,000 tonnes per day. The concentrator will consist of a standard crushing, grinding and flotation circuit with a counter current decantation and a Merrill Crowe circuit included. The Company has been informed by the operator that the procurement of long lead items is underway and the Cerro Moro Project is on track for construction to begin in early 2016, commencing with select bulk earthworks activities. Project capital costs as estimated in the first quarter of 2015, are approximately $265 million, which includes $31 million in late 2015 for detailed engineering and pre-development.
The Copper Stream
In exchange for $70 million, pursuant to the Copper Stream, the Company has agreed to purchase an amount of copper from the Chapada Mine equal to: 4.2% of the copper produced, up to a maximum of 3.9 million pounds of copper annually, until Yamana has delivered 39 million pounds of copper to the Corporation (the “First Chapada Delivery Threshold”); then 3.0% of the copper produced until, on a cumulative basis, Yamana has delivered 50 million pounds of copper to the Company (the “Second Chapada Delivery Threshold”); then 1.5% of the copper produced thereafter, for the life of the mine. The Company agreed to make ongoing payments for each pound of copper received under the Copper Stream equal to 30% of the spot price per pound of copper. The Company has been provided with subsidiary and parent guarantees with respect to the obligations under the Copper Stream.
For details regarding the Chapada Mine, please see “Technical Information – Chapada Mine, Brazil” below.
The Early Deposit Gold Stream
In exchange for $12 million, $4 million of which is payable on April 26, 2016 (the “Advance Payment”), the Company has entered into an Early Deposit Gold Stream agreement on the Agua Rica Project, a copper-molybdenum-gold porphyry deposit. At the time when 25% of the construction of the Agua Rica Project has been completed, the Company may elect to make an additional advance payment equal to between $135 million and $225 million based on the following formula: $150,000 multiplied by the price of gold plus $7.5 million (the “Additional Advance Payment”). If the Company elects to pay the Additional Advance Payment, the Company will have the right to purchase an amount of gold equal to 20% of the life of mine gold produced from the Agua Rica Project. The Company would make ongoing payments for each ounce of gold received, equal to 30% of the spot price per ounce of gold. If the Company elects not to pay the Additional Advance Payment, the Advance Payment will convert into a 0.25% net smelter returns royalty on the Agua Rica Project and all other rights under the Early Deposit Gold Stream agreement will terminate. In addition, in the event that the Company wishes to syndicate the Early Deposit Gold Stream to a third party, it has the right to transfer any and all of its rights and obligations, under certain conditions.
The Agua Rica Project is a large scale porphyry copper, molybdenum, gold and silver deposit located in the province of Catamarca, Argentina. In March 2015, Yamana signed a definitive agreement (the “Definitive Agreement”) with the provincial Government of Catamarca, Argentina, represented by the provincial mining company Catamarca Mineria y Energetica Sociedad del Estado (“CAMYEN”). The Definitive Agreement advances the memorandum of understanding between CAMYEN and Yamana, which set the groundwork for cooperation to consolidate important mining projects and prospective properties in the province, creating the Catamarca mining district.
Royalty Package from Teck Resources Limited
On January 19, 2016, the Company agreed to acquire 56 royalties (the “Teck Royalty Package”) from Teck Resources Limited and its affiliates (collectively, “Teck”) for total consideration of $22 million, payable in $1.4 million in cash and $20.6 million in Common Shares of the Company (the “Acquisition Shares”) (the “Teck Transaction”). As consideration for the Teck Royalty Package, the Company issued a total of 8,762,222 Common Shares priced at a deemed price of C$3.57 per Common Share. Certain royalties in the Teck Royalty Package are subject to rights of first offer and first refusal as well as the requirement for various transfer consents and as a result, the Teck Transaction will have a number of closing dates, with January 19, 2016 being the first such closing date. A portion of the Acquisition Shares are being held in escrow to be released on the subsequent closing dates.
As of the date of this AIF, 36 of the royalties have been transferred to the Company, including the 2.0% NSR royalty on the Hot Maden (as defined below) project referenced below. The remaining royalties are subject to various transfer consents and are expected to close before the end of April 2016. It is expected that Centerra Gold Inc. will exercise the right of first refusal option on the Öksüt royalty, reducing the Company’s purchase price for the Teck Royalty Package from $22 million to $19 million.
The Teck Royalty Package currently consists of assets in North America (33), Asia (10), South America (9) and Europe (3) and includes producing assets (4), development-stage projects (8), advanced exploration-stage projects (8) and exploration-stage properties (35). Royalty counterparties include Barrick Gold Corporation, Glencore plc (“Glencore”), KGHM Polska Miedz SA, Newmont Mining Corporation (“Newmont”), Kinross Gold Corporation (“Kinross”), New Gold Inc. and Imperial Metals Corporation. The Teck Royalty Package includes the following key assets:
| · | 2.0% NSR royalty on the high-grade, exploration-stage Hot Maden project (“Hot Maden”) located in Turkey, owned by Mariana Resources Ltd. (“Mariana”). Lidya Madencilik Sanayi ve Ticaret A.S. has an option to earn-in up to 70% in Hot Maden from Mariana; |
| · | 2.0% NSR royalty on the development-stage Hackett River project (“Hackett River”) in Nunavut, Canada owned by Glencore (the 2.0% NSR royalty covers 7,141 hectares of the Hackett River property, including the licenses where the mineral resources have been defined); |
| · | 1.75% NSR royalty, on 60% of production subject to a $40 million cap, on the development-stage Lobo-Marte project (“Lobo-Marte”) in Chile owned by Kinross; |
| · | 2.0% NSR royalty on the development-stageBurhaniye project in Turkey owned by Tumad Madencilik Sanayi ve Ticaret A.S. TheBurhaniye royalty begins paying after 300,000 ounces have been produced; |
| · | 5.0% NSR sliding scale royalty on copper, and a 2.5% NSR royalty on all other metals produced, on a portion of the producing Copper Mountain project in British Columbia, Canada owned by Copper Mountain Mining Corporation (“Copper Mountain”); and |
| · | $10/ounce production royalty, subject to a maximum ounce cap (600,000 ounces from Ağı Dağı and 250,000 from Kirazli), on the development-stage Ağı Dağı/Kirazli projects in Turkey owned by Alamos Gold Inc. and payable by Newmont. |
About Hot Maden
The Hot Maden gold-copper project is located approximately 20 kilometres southeast of Artvin and 130 kilometres northeast of Erzurum in north-eastern Turkey. High grade gold-copper mineralisation was first intersected at Hot Maden during Mariana’s Phase I diamond drill program, which was completed in January 2015. In February 2016, Mariana reported continuing high grade, near-surface gold-copper mineralization from drilling at Hot Maden. The resource extension drilling at Hot Maden is ongoing and is expected to be accelerated with the addition of a second drill rig. There is also systematic metallurgical test work underway to evaluate crushing and grinding methods and the resulting gold-copper recoveries. Mariana reported that completion of a maiden Preliminary Economic Assessment for Hot Maden remains on track for completion in the late third quarter/early fourth quarter of 2016.
About Hackett River
The Hackett River property is located in Nunavut, Canada, approximately 480 kilometres northeast of Yellowknife and 105 kilometres south-southwest of the community of Bathurst Inlet, which is located on the Arctic Ocean. Hackett River is a silver-rich volcanogenic massive sulphide project. The property is made up of four massive sulphide deposits that occur over a 6.6 kilometre strike distance. A preliminary economic assessment updated in 2010 evaluated a possible large-scale open pit and underground operation, processing up to 17,000 tonnes per day. The most recent technical report on Hackett River (completed in 2013) contained a mineral resource estimate of 25.0 million tonnes of indicated resources containing 4.2% zinc, 130.0 grams per tonne silver, 0.5% copper and 0.3 grams per tonne gold plus 57.0 million tonnes of inferred resources with 3.0% zinc, 100.0 grams per tonne silver, 0.4% copper and 0.2 grams per tonne gold.
About Lobo-Marte
The Lobo-Marte project contains two potential open-pit gold resources located in the Maricunga gold district of Chile. The resources are seven kilometers apart, and are located 60 kilometres south of Kinross’s La Coipa mine, and 60 kilometres north of Kinross’s Refugio mine, 100 kilometres east of Copiapó. Kinross completed a prefeasibility study at Lobo-Marte which contemplated a heap-leach operation and submitted an environmental and social impact study to Chilean authorities. Kinross subsequently withdrew its permit application due to changes in the plan of operations, project economics, and other factors. As a result of the permit withdrawal, much of the historic seven million ounces of measured and indicated gold resources, contained in 185.4 million tonnes at 1.2 grams per tonne gold, were reclassified from historic mineral reserves. Future development and operations at Lobo-Marte will require the re-initiation of the permitting process.
About Copper Mountain
The Copper Mountain mine is a large-scale, open pit copper-gold-silver mine, operated by Copper Mountain. The mine is located 300 kilometres east from the port of Vancouver, in southern British Columbia. Mining began in 2011 and, with the recent addition of a secondary crusher to the project, the mine has been able to achieve production rates up to 40,000 tonnes per day from multiple open pits. During the full year 2014, Copper Mountain produced 81 million pounds of copper, 22,600 ounces of gold and 443,800 ounces of silver at an operating cost of $1.49/pound, net of by-products. Mining operations are active at the Virginia pit.
About Aği Daği/Kirazli
The Ağı Dağı and Kirazlı gold development projects are located in the Çanakkale Province of northwestern Turkey. A positive pre-feasibility study was completed on Ağı Dağı and Kirazli in 2012 with both projects evaluated for a potential stand-alone open-pit, heap-leach operation. The study evaluated production for an average 99,000 ounces of gold per year over a five year mine life at Kirazli. The study at Ağı Dağı evaluated production for an average of 143,000 ounces of gold per year over a seven year mine life. Initial production from Ağı Dağı is projected to commence approximately 18 months after first production at Kirazli.
Corporate Takeovers
Acquisition of 100% Interest in Premier Royalty
The Acquisition
In 2013, the Company acquired 100% of the issued and outstanding common shares of Premier Royalty. Through a series of transactions conducted in January 2013, the Company acquired an aggregate of 46,678,221 common shares and 6,965,676 warrants of Premier Royalty. The 46,678,221 common shares of Premier Royalty owned by the Company at that time represented approximately 59.9% of Premier Royalty’s issued and outstanding shares and the Company SEDAR filed a Form 51-102F4, Business Acquisition Report, under National Instrument 51-102, in respect of these initial transactions. Subsequently, on August 14, 2013, the Company announced that it had entered into an arrangement agreement (the “Arrangement Agreement”) with Premier Royalty pursuant to which the Company would acquire 100% of the issued and outstanding common shares of Premier Royalty (“Premier Shares”) on the basis of 0.145 of a fully paid and non-assessable common share of the Company (the “Consideration Shares”) for each outstanding Premier Share (other than the 46,678,221 Premier Shares already owned by the Company), by way of a court-approved statutory plan of arrangement under section 182 of theBusiness Corporations Act (Ontario) (the “PremierArrangement”). On October 4, 2013, the Company completed the Premier Arrangement and acquired an additional 31,849,015 common shares of Premier Royalty by issuing an aggregate of 4,618,109 Consideration Shares to the shareholders of Premier Royalty. In accordance with the terms of outstanding warrants to acquire Premier Royalty shares (each, a “Premier Royalty Warrant”), each holder of a Premier Royalty Warrant outstanding immediately prior to the effective time of the Premier Arrangement will receive, on subsequent exercise of such holder’s Premier Royalty Warrant, in accordance with its terms, for the same aggregate consideration payable for such warrant, 0.145 of a Common Share of the Company. Also, in accordance with the terms of outstanding stock options to acquire Premier Royalty shares (each, a “Premier Royalty Option”), each holder of a Premier Royalty Option outstanding immediately prior to the effective time of the Premier Arrangement will receive, on subsequent exercise of such holder’s Premier Royalty Option, in accordance with its terms, for the same aggregate consideration payable for such option, 0.145 of a Common Share of the Company.
Business of Premier Royalty
Premier Royalty was a public company whose common shares, until October 9, 2013, were listed for trading on the TSX. Premier Royalty was in the business of acquiring royalty interests in mineral properties that are advanced staged development projects or operating mines. Premier Royalty did not conduct mining operations, nor was it required to contribute to capital costs, exploration costs, environmental costs or other mining costs on the properties in which it held royalty interests. As a result of obtaining 100% of Premier Royalty’s common shares, the Company added a number of quality royalty assets to its portfolioalong with over $30.0 million in cash.
Three of Premier’s (and thus, the Company’s) operating royalty interests are on the: (i) Gualcamayo Mine (a 1.0% NSR on the Gualcamayo open pit, heap leach gold mine which is located in San Juan province, Argentina, owned and operated by Yamana); (ii) Emigrant Springs Mine (a 1.5% NSR on the Emigrant Springs open pit, heap leach gold mine located in the Carlin Trend in Nevada, USA, owned and operated by Newmont); and (iii) Mine Waste Solutions (a 1.0% NSR on the gold produced from Mine Waste Solutions gold and uranium tailings recovery operation located near Stilfontein, South Africa, owned and operated by AngloGold Ashanti Ltd.).
Amalgamation of Premier Royalty and the Company
Effective June 19, 2015, Sandstorm Gold Ltd. amalgamated, by way of vertical short-form amalgamation under theBusiness Corporations Act (British Columbia), with Premier Royalty (the “Amalgamation”). Sandstorm Gold Ltd. is the continuing entity as a result of the Amalgamation.
Following the Amalgamation, there are still an aggregate of 8,471,540 Premier Royalty Warrants outstanding which are exercisable into an aggregate of 1,228,373 Common Shares of the Company at a post-Premier Arrangement price per Common Share ranging from approximately C$13.79 – C$17.24. There are also an aggregate of 2,873,333 Premier Royalty Options outstanding which are exercisable into an aggregate of 416,633 Common Shares of the Company at a post-Premier Arrangement price per Common Share ranging from approximately C$10.62 – C$16.345.
Acquisition of 100% Interest in Sandstorm Metals
The Acquisition
On April 21, 2014, the Company announced that it had entered into an arrangement agreement with Sandstorm Metals pursuant to which the Company agreed to acquire 100% of the issued and outstanding common shares of Sandstorm Metals, other than the Sandstorm Metals common shares already owned by Sandstorm Gold, by way of a statutory plan of arrangement (the “SND Arrangement”) under theBusiness Corporations Act (British Columbia). Sandstorm Gold agreed to issue to each holder of a Sandstorm Metals common share 0.178 of a Common Share and C$0.35 to be paid in cash (together, with the fractional Common Share, the “Consideration”). On May 29, 2014, the Company completed the SND Arrangement and acquired an additional 32,012,603 common shares of Sandstorm Metals by issuing Consideration consisting of an aggregate of 5,698,216 Common Shares and C$11,204,411.05 in cash to the shareholders of Sandstorm Metals. In connection with the SND Arrangement, the common shares of Sandstorm Metals were delisted from the TSXV (TSXV:SND) on May 30, 2014 and the applicable securities regulatory authorities granted Sandstorm Metals non-reporting issuer status under Canadian securities law effective June 26, 2014. The Company SEDAR filed a Form 51-102F4, Business Acquisition Report, under National Instrument 51-102 in respect of the SND Arrangement.
Business of Sandstorm Metals
Sandstorm Metals was a non-operating commodity streaming company which generated 100% of its operating revenue from the sale of base metals and from receipt of payments under its royalty agreements. The acquisition of Sandstorm Metals by the Company provided the Company with approximately $4.0 million of annual royalty revenue from operating mines as well as royalties on advanced exploration and development assets and cash.
Three of Sandstorm Metals’ (and thus, the Company’s) royalty and other interests are:
Glencore Royalty - a 2.4% net smelter return royalty on the Bracemac-McLeod Mine.
Canadian Zinc Royalty - a 1.2% net smelter return royalty on the zinc/lead produced from Canadian Zinc Corporation’s zinc-silver-lead project in the Northwest Territories, Canada (the “Prairie Creek Project”). The Company already had a 1.2% net smelter return royalty for the silver produced from the Prairie Creek Project.
Entrée Copper Metal Credits Agreement – Sandstorm Metals’ rights under their Copper Agreement with respect to copper production from the Entrée JV Project.
Acquisition of 100% Interest in Gold Royalties Corporation
The Acquisition
On February 17, 2015, the Company entered into an arrangement agreement (the “Arrangement Agreement”) with Gold Royalties Corporation (“Royalties”) pursuant to which it was agreed that the Company would acquire all of the issued and outstanding common shares of Royalties (“Royalties Shares”), other than the Royalties Shares already owned by the Company, by way of a court-approved statutory plan of arrangement under section 193 of theBusiness Corporations Act (Alberta) (the “RoyaltiesArrangement”). Pursuant to the terms of the Arrangement Agreement, it was agreed that, upon completion of the Arrangement, the shareholders of Royalties (the “Royalties Shareholders”), other than the Company, would receive Common Shares on the basis of 0.045 of a fully paid and non-assessable Common Share (the “Consideration Shares”) (the Consideration Shares, being the “Consideration”) for each Royalties Share held. Completion of the Royalties Arrangement was subject to the approval of the: (i) Royalties Shareholders by way of special resolution at a special meeting held on April 23, 2015 (the “Royalties Shareholder Meeting”), (ii) Court of Queen’s Bench of Alberta, (iii) TSX, and (iv) the TSXV. All of the required approvals were obtained and, on April 28, 2015, the Company completed the Arrangement and issued an aggregate of 1,161,720 Consideration Shares to the Royalties Shareholders (other than the Company). In connection with the Royalties Arrangement, the Royalties Shares were delisted from the TSXV (TSXV:GRO) on May 5, 2015 and the applicable securities regulatory authorities granted Royalties non-reporting issuer status under Canadian securities law effective June 3, 2015. The Company SEDAR filed a Form 51-102F4, Business Acquisition Report, under National Instrument 51-102 in respect of the Royalties Arrangement.
Business of Royalties
Royalties was a growth-orientated gold royalty business which acquired and held gold royalty assets for investment purposes. At the time of completion of the Royalties Arrangement, Royalties had a portfolio of 18 royalties on mining projects located in Canada, including one royalty which is generating cash flow from gold production.
DESCRIPTION OF THE BUSINESS
Sandstorm Gold is a non-operating gold streaming company which generates its revenue primarily from the sale of gold and other metals. The Company is listed on the TSX (symbol: SSL) and the NYSE MKT LLC (“NYSE MKT”) (symbol: SAND). The Company’s 2012 Warrants (as defined below) and 2015 Warrants (as defined below) trade on the TSX (symbols: SSL.WT.B and SSL.WT, respectively). None of the Company’s publicly traded warrants are or were listed on the NYSE MKT.
Sandstorm Gold currently has a portfolio of 132 Gold Streams and net smelter return (“NSR”) and other royalty agreements, of which 19 of the underlying mines are producing.
Sandstorm Gold seeks to acquire gold and other metals purchase agreements (“Gold Streams”) and royalties from companies which have advanced stage development projects or operating mines. In return for making a one-time upfront payment to acquire a Gold Stream, Sandstorm Gold receives the right to purchase, at a fixed price per unit, a percentage of a mine’s production for the operating life of the asset. Sandstorm Gold is focused on acquiring Gold Streams and royalties on mines with low production costs, significant exploration potential and strong management teams.
A royalty is a payment to a royalty holder by a property owner or an operator of a property and is typically based on a percentage of the minerals or other products produced or the revenues or profits generated from the property. Royalties are not typically working interests in a property and, depending on the nature of a royalty interest and the laws applicable to it and the project, the royalty holder is generally not responsible for, and has no obligation to contribute additional funds for any purpose, including, but not limited to, operating or capital costs or environmental or reclamation liabilities. An NSR royalty is generally based on the value of production or net proceeds received by an operator from a smelter or refinery. These proceeds are usually subject to deductions or charges for transportation, insurance, smelting and refining costs as set out in the specific royalty agreement. For gold royalties, the deductions are generally minimal. NSR’s generally provide cash flow which is free of any operating or capital costs and environmental liabilities. A smaller percentage NSR in a project can effectively equate to the economic value of a larger percentage profit or working interest in the same project.
Gold Streams and royalties are an alternative to other more conventional forms of financing, including equity, convertible securities and debt financings which can be used to finance mineral projects. Sandstorm Gold competes directly with these other sources of capital to provide financing. Sandstorm Gold plans to grow and diversify its production profile through the acquisition of additional Gold Streams and royalties. There is no assurance, however, that any potential acquisitions will be successfully completed.
Principal Product
The Company’s principal product is gold that it has agreed to purchase in the future pursuant to its Gold Stream agreements. There is a worldwide gold market into which the Company can sell the gold purchased under the gold purchase agreements and, as a result, the Company will not be dependent on a particular purchaser with regard to the sale of the gold that it expects to acquire pursuant to its gold purchase agreements. The Company also expects to purchase silver and copper and to receive payments pursuant to its NSR and other royalty agreements.
The following table summarizes the gold and other interests currently owned by the Company (collectively the “Mining Operations”):
| Property | Mine Owner | Location of Mine | Attributable Production to
be Purchased |
| | | | |
| Gold Streams: |
| | | | |
| Santa Elena Mine | First Majestic | Mexico | 20% of the gold, including the underground operation |
| Ming Mine | Rambler | Canada | Approximately 25% of the first 175,000 ounces of gold produced and 12% thereafter |
| Black Fox Mine | Primero | Canada | 8% of the gold from the Black Fox Mine plus 6.3% from the Black Fox Extension |
| Bachelor Lake Mine | Metanor | Canada | 20% |
| Hugo North Extension and Heruga deposits | Entrée | Mongolia | Gold and silver by-products: 5.619%- 8.425% on Hugo North Extension and 4.258% – 6.391% on Heruga Copper: 0.415% - 0.623%% on Hugo North Extension and Heruga |
| Karma Project | True Gold | Africa | 5,000 ounces of gold per year for the first five years (25,000 ounces) and then 1.625% of the gold production thereafter |
| Property | Mine Owner | Location of Mine | Attributable Production to
be Purchased |
| Chaviña Project (Koricancha) | Anthem United Inc. | Peru | 3.3% of the gold |
| Chapada Mine | Yamana | Brazil | 4.2% of the copper plus 52% of the silver |
| Minera Florida | Yamana | Chile | 20% of the silver |
| Cerro Moro | Yamana | Argentina | 20% of the silver |
| Royalty Portfolio: |
| | | | |
| Producing: | | |
| Diavik Mine | Rio Tinto/Dominion | Canada | 1% GPR (diamonds)(1) |
| Aurizona Mine | Luna | Brazil | 3% - 5% NSR |
| Bracemac-McLeod Mine | Glencore | Canada | 3.0% NSR |
| Gualcamayo Mine | Yamana | Argentina | 1.0% NSR |
| Emigrant Springs Mine | Newmont | United States | 1.5% NSR |
| Mine Waste Solutions | Anglogold Ashanti Ltd. | Africa | 1.0% NSR |
| San Andres | Aura Minerals | Honduras | 1.5% NSR |
| Thunder Creek | Lake Shore Gold | Canada | 1.0% NSR |
| Bachelor Lake Mine | Metanor | Canada | 1.0% NSR |
| Sao Francisco | Aura Minerals | Brazil | 1.5% NSR |
| Copper Mountain | Copper Mountain Mining | Canada | 5.0% NSR on copper and 2.5% NSR on other metals |
| Sheerness | Westmoreland Coal | Canada | 5% GRR(2) |
| Magmont | Doe Run Resources Corporation | USA | 1.25% NSR |
| Altintepe | Bahar Madencilik Sanayi ve Ticaret A.S. | Turkey | 1.5% NSR |
| Gordon Creek | Gordon Creek Energy | United States | 10% GOR (natural gas)(3) |
| Non-Producing: | | |
| Greenfields | Luna | Brazil | 2% NSR |
| Agua Rica | Yamana | Argentina | 0.25% NSR |
| Barry | Metanor | Canada | 0.5%-1.0% NSR |
| Blende | Blind Creek Resources | Canada | 2.0% NSR |
| Eastern Extension | BonTerra Resources | Canada | 1.0% NSR |
| Hart | Northern Sun Mining | Canada | 1.0% NSR |
| KM61 | Stockport Exploration | Canada | 0.25% NSR |
| Roc d’Or East Extension | Integra Gold | Canada | 2.0% NSR |
| Spectrum | Skeena Resources | Canada | 1.65% NSR |
| Iron Horse | Sokoman Iron | Canada | 1.0% NSR |
| Bermuda | Stillwater Mining | Canada | 0.5% NSR |
| Seymour Lake | Stockport Exploration | Canada | 1.5% NSR |
| Grenville | Canadian International Minerals Inc. | Canada | 1.0% NSR |
| Waconichi | Northern Superior Resources | Canada | 1.0% NSR |
| Windfall Lake | Oban Mining | Canada | 0.5%-1.0% NSR |
| Cadillac Break | Alexandria Minerals | Canada | 1.0% NSR |
| Eureka | Pacific Ridge Exploration | Canada | 1.0% NSR |
| Gold Cap | Pacific Ridge Exploration | Canada | 1.0% NSR |
| Justin/Hit | Aben Resources | Canada | 2.0% NSR |
| Bradshaw | Gowest Gold | Canada | 1.0% GSR(4) |
| Sao Vicente | Aura Minerals | Brazil | 1.5% NSR |
| Coringa | Magellan Minerals Ltd. | Brazil | 2.5% NSR |
| Cuiu Cuiu | Magellan Minerals Ltd. | Brazil | 1.0% NSR |
| Ann Mason Deposits | Entrée | United States | 0.4% NSR |
| Mt. Hamilton | Waterton Global Resources Management | United States | 2.4% NSR |
| Paul Isnard Project | Columbus Gold Corp. | French Guiana | 1.0% NSR |
| Prairie Creek Project | Canadian Zinc | Canada | 1.2% NSR |
| Bomboré Project | Orezone Gold Corp. | Africa | 0.45% NSR |
| Akorade Project | Castle Peak Mining Ltd. | Africa | 1.0% NSR |
| Serra Pelada Mine | Colossus Minerals Inc. | Brazil | 2.0% NSR |
| Belleview Property | Alianza Minerals Ltd. | United States | 0.5% NSR |
| Property | Mine Owner | Location of Mine | Attributable Production to
be Purchased |
| East Walker Property | Alianza Minerals Ltd. | United States | 1.0% NSR |
| Horsethief Property | Alianza Minerals Ltd. | United States | 1.0% NSR |
| Fri Gold Property | Alianza Minerals Ltd. | United States | 0.5% NSR |
| Kobeh Property | Alianza Minerals Ltd. | United States | 0.5%NSR |
| Ashby Property | Alianza Minerals Ltd. | United States | 1.0% NSR |
| Columbia Property | Alianza Minerals Ltd. | United States | 1.0% NSR |
| Argosy | Great Panther Silver | Canada | 0.5% NSR |
| Newman-Madsen | Pure Gold Mining | Canada | 0.5% NSR |
| East My-Ritt | Yamana | Canada | 0.5% NSR |
| Pickle Crow | PC Gold | Canada | 0.5% NSR |
| Skinner | Sabina Gold | Canada | 7.5% NPI(5) |
| Red Ridge | McEwen Mining | United States | 3.0% NSR |
| Cerro Prieto | Goldgroup Mining | Mexico | 2.0% NSR |
| Don Nicholas | CIMINAS | Argentina | $3.00/ounce royalty up to $2.0 million |
| Rain | Premier Gold/Newmont | United States | 1.5% NSR |
| Broulan Reef | Goldcorp | Canada | 2.0% NSR |
| HM Claim Property | Kirkland Lake Gold | Canada | 2.0% NSR |
| Buffelsfontein | Heaven-Sent Capital Management Group Co. Ltd. | Africa | 1.0% NSR |
| Mel | Silver Range Resources | Canada | 1.0% NSR |
| Fostung | Duke Mountain Resources | Canada | 1.0% NSR |
| Wernecke | Newmont Mining | Canada | 0.8% NSR |
| Hudson-Patricia | Rubicon Minerals | Canada | 1.5% NSR |
| Fly Lake | Rubicon Minerals | Canada | 1.5% NSR |
| Slate Lake | Rubicon Minerals | Canada | 1.5% NSR |
| Camporo | First Point Minerals | Honduras | 0.4% - 1.2% NSR |
| Hackett River | Glencore | Canada | 2.0% NSR |
| Ajax | KGHM Polska Miedz | Canada | 1.5% NSR |
| Keno Hill | Alexco Resources Corp. | Canada | 25% NPI |
| Ruccock Creek | Imperial Metals Corporation | Canada | 1.0% NSR |
| Lobo-Marte | Kinross Gold | Chile | 1.75% (on 60% of production) |
| Los Verdes | Minera Alamos Sonora S.A. de C.V. | Mexico | 2.0% NSR |
| Box | Fortune Bay Corp. | Canada` | 1.5% NSR |
| Homestake Ridge | Homestake Resource Corporation | Canada | 2.0% NSR |
| Railroad | Gold Standard Ventures Corporation | USA | 3.0% NSR |
| Whistler | Brazil Resources Inc. | USA | 2.0% NPI |
| Hot Maden | Lidya/Mariana | Turkey | 2.0% NSR |
| Karaagac | Anadolu Export Maden Sanayi ve Ticaret A.S. | Turkey | 1.5% NSR |
| Tac/Corak | Cengiz Kaya | Turkey | 2.0% NSR |
| Tavsan (Red Rabbit) | Ariana Resources plc | Turkey | 2.0% NSR |
| Aği Daği/Kirazli | Alamos Gold | Turkey | $10/ounce production royalty |
| Karadere (Burhaniye) | Tumad Madencilik Sanayi ve Ticaret A.S. | Turkey | 2.0% NSR |
| Abitibi/Sarah Lake | Commander Resources Ltd. | Canada | 1.0% NSR |
| Big Bulk | LCT Holdings Inc. | Canada | 1.5% NSR |
| Butterfly Lake | North Arrow Minerals Inc. | Canada | 0.71% GOR |
| Caramelia | Huakan International Mining Inc. | Canada | 2.0% NSR |
| CT | Kreft Resources Ltd. | Canada | 0.75% NSR |
| Lorrain | Canadian Silver Hunter Inc. | Canada | 2.0% NSR |
| Mainstreet | Beaufield Resources Inc. | Canada | 1.2% NSR |
| New Afton | New Gold Inc. | Canada | 2.0% NSR |
| Rossland | Rossland Resources Inc. | Canada | 1.0% - 2.0% NSR |
| Snip 2 | Colorado Resources Ltd. | Canada | 2.0% NSR |
| Summit Lake | Rainy Mountain Royalty Corp. | Canada | 1.9% NSR |
| Ten Mile Creek | Bernie Kreft | Canada | 1.5% NSR |
| Tsacha | Independence Gold Corp. | Canada | 2.0% NSR |
| Wrigley | Devonian Metals Inc. | Canada | 2.0% NSR |
| Property | Mine Owner | Location of Mine | Attributable Production to
be Purchased |
| Aurora | Carlin Resources LLC | USA | 2.0% NSR |
| Big W | Barrick Gold U.S. Inc. | USA | 3.0% NSR |
| Cabin Creek | McEwen Mining Inc. | USA | 10% NPI |
| Cherry Creek | McEwen Mining Inc. | USA | 1.5% GOR |
| Lichen | Silver Phoenix Resources Inc. | USA | 2.0% NSR |
| Shotgun | TNR Gold Corp. | USA | 5.0% NPI |
| Van Stone | Equinox Resources (WASH) Inc. | USA | 1.5% NSR |
| Amapari | Mineraçao Amapari S.A. | Brazil | 3.0% NSR |
| Rio Novo South | Rio Minas Mineraçao | Brazil | 0.75% NSR |
| Gatita | Compania Minera Potosi S.A. | Peru | 1.0% NSR |
| Huajoto | Alturas Minerals Corp. | Peru | 0.5% - 1.0% NSR |
| Mario | Fortuna Silver Mines Inc. | Peru | 2.0% NSR |
| Arcas | Altius Minerals Corporation | Chile | 1.0% NSR |
| Celeste | Coro Mining Corp. | Chile | 3.0% NSR |
| Pampa Lina | Sierra Gorda Sociedad Contractual Minera | Chile | 5.0% NPI |
| Kiskama | Talga Resources Ltd. | Sweden | 1.0% NSR |
| Masugnsbyn | Talga Resources Ltd. | Sweden | 1.0% NSR |
| Vittangi | Talga Resources Ltd. | Sweden | 1.0% NSR |
| Hasandagi | Newmont | Turkey | 2.0% NSR |
| Muratdagi | Kenz Enerji ve Madencilik San. Ve Tic A.S. | Turkey | 2.0% NSR |
| Tombul | Elazig Baskil Madencilik A.S. | Turkey | 2.0% NSR |
| | | | |
NOTES:
| (1) | Gross Proceeds Royalty (“GPR”) from the sale of diamonds. |
| (2) | Gross Revenues Royalty(“GRR”)means gross revenues for all minerals produced from a property. |
| (3) | Gross Overriding Royalty (“GOR”) is based on the total revenue stream from the sale of production from a property with few, if any, deductions. |
| (4) | Gross Smelter Returns(“GSR”)means gross revenues from the sale or deemed sale of all minerals produced from a property. |
| (5) | Net Profit Interest (“NPI”) is based on the profit realized after deducting costs related to production as set out in the applicable royalty agreement. NPI payments generally begin after payback of capital costs and ongoing operating costs and some also allow deductions for prior exploration and interest costs. Although the royalty holder is not responsible for providing capital, covering operating losses or environmental liabilities, increases in production costs will affect net profits and royalties payable. |
The following table summarizes the ounces of gold sold and the respective revenue received by the Company from each of itsproducing gold interests for the year ended December 31, 2015:
| Property | Gold Equivalent
Ounces Sold | Sales & Royalty
Revenue ($000s) |
| Aurizona Mine | 9,061 | 10,773 |
| Bachelor Lake Mine | 7,101 | 8,285 |
| Black Fox Mine | 5,891 | 6,856 |
| Diavik Mine | 4,863 | 5,656 |
| Ming Mine | 1,651 | 1,855 |
| Santa Elena | 9,171 | 10,640 |
| Royalties | 7,242 | 8,422 |
| Other | 166 | 176 |
| Total | 45,146 | 52,663 |
Further details regarding the purchase agreements entered into by the Company in respect of itsmaterial Gold Streams and NSRs and other royalties (excepting the portfolio of royalties acquired pursuant to the Company’s acquisition of Premier Royalty and Gold Royalties) can be found under the heading “GENERAL DEVELOPMENT OF THE BUSINESS” above.
Competitive Conditions
Sandstorm Gold competes with other companies to identify suitable Gold Streams and enter into agreements for the purchase of gold and other metals. The ability of the Company to acquire additional metals in the future will depend on its ability to select suitable properties and enter into similar Gold Streams. See “Description of the Business – Risk Factors – Competition”.
Operations
Raw Materials
The Company expects to purchase gold, silver and copper pursuant to the Gold Streams described above under “Description of the Business – Principal Product”.
Employees
At the end of the most recently completed financial year, the Company and its subsidiaries had 18 employees. No management functions of the Company are performed to any substantial degree by a person other than the directors or executive officers of the Company.
Foreign Interests
The Company currently purchases or expects to be purchasing gold and/or other metals or expects to receive payments under its NSR and other royalty agreements from mines in Brazil, Mexico, the United States, Mongolia, Africa, Argentina, Chile, Peru, Honduras, French Guiana, Turkey, Sweden and Canada. Any changes in legislation, regulations or shifts in political attitudes in such countries are beyond the control of the Company and may adversely affect its business. The Company may be affected in varying degrees by such factors as government legislation and regulations (or changes thereto) with respect to the restrictions on production, export controls, income and other taxes, expropriation of property, repatriation of profits, environmental legislation, land use, water use, land claims of local people and mine safety. The effect of these factors cannot be accurately predicted. See “Description of the Business – Risk Factors – Risks Relating to the Mining Operations – International Interests”.
Risk Factors
The operations of the Company are speculative due to the nature of its business which is principally the investment in Gold Streams. These risk factors could materially affect the Company’s future operating results and could cause actual events to differ materially from those described in forward-looking statements relating to the Company. The risks described herein are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company, or that the Company currently deems immaterial, may also materially and adversely affect its business.
Risks Relating to the Company
Global Financial Conditions
Global financial conditions have always been subject to volatility. Access to public financing has been negatively impacted by sovereign debt concerns in Europe and emerging markets, as well as concerns over global growth rates and conditions. These factors may impact the ability of the Company to obtain equity or debt financing in the future and, if obtained, on terms favourable to the Company. Increased levels of volatility and market turmoil can adversely impact the Company’s operations and the value and the price of the Common Shares could to be adversely affected.
Subject to the Same Risk Factors as the Mining Operations
To the extent that they relate to the production of gold from, or the continued operation of, the Mining Operations, the Company will be subject to the risk factors applicable to the operators of such mines or projects, some of which are set forth below under “Risks Relating to the Mining Operations.”
Market Price of the Common Shares,2012 Warrants and 2015 Warrants
The Common Shares, 2012 Warrants and 2015 Warrants are listed and posted for trading on the TSX. The Common Shares are also listed and posted for trading on the NYSE MKT. An investment in the Company’s securities is highly speculative. Securities of companies involved in the resource industry have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects of the companies involved. The price of the Common Shares, 2012 Warrants and the 2015 Warrants are also likely to be significantly affected by short-term changes in commodity prices, the Company’s financial condition or results of operations as reflected in its quarterly and annual financial statements, currency exchange fluctuations and the other risk factors identified herein.
No Control Over Mining Operations
The Company has agreed to purchase a certain percentage of the gold and other metals produced from certain of the Mining Operations and also expects to receive payments under its NSR and other royalty agreements from certain of the Mining Operations.
The Company is not directly involved in the ownership or operation of mines and has no contractual rights relating to the operation of the Mining Operations.
Except in limited circumstances, the Company will not be entitled to any material compensation if any of the Mining Operations do not meet their forecasted production targets in any specified period or if the operations shut down or discontinue their operations on a temporary or permanent basis. All of the Mining Operations may not commence commercial production within the time frames anticipated, if at all, and there can be no assurance that the production from such Mining Operations will ultimately meet forecasts or targets. At any time, any of the operators of the Mining Operations or their successors may decide to suspend or discontinue operations. The Company is subject to the risk that the Mining Operations may shut down on a temporary or permanent basis due to issues including but not limited to economic conditions, lack of financial capital, floods, fire, weather related events, mechanical malfunctions, community or social related issues, social unrest, the failure to receive permits or having existing permits revoked, exploration and other risks. These issues are common in the mining industry and can occur frequently. There is a risk that the carrying values of the Company’s assets may not be recoverable if the mining companies operating the Mining Operations cannot raise additional finances to continue to develop those assets. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Mining Operations becoming uneconomic resulting in their shutdown and closure. The Company is not entitled to purchase gold or other metals if no gold or other metals is produced from the Mining Operations.
Reliance on Third Party Reporting
The Company relies on public disclosure and other information regarding the MiningOperations it receives from the owners, operators and independent experts of such Mining Operations, and certain of such information is included in this AIF. Such information is necessarily imprecise because it depends upon the judgment of the individuals who operate the Mining Operations as well as those who review and assess the geological and engineering information. In addition, the Company must rely on the accuracy and timeliness of the public disclosure and other information it receives from the owners and operators of the Mining Operations, and uses such information in its analyses, forecasts and assessments relating to its own business and to prepare its disclosure with respect to the Gold Streams and royalties. If the information provided by such third parties to the Company contains material inaccuracies or omissions, the Company’s disclosure may be inaccurate and its ability to accurately forecast or achieve its stated objectives may be materially impaired, which may have a material adverse effect on the Company.
Acquisition Strategy
As part of the Company’s business strategy, it has sought and will continue to seek to purchase Gold Streams from third party natural resource companies. In pursuit of such opportunities, the Company may fail to select appropriate acquisition candidates or negotiate acceptable arrangements, including arrangements to finance the acquisitions or integrate the acquired businesses and their personnel into the Company. The Company cannot assure that it can complete any acquisition or business arrangement that it pursues, or is pursuing, on favourable terms or at all, or that any acquisitions or business arrangements completed will ultimately benefit the Company.
Operating Model Risk
The Company is not directly involved in the ownership or operation of mines. The Gold Stream agreements that the Company enters into are subject to most of the significant risks and rewards of a mining company, with the primary exception that, under such agreements, the Company acquires gold at a fixed cost. As a result of the Company’s operating model, the cash flow of the Company is dependent upon the activities of third parties which creates the risk that at any time those third parties may: (a) have business interests or targets that are inconsistent with those of the Company, (b) take action contrary to the Company’s policies or objectives, (c) be unable or unwilling to fulfill their obligations under their agreements with the Company, or (d) experience financial, operational or other difficulties, including insolvency, which could limit a third party’s ability to perform its obligations under the third party arrangements. In particular, Luna requires additional capital in order to continue as a going concern. If Luna fails to raise sufficient additional capital within the constraints imposed by their time requirements, this may result in Luna’s insolvency, thus causing the Company’s interest in the Aurizona Mine to be adversely impacted. There can be no assurance that additional capital can be raised by Luna.
In addition, the termination of one or more of the Company’s Gold Stream agreements could have a material adverse effect on the results of operations or financial condition of the Company.
Taxes and Accounting Rules
The Company has a subsidiary in Barbados which entered into Gold Streams in connection with the Aurizona Mine, Karma Project and Santa Elena Mine. Also, the Company has subsidiary companies in the United States and Argentina which own the rights to certain NSR royalties in those jurisdictions. The introduction of new tax laws or regulations, or changes to, or differing interpretation of, or application of, existing tax laws or regulations in Canada, Barbados, Argentina and the United States or any of the countries in which the Mining Operations are located or to which shipments of gold or other precious metals are made, could result in an increase in the Company’s taxes, or other governmental charges, duties or impositions. The Company’s international transactions have not yet been reviewed by the Canada Revenue Agency and, should such transactions be reviewed, no assurances can be given that the tax matters will be resolved favourably. The Company’s remaining Gold Streams and royalties have been entered into directly by Canadian based subsidiaries and will, therefore, be subject to Canadian, and/or U.S. taxation, as the case may be.
No assurance can be given that new tax laws or regulations will not be enacted or that existing tax laws or regulations will not be changed, interpreted or applied in a manner which could have a material adverse effect on the Company. In addition, the introduction of new tax laws or regulations or accounting rules or policies, or changes to, or differing interpretations of, or application of, existing tax laws or regulations or accounting rules or policies, could make Gold Streams less attractive to counterparties. Such changes could adversely affect the Company’s ability to enter into new Gold Streams.
Credit and Liquidity Risk
The Company is exposed to counterparty risks and liquidity risks including, but not limited to: (i) through the companies with which the Company has gold and other metals purchase agreements or royalty agreements; (ii) through financial institutions that hold the Company’s cash and cash equivalents; (iii) through companies that have payables to the Company; (iv) through the Company’s insurance providers; and (v) through the Company’s lenders. The Company is also exposed to liquidity risks in meeting its operating expenditure requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable. In addition, the Company’s loan receivable and convertible debenture due from Luna is subject to Luna’s credit risk and the Company’s ability to realize on its security.
These factors may impact the ability of the Company to obtain loans and other credit facilities in the future and, if obtained, on terms favourable to the Company. If these risks materialize, the Company’s operations could be adversely impacted and the trading price of the Common Shares, 2012 Warrants and 2015 Warrants could be adversely affected.
Dependence Upon Key Management Personnel
The Company is dependent upon the services of a small number of key management personnel who are highly skilled and experienced. The Company’s ability to manage its activities will depend in large part on the efforts of these individuals. The Company faces intense competition for qualified personnel, and there can be no assurance that the Company will be able to attract and retain such personnel. The loss of the services of one or more of such key management personnel could have a material adverse effect on the Company.
Commodity Prices
The price of the Common Shares, 2012 Warrants and 2015 Warrants and the Company’s financial results may be significantly adversely affected by a decline in the price of gold, silver or copper. The price of gold. silver and copper fluctuates widely, especially in recent years, and is affected by numerous factors beyond the Company’s control, including but not limited to, the sale or purchase of gold, silver and copper by various central banks and financial institutions, interest rates, exchange rates, inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of major gold, silver and copper-producing countries throughout the world.
In the event that the prevailing market price of gold, silver or copper is at or below the price at which the Company can purchase such pursuant to the terms of the agreements associated with its gold, silver or copper interests, the Company may not generate positive cash flow or earnings on those agreements. Furthermore, if the gold, silver or copper price drops below the cost of production of those commodities at the applicable mines, then those mines may not produce any gold, silver or copper (as the case may be) and the Company will not be entitled to purchase any gold, silver or copper under its applicable agreements.
Furthermore, the price of the Common Shares, 2012 Warrants and 2015 Warrants and the Company’s financial results may be significantly adversely affected by a decline in the price and demand for diamonds. Diamond prices fluctuate and are affected by numerous factors beyond the control of the Company, including worldwide economic trends, worldwide levels of diamond discovery and production, and the level of demand for, and discretionary spending on, luxury goods such as diamonds. Low or negative growth in the worldwide ecomony, renewed or additional credit market disruptions, natural disasters or the occurrence of terrorist attacks or similar activities creating disruptions in economic growth could result in decreased demand for luxury goods such as diamonds, thereby negatively affecting the price of diamonds. Similarly, a substantial increase in the worldwide level of diamond production or the release of stock held back during recent periods of lower demand could also negatively affect the price of diamonds. In each case, such developments could have a material adverse effect on the Company’s results of operations.
Competition
The Company competes with other companies for Gold Streams and similar transactions, some of which may possess greater financial and technical resources. Such competition may result in the Company being unable to enter into desirable Gold Streams or similar transactions, to recruit or retain qualified employees or to acquire the capital necessary to fund its Gold Streams. Existing or future competition in the mining industry could materially adversely affect the Company’s prospects for entering into additional Gold Streams, royalties and similar transactions in the future.
Dividend Policy
No dividends on the Common Shares have been paid by the Company to date. The Company does not intend to declare or pay any cash dividends in the foreseeable future. Payment of any future dividends will be at the discretion of the Company’s Board of Directors after taking into account many factors including the Company’s operating results, financial condition and current and anticipated cash needs.
Equity Price Risk
The Company holds shares, convertible debentures and warrants of other exploration and mining companies with a combined market value as at December 31, 2015 of $26.6 million.
The Company is exposed to equity price risk as a result of holding long-term investments in these companies. The daily exchange traded volume of these shares, including the shares underlying the warrants, may not be sufficient for the Company to liquidate its position in a short period of time without potentially affecting the market value of such shares. Just as investing in the Company is inherent with risks such as those set out in this AIF, by investing in these other companies, the Company is exposed to the risks associated with owing equity securities and those risks inherent in the investee companies. The Company does not actively trade these investments.
Conflicts of Interest
Certain of the directors and officers of the Company also serve as directors and/or officers of other companies involved in natural resource exploration, development and mining operations and consequently there exists the possibility for such directors and officers to be in a position of conflict. Any decision made by any of such directors and officers will be made in accordance with their duties and obligations to deal fairly and in good faith with a view to the best interests of the Company and its shareholders. In addition, each of the directors is required to declare and refrain from voting on any matter in which such directors may have a conflict of interest in accordance with the procedures set forth in theBusiness Corporations Act (British Columbia) and other applicable laws.
Future Sales or Issuances of Securities
Sandstorm Gold may issue additional securities to finance future activities. Sandstorm Gold cannot predict the size of future issuances of securities or the effect, if any, that future issuances and sales of securities will have on the market price of the Common Shares, 2012 Warrants and 2015 Warrants. Sales or issuances of substantial numbers of Common Shares, or the perception that such sales could occur, may adversely affect prevailing market prices of the Common Shares, 2012 Warrants and 2015 Warrants. With any additional sale or issuance of Common Shares or the exercise of the 2012 Warrants and the 2015 Warrants, investors will suffer dilution to their voting power and Sandstorm Gold may experience dilution in its earnings per share.
The Company may fail to achieve and maintain the adequacy of internal control over financial reporting pursuant to the requirements of the Sarbanes-Oxley Act
The Company is required to assess its internal controls in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”). SOX requires an annual assessment by management of the effectiveness of the Company’s internal control over financial reporting and an attestation report by the Company’s independent registered Chartered Accountants addressing this assessment beginning with the Company’s fiscal year ended December 31, 2013. The Company may fail to achieve and maintain the adequacy of its internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, and the Company may not be able to ensure that it can conclude on an ongoing basis that it has effective internal controls over financial reporting in accordance with Section 404 of SOX. The Company’s failure to satisfy the requirements of Section 404 of SOX on an ongoing, timely basis could result in the loss of investor confidence in the reliability of its financial statements which, in turn, could harm the Company’s business and negativelyimpact the trading price of the Common Shares, 2012 Warrants and 2015 Warrants. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or cause it to fail to meet its reporting obligations. There can be no assurance that the Company will be able to remediate material weaknesses, if any, identified in future periods, or maintain all of the controls necessary for continued compliance, and there can be no assurance that the Company will be able to retain sufficient skilled finance and accounting personnel.
Future acquisitions of companies, if any, may provide the Company with challenges in implementing the required processes, procedures and controls in its acquired operations. Future acquired companies, if any, may not have disclosure controls and procedures or internal control over financial reporting that are as thorough or effective as those required by securities laws currently applicable to the Company.
No evaluation can provide complete assurance that the Company’s internal control over financial reporting will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be reported. The effectiveness of the Company’s controls and procedures could also be limited by simple errors or faulty judgments. In addition, as the Company continues to expand, the challenges involved in implementing appropriate internal controls over financial reporting will increase and will require that the Company continue to improve its internal controls over financial reporting. Although the Company intends to devote substantial time and incur costs, as necessary, to ensure compliance, the Company cannot be certain that it will be successful in complying with Section 404 of SOX on an ongoing basis.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 based on the criteria set forth inInternal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In connection with the assessment, management identified a material weakness (the “Material Weakness”) relating to the review control over the impairment of long-lived assets. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The Material Weakness could have resulted in a material misstatement related to the understatement of impairment expense and overstatement of mineral interests in the Company’s annual consolidated financial statements as at and for the year ended December 31, 2015 (the “2015Financial Statements”). These misstatements were corrected prior to the issuance of the 2015 Financial Statements and therefore, there were no misstatements in the Company’s current or prior period consolidated financial statements. In response to the identified Material Weakness, management is taking specific actions to address the Material Weakness. The enhancements include the following: (i) the Company has hired an additional resource to assist in its evaluation of the Company’s financial reporting; and (ii) the Company has engaged an external search firm to assist in the hiring of a further additional resource to assist in the documentation and review of its internal controls. Remediation will require that changed or new controls operate for a sufficient period of time such that effectiveness of those changes is demonstrated with an appropriate amount of consistency. As the Company implements these plans, management may determine that additional steps may be necessary. Other than the Material Weakness described above, during the year ended December 31, 2015, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Risks Relating to the Mining Operations
Exploration, Development and Operating Risks
Mining operations generally involve a high degree of risk. The Mining Operations are subject to all of the hazards and risks normally encountered in the exploration, development and production of metals, including weather related events, unusual and unexpected geology formations, seismic activity, rock bursts, cave-ins, pit-wall failures, flooding, environmental hazards and the discharge of toxic chemicals, explosions and other conditions involved in the drilling, blasting and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to property, injury or loss of life, environmental damage, work stoppages, delays in production, increased production costs and possible legal liability. Any of these hazards and risks and other acts of God could shut down mining operations temporarily or permanently. Mining operations are subject to hazards such as equipment failure or failure of retaining dams around tailings disposal areas which may result in environmental pollution and consequent liability for the owners or operators of the Mining Operations.
The exploration for, development, mining and processing of mineral deposits involves significant risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenditures may be required to locate and establish mineral reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the exploration or development programs planned by the owners or operators of the Mining Operations will result in profitable commercial mining operations. Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices which are highly cyclical; government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection; and political stability. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in one or more of the Mining Operations not receiving an adequate return on invested capital. Accordingly there can be no assurance the Mining Operations which are not currently in production will be brought into a state of commercial production.
Commodity Prices for Other Metals Produced from the Mining Operations
The price of metals has fluctuated widely in recent years, and future serious price declines could cause continued development of and commercial production from the Mining Operations to be impracticable. Depending upon the price of other metals produced from the mines which generate cash flow to the owners, cash flow from mining operations may not be sufficient and such owners could be forced to discontinue production and may lose their interest in, or may be forced to sell, some of their properties. Future production from the Mining Operations is dependent on metal prices that are adequate to make these properties and projects economically viable.
In addition to adversely affecting the reserve estimates and financial conditions, declining commodity prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under financing arrangements related to a particular project. Even if the project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed.
Environmental Risks and Hazards
All phases of the Mining Operations are subject to governmental regulation including environmental regulation in the various jurisdictions in which they operate. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and heightened responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Mining Operations. Also, environmental hazards may exist on the properties which are unknown to the owners or operators of the Mining Operations at present which were caused by previous or existing owners or operators of the properties and which could impair the commercial success, levels of production and continued feasibility and project development and mining operations on these properties. One or more of the mining companies may become liable for such environmental hazards caused by previous owners or operators of the properties.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in mining operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Government Regulation, Permits and Licenses
The exploration and development activities related to the Mining Operations are subject to extensive laws and regulations governing exploration, development, production, exports, taxes, labour standards, waste disposal, protection and remediation of the environment, reclamation, historic and cultural resources preservation, mine safety and occupational health, handling, storage and transportation of hazardous substances and other matters.
The costs of discovering, evaluating, planning, designing, developing, constructing, operating and closing the Mining Operations in compliance with such laws and regulations are significant. It is possible that the costs and delays associated with compliance with such laws and regulations could become such that the owners or operators of the Mining Operations would not proceed with the development of or continue to operate a mine. Moreover, it is possible that future regulatory developments, such as increasingly strict environmental protection laws, regulations and enforcement policies thereunder and claims for damages to property and persons resulting from the Mining Operations could result in substantial costs and liabilities for the owners or operators of the Mining Operations in the future such that they would not proceed with the development of, or continue to operate, a mine.
Government approvals, licences and permits are currently, and will in the future be, required in connection with the Mining Operations. To the extent such approvals are required and not obtained, the Mining Operations may be curtailed or prohibited from proceeding with planned operations, which could have an impact on the business and financial condition of the Company. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed.
Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Mining Operations, resulting in increased capital expenditures or production costs, reduced levels of production at producing properties or abandonment or delays in development of properties.
Permitting
The Mining Operations are subject to receiving and maintaining permits from appropriate governmental authorities. Although the Company believes that, other than as discussed elsewhere herein, the owners and operators of the Mining Operations currently have all required permits for their respective operations as currently conducted, there is no assurance that delays will not occur in connection with obtaining all necessary renewals of such permits for the existing operations, additional permits for any possible future changes to operations or additional permits associated with new legislation. Prior to any development on any of the properties, permits from appropriate governmental authorities may be required. There can be no assurance that the owners or operators of the Mining Operations will continue to hold all permits necessary to develop or continue operating at any particular property.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may be liable for civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Amendments to current laws, regulations and permitting requirements, or more stringent application of existing laws, may have a material adverse impact on the owners or operators of the Mining Operations, resulting in increased capital expenditures or production costs, reduced levels of production at producing properties or abandonment or delays in development of properties.
See “Permitting, Construction, Development and Expansion Risk” for additional permitting risks associated with developmental projects.
Infrastructure
Natural resource exploration, development and mining activities are dependent on the availability of mining, drilling and related equipment in the particular areas where such activities are conducted. A limited supply of such equipment or access restrictions may affect the availability of such equipment to the owners and operators of the Mining Operations and may delay exploration, development or extraction activities. Certain equipment may not be immediately available, or may require long lead time orders. The lack of availability on acceptable terms or the delay in the availability of any one or more of these items could prevent or delay exploration, development or production at the Mining Operations.
Mining, processing, development and exploration activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect the Mining Operations.
Uncertainty of Mineral Resource and Mineral Reserve Estimates
The life-of-mine estimates for the Mining Operations may not be correct. The figures for mineral resources and mineral reserves presented in this AIF and derived from the technical reports filed in respect of the Santa Elena Mine, Chapada Mine and Diavik Mine are estimates only and no assurance can be given that the estimated mineral reserves and mineral resources will be recovered or that they will be recovered at the rates estimated. Mineral reserve and mineral resource estimates are based on limited sampling and geological interpretation, and, consequently, are uncertain because the samples may not be representative. Mineral reserve and mineral resource estimates may require revision (either up or down) based on actual production experience. Market fluctuations in the price of metals, as well as increased production costs or reduced recovery rates, may render certain mineral reserves and mineral resources uneconomic and may ultimately result in a restatement of estimated mineral reserves and/or mineral resources.
Mineral resources that are not mineral reserves do not have demonstrated economic viability. Due to the uncertainty of inferred mineral resources, there is no assurance that inferred mineral resources will be upgraded to proven and probable mineral reserves as a result of continued exploration.
Replacement of Depleted Mineral Reserves
Because mines have limited lives based primarily on proven and probable mineral reserves, the mining companies which own and/or operate the Mining Operations must continually replace and expand their mineral reserves depleted by their mine’s production to maintain production levels over the long-term. Mineral reserves can be replaced by expanding known ore bodies, locating new deposits or making acquisitions. Exploration is highly speculative in nature. Once a site with mineralization is discovered, it may take several years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable mineral reserves and to construct mining and processing facilities. As a result, there is no assurance that current or future exploration programs will be successful. There is a risk that depletion of mineral reserves will not be offset by discoveries or acquisitions.
Competition
The mining companies which own and/or operate the Mining Operations each face competition from a number of large established companies with substantial capabilities, and greater financial and technical resources. These mining companies compete with these other mining companies for the acquisition of prospective, explored, developing and developed mining and mineral properties, as well as for the recruitment and retention of qualified directors, professional management, employees and contractors.
Dependence on Good Relations with Employees
Production at the Mining Operations depends on the efforts of its employees. There is intense competition for geologists and persons with mining expertise. The ability of the mining companies to hire and retain geologists and persons with mining expertise is key to the Mining Operations. Further, relations with employees may be affected by changes in the scheme of labour relations that may be introduced by the relevant governmental authorities in the jurisdictions in which the Mining Operations are conducted. Changes in such legislation or otherwise in the mining companies’ relationships with their employees may result in strikes, lockouts or other work stoppages, any of which could have a material adverse effect on the Mining Operations, results of operations and financial condition.
Uninsured Risks
The mining industry is subject to significant risks that could result in damage to, or destruction of, mineral properties or producing facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. Where each of the mining companies considers it practical to do so, it maintains insurance in amounts that it believes to be reasonable, including insurance for workers’ compensation, theft, general liability, all risk property, automobile, directors and officers liability and fiduciary liability and others. Such insurance, however, contains exclusions and limitations on coverage. Accordingly, the mining companies’ insurance policies may not provide coverage for all losses related to their business (and specifically do not cover environmental liabilities and losses). The occurrence of losses, liabilities or damage not covered by such insurance policies could have a material adverse effect on the mining companies’ profitability, results of operations and financial condition.
Land Title
Although title to the Mining Operations has been reviewed by or on behalf of the Company, no assurances can be given that there are no title defects affecting the properties and mineral claims owned or used by the Mining Operations. The mining companies may not have conducted surveys of the claims in which they hold direct or indirect interests; therefore, the precise area and location of such claims may be in doubt. It is possible that the Mining Operations may be subject to prior unregistered liens, agreements, transfers or claims, including native land claims, and title may be affected by, among other things, undetected defects. In addition, the mining companies may be unable to operate the Mining Operations as permitted or to enforce their rights with respect to the Mining Operations which may ultimately impair the ability of these owners and operators to fulfill their obligations under their agreements with the Company.
Off-take Agreements
Rambler is required by contract to sell all concentrate produced from the Ming Mine to a third party processor whose facilities are used to process the concentrate mined from the property. Access to the facilities is regulated by an off-take agreement agreed to between Rambler and the third party processor. The off-take agreement establishes the price paid for the metals. The third party processor and the Company may need to enter into an agreement or agreements that are similar (as to payment terms) to the payment terms contained in the off-take agreement between Rambler and the third party processor. Such a form of agreement will streamline the payment process as between the third party processor and Rambler, and the third party processor and the Company. If Rambler (on behalf of the Company) and the third party processor are unable to negotiate such an agreement, Rambler and the Company will be obliged to accept payments “in kind” from the third party processor under the existing off-take agreement.
International Interests
The operations with respect to the majority of the Company’s gold and other precious metals interests are conducted in Brazil, Mexico, the United States, Mongolia, Africa, Argentina, Chile, Peru, Honduras and Turkey and as such the operations are all exposed to various levels of political, economic and other risks and uncertainties. These risks and uncertainties vary from country to country and include, but are not limited to, terrorism, hostage taking, military repression, crime, political instability, currency controls, extreme fluctuations in currency exchange rates, high rates of inflation, labour unrest, the risks of war or civil unrest, expropriation and nationalization, renegotiation or nullification of existing concessions, licenses, permits, approvals and contracts, illegal mining, changes in taxation and mining laws, regulations and policies, restrictions on foreign exchange and repatriation, and changing political conditions and governmental regulations relating to foreign investment and the mining business. Several of the countries have experienced political, social and economic unrest in the past and protestors have from time to time targeted foreign mining companies and their mining operations.
Changes, if any, in mining or investment policies or shifts in political attitude may adversely affect the operations or profitability of the Mining Operations in these countries. Operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income taxes, expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use, mine safety and the rewarding of contracts to local contractors or requiring foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction or the imposition of additional local or foreign parties as joint venture partners with carried or other interests. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure, could result in loss, reduction or expropriation, cancellation or dispute of licenses or entitlements which could result in substantial costs, losses and liabilities in the future.
The occurrence of these various factors and uncertainties related to the economic and political risks for operations in foreign jurisdictions cannot be accurately predicted and could have an adverse effect on the Mining Operations resulting in substantial costs, losses and liabilities in the future.
In particular, any changes or unfavourable assessments with respect to (i) the validity, ownership or existence of the Entrée concessions; as well as (ii) the validity or enforceability of Entrée’s joint venture agreement with Oyu Tolgoi LLC may adversely affect the Company’s profitability or profits realized under the Entrée Gold Stream. The Company’s interest in the Serra Pelada Mine may be adversely impacted if the Cooperative de Mineração dos Garimpeiros de Serra Pelada, which holds a 25% interest in the Serra Pelada Mine, continues to take any unfavourable actions. In addition, Colossus Mineração Ltda. in Brazil has payables which could be in excess of $30.0 million and accordingly, there is a risk that they may be unable to repay their debts, resulting in their insolvency and loss of any rights to the Serra Pelada Mine. Moreoever, there is no certainty that the Karma Project will achieve its intended production and/or construction timeline, if ever.
Permitting, Construction, Development and Expansion Risk
Some of the Mining Operations are currently in various stages of permitting, construction, development and expansion. Construction, development and expansion of such projects is subject to numerous risks, including, but not limited to: delays in obtaining equipment, material and services essential to completing construction of such projects in a timely manner; delays or inability to obtain all required permits; changes in environmental or other government regulations; currency exchange rates; labour shortages; and fluctuation in metal prices. There can be no assurance that the owners or operators of such projects will have the financial, technical and operational resources to complete the permitting, construction, development and expansion of such projects in accordance with current expectations or at all.
Indigenous Peoples
Various international and national laws, codes, resolutions, conventions, guidelines, and other materials relate to the rights of indigenous peoples. The Company holds royalty or streaming interests on operations located in some areas presently or previously inhabited or used by indigenous peoples. Many of these materials impose obligations on government to respect the rights of indigenous people. Some mandate that government consult with indigenous people regarding government actions which may affect indigenous people, including actions to approve or grant mining rights or permits. The obligations of government and private parties under the various international and national materials pertaining to indigenous people continue to evolve and be defined. The mining companies’ current or future operations are subject to a risk that one or more groups of indigenous people may oppose continued operation, further development, or new development on those projects or operations on which the Company holds a royalty or streaming interest. Such opposition may be directed through legal or administrative proceedings or protests, roadblocks or other forms of public expression against the Company or the owner/operator’s activities. Opposition by indigenous people to such activities may require modification of or preclude operation or development of projects or may require the entering into of agreements with indigenous people. Claims and protests of indigenous people may disrupt or delay activities of the owners/operators of the Company’s royalty/stream assets.
TECHNICAL INFORMATION
CIM Standards Definitions
The estimated Mineral Reserves and Mineral Resources set forth below for the Santa Elena Mine, Chapada Mine and the Diavik Mine have been estimated in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) — Definitions adopted by CIM Council on May 10, 2014 (the “CIM Standards”).
The term “Mineral Resource” means a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling. Material of economic interest refers to diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories.
The term “Inferred Mineral Resource” means that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An Inferred Mineral Resource is based on limited information and sampling gathered through appropriate sampling techniques from locations such as outcrops, trenches, pits, workings and drill holes.
The term “Indicated Mineral Resource” means that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors (as defined below) in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation.
The term “Measured Mineral Resource” means that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation.
The term “Mineral Reserve” means the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at pre-feasibility or feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. Mineral Reserves are sub-divided in order of increasing confidence into Probable Mineral Reserves (as defined below) and Proven Mineral Reserves (as defined below). Mineral Reserves are inclusive of diluting material that will be mined in conjunction with the Mineral Reserves and delivered to the treatment plant or equivalent facility.
The term “Probable Mineral Reserve” means the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve. Probable Mineral Reserve estimates must be deomonstrated to be economic, at the time of reporting, by at least a Pre-Feasibility Study.
The term “Proven Mineral Reserve” means the economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors. Proven Mineral Reserve estimates must be demonstrated to be economic, at the time of reporting, by at least a Pre-Feasibility Study.
The term “Modifying Factors” means considerations used to convert Mineral Resources to Mineral Reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors.
Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Mineral Resources
This AIF (and documents incorporated by reference herein) has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws and uses terms that are not recognized by the United States Securities and Exchange Commission (the “SEC”). The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are terms defined in accordance with CIM Standards. These definitions differ from the definitions in SEC Industry Guide 7 (“SEC Industry Guide 7”) under the U.S. Securities Act of 1933, as amended. In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by CIM Standards; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC.Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules and regulations, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies or other economic studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures.Accordingly, information contained in this AIF and the documents incorporated by reference herein containing descriptions of mineral deposits may not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
Summary of Mineral Reserves and Mineral Resources
The following tables set forth the estimated Mineral Reserves and Mineral Resources for the projects or mines relating to which the Company hasMATERIAL Gold Streams/royalty agreements, adjusted to reflect the Company’s percentage entitlement to gold, copper and diamonds produced from such projects or mines, as of December 31, 2015, unless otherwise noted. The tables are based on information available to the Company as of the date of this AIF, and therefore will not reflect updates, if any, after such date:
attributable Proven and Probable MINERAL Reserves
(As of DECEMBER 31, 2015, unlessotherwise noted)
| Property | Proven | Probable | Proven & Probable |
| | Tonnage | Grade | Contained | Tonnage | Grade | Contained | Tonnage | Grade | Contained |
| | | | | | | | | | |
| | kt | (grams per tonne) | (ounces) | kt | (grams per tonne) | (ounces) | kt | (grams per tonne) | (ounces) |
| | | | | | | | | | |
| Santa Elena Mine – Underground(1, 2, 6, 7) | - | - | - | 796 | 1.67 | 42,800 | 796 | 1.67 | 42,800 |
| Santa Elena Mine – Open Pit(1, 3, 7) | - | - | - | 24 | 2.75 | 2,200 | 24 | 2.75 | 2,200 |
| Santa Elena Mine - Leach Pad Reserves(1, 4, 6, 7) | - | - | - | 669 | 0.65 | 14,000 | 669 | 0.65 | 14,000 |
| TOTAL CONTAINEDGOLD: | | | N/A | | | 59,000 | | | 59,000 |
| | | | | | | | | | |
| Property | Proven | Probable | Proven & Probable |
| | Tonnage | Grade | Contained | Tonnage | Grade | Contained | Tonnage | Grade | Contained |
| | | | | | | | | | |
| | kt | (%) | (Million of pounds) | kt | (%) | (Million of pounds) | kt | (%) | (Million of pounds) |
| | | | | | | | | | |
| Chapada Mine(10, 12, 14, 15, 16) | 7,046 | 0.27 | 41.5 | 6,855 | 0.26 | 39.5 | 13,901 | 0.26 | 81 |
| TOTAL CONTAINEDCOPPER: | | | 41.5 | | | 39.5 | | | 81 |
| Property | Proven | Probable | Proven & Probable |
| | Mt | cpt | Contained | Mt | cpt | Contained | Mt | cpt | Contained |
| | | | | | | | | | |
| | (millions of metric tonnes) | (carats per tonne) | (millions of carats) | (millions of metric tonnes) | (carats per tonne) | (millions of carats) | (millions of metric tonnes) | (carats per tonne) | (millions of carats) |
| | | | | | | | | | |
| Diavik Mine(17, 19, 22, 23, 24, 25, 26, 27) | 0.11 | 3.0 | 0.32 | 0.08 | 2.7 | 0.21 | 0.19 | 2.8 | 0.53 |
| TOTAL CONTAINEDDIAMONDS: | | | 0.32 | | | 0.21 | | | 0.53 |
attributable Measured AND Indicated MINERAL Resources
(As of DECEMBER 31, 2015, unlessotherwise noted)
| Property | Measured | Indicated | Measured & Indicated |
| | Tonnage | Grade | Contained | Tonnage | Grade | Contained | Tonnage | Grade | Contained |
| | | | | | | | | | |
| | kt | (grams per tonne) | (ounces) | kt | (grams per tonne) | (ounces) | kt | (grams per tonne) | (ounces) |
| | | | | | | | | | |
| Santa Elena Mine(1, 5, 6, 7, 8, 9) | - | - | - | 223 | 1.39 | 10,000 | 223 | 1.39 | 10,000 |
| TOTAL CONTAINEDGOLD: | | | N/A | | | 10,000 | | | 10,000 |
| | | | | | | | | | |
| Property | Measured | Indicated | Measured & Indicated |
| | Tonnage | Grade | Contained | Tonnage | Grade | Contained | Tonnage | Grade | Contained |
| | | | | | | | | | |
| | kt | (%) | (Million of pounds) | kt | (%) | (Millions of pounds) | kt | (%) | (Millions of pounds) |
| Chapada Mine(10, 11, 13, 14, 15, 16) | 384 | 0.22 | 1.8 | 3,828 | 0.24 | 20.5 | 4,212 | 0.24 | 22.4 |
| TOTAL CONTAINEDCOPPER: | | | 1.8 | | | 20.5 | | | 22.4 |
| Property | Measured | Indicated | Measured & Indicated |
| | Mt | cpt | Contained | Mt | cpt | Contained | Mt | cpt | Contained |
| | | | | | | | | | |
| | (millions of metric tonnes) | (carats per tonne) | (millions of carats) | (millions of metric tonnes) | (carats per tonne) | (millions of carats) | (millions of metric tonnes) | (carats per tonne) | (millions of carats) |
| | | | | | | | | | |
| Diavik Mine(17, 18, 20, 21, 22, 23, 24, 26, 27) | - | - | - | 0.004 | 2.6 | 0.01 | 0.004 | 2.6 | 0.01 |
| TOTAL CONTAINEDDIAMONDS: | | | N/A | | | 0.01 | | | 0.01 |
ATTRIBUTABLE INFERRED MINERAL RESOURCES
(AS OF DECEMBER 31, 2015, UNLESS OTHERWISE NOTED)
| Property | Inferred |
| | Tonnage | Grade | Contained |
| | | | |
| | kt | (grams per
tonne) | (ounces) |
| | | | |
| Santa Elena Mine(1, 5, 6, 7, 9) | 113 | 1.69 | 6,200 |
| TOTAL CONTAINEDGOLD: | | | 6,200 |
| | | | |
| Property | Inferred |
| | Tonnage | Grade | Contained |
| | | | |
| | kt | (%) | (Millions of
pounds) |
| | | | |
| Chapada Mine(10, 11, 13, 14, 15, 16) | 2,819 | 0.29 | 18.1 |
| TOTAL CONTAINEDCOPPER: | | | 18.1 |
| Property | Inferred |
| | Tonnage | Grade | Contained |
| | | | |
| | (millions of
metric tonnes) | (carats per
tonne) | (millions of
carats) |
| | | | |
| Diavik Mine(17, 19, 22, 23, 24, 26, 27) | 0.02 | 2.8 | 0.05 |
| | | | |
| TOTAL CONTAINEDDIAMONDS: | | | 0.05 |
| | | | |
All Mineral Reserves and Mineral Resources set forth above have been estimated in accordance with the CIM Standards and National Instrument 43-101 -Standards of Disclosure for Mineral Projects (“NI 43-101”).
Santa Elena Mine
| (1) | The qualified person (”QP”) under NI 43-101 for the technical information regarding the Santa Elena Mine contained in this document, including the review and approval of the Mineral Reserves and Mineral Resources estimates as detailed above, is Ramon Mendoza Reyes, P. Eng., Vice President Technical Services for First Majestic. |
| (2) | Underground Probable Mineral Reserves are based on a cut-off grade of 2.49 grams per tonne gold equivalent with an average 10% dilution and 90% mine recovery. Average true thickness of the designed stopes is ten metres. |
| (3) | Open Pit Mineral Reserve is based on a cutoff grade of 0.20 grams per tonne gold equivalent in a constrained pit shell with applied capping of eight grams per tonne gold and 300 grams per tonne silver. |
| (4) | Leach Pad Mineral Reserve based on production and drill hole data for volumetrics and grade model using a cutoff grade of 0.5 grams per tonne gold equivalent. No capping was applied. |
| (5) | Mineral Resources exclude Mineral Reserves and are based on a 1.5 grams per tonne gold equivalent cut-off grade using assumptions for prices and recoveries as stated below. Capping was applied at 12 grams per tonne gold and 700 grams per tonne silver. |
| (6) | Underground and Leach Pad Mineral Reserves and Mineral Resources are based on life of mine plan metal price trends of $19.50 per ounce silver, $1,300 per ounce gold and metallurgical recoveries of 92% gold and 67.5% silver with a metal ratio of silver:gold at 70:1 used for grade cut-off determination. |
| (7) | The Santa Elena Mine Mineral Reserves and Mineral Resources are reported as of December 31, 2014. |
| (8) | Numbers may not add up due to rounding. |
| (9) | Mineral Resources are not known with the same degree of certainty as Mineral Reserves and do not have demonstrated economic viability. |
Chapada Mine
| (10) | The QP for the technical information regarding the Chapada Mine contained in this document, including the review and approval of the Mineral Reserves and Mineral Resources as detailed above, is William Wulftange, P. Geo., Senior Vice President of Exploration of Yamana. |
| (11) | Mineral Resources Metals Prices and Cut-Off Grades: $1,500 gold, $3.50 copper and $5.17 NSR cut-off out of pit for Chapada Mine (Main Pit, Corpo Sul, Cava Norte and Corpo NE); 0.2 grams per tonne gold cut-off for oxide and 0.3 grams per tonne gold cut-off for sulphide in Suruca Gold Project. |
| (12) | Mineral Reserves Metal Prices and Cut-Off Grades: $1,150 gold, $3.00 copper, $5.17 NSR cut-off (Main Pit, Corpo Sul and Cava Norte); $900 gold; 0.2 grams per tonne gold cut-off for oxide ore and 0.3 grams per tonne gold cut-off for sulphide ore in Suruca Gold Project. Metallurgical recoveries for copper are 83% and gold ranges from 52% to 85% dependent on zone. |
| (13) | Mineral Resources are exclusive of Mineral Reserves. Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability. |
| (14) | The Chapada Mine Mineral Reserves and Mineral Resources are reported as of December 31, 2015. |
| (15) | The Company’s portion of the attributable Mineral Resources, Mineral Reserves and Inferred Mineral Resources set out above have been calculated internally by the Company due to the complex nature of the terms of the Copper Stream. |
| (16) | Numbers may not add up due to rounding. |
Diavik Mine
| (17) | Keith Laskowski, MSc., Vice-President Technical Services for Sandstorm Gold, and a QP under NI 43-101, has reviewed and approved the scientific and technical disclosure regarding the Diavik Mine contained in this AIF. |
| (18) | Indicated is for pipe A-21 only. |
| (19) | Proven is an aggregate for pipes A-154 North, A-154 South, A-418 and A-21 (open pit) and the stockpile. Probable is an aggregate of pipes A-154 North, A-154 South and A-418 only. Inferred is an aggregate of pipes A-154 North, A-154 South, A-418 and A-21. |
| (20) | MineralResourcesthatarenot Mineral Reservesdonothavedemonstratedeconomicviability. |
| (21) | Mineral Resourcesarereportedexclusiveof MineralReserves,andrepresentmaterialremainingafter MineralReserveshavebeenremovedforreportingseparatelyelsewhere. |
| (22) | Tonnesarereportedasmillionsofmetrictonnes (“Mt”),diamondgradesascaratspertonne(“cpt”),andcontaineddiamondcaratsasmillionsofcontainedcarats (“Mct”). |
| (23) | Accounts for all depletions due to production and sampling to December 31, 2015. Mineral Reserves also include forecasted mining losses and dilution. |
| (24) | The Mineral Reserves estimates and the Mineral Resources estimates each reflect a bottom screen size of one millimetre. |
| (25) | Stockpiles are minor run-of-mine stockpiles that are maintained at or near the process plant and are available to maintain blending of kimberlite sources to the plant. |
| (26) | | The Diavik Mine Mineral Reserves and Mineral Resources are reported as of December 31, 2015. |
| (27) | | Numbers maynotaddupdueto rounding. |
Each of the below described mines or projects are considered to bematerial mineral properties to the Company.
Santa Elena Mine, Mexico
A technical report was prepared for SilverCrest (now First Majestic) in accordance with NI 43-101 entitled “Update to Santa Elena Pre-Feasibility Study, Sonora, Mexico” dated March 31, 2015, having an effective date of December 31, 2014 (the “Santa Elena Report”).
The following description of the Santa Elena Mine has been sourced, in part, from the Santa Elena Report and readers should consult the Santa Elena Report to obtain further particulars regarding the Santa Elena Mine. The Santa Elena Report is available for review under First Majestic’s profile on the SEDAR website located at www.sedar.com. Information in this section that provides non-material updates to the information in the Santa Elena Report has been provided by First Majestic and/or has been sourced from their press releases with respect to the Santa Elena Mine. Certain capitalized terms in this section not otherwise defined have the meanings ascribed to them in the Santa Elena Report.
Project Description, Location and Access
The Santa Elena Mine is currently producing gold and silver from a 3,000 tonne per day operation including ore from the open pit and underground and reprocessing of heap leaching material using a new fully commissioned Merrill Crowe/CCD processing facility. The Santa Elena Mine project involves combined processing of ore from the remaining mineral reserves in the open pit, updated mineral reserves from underground development and reprocessing of spent ore from the existing heap leach pad. Commercial production for the 3,000 tonne per day mill and plant facility was declared on August 1, 2014. Underground development has been ongoing since January 2013 with commercial production declared on October 1, 2014. As of December 2014, the decline had been developed to approximately the 575 metre elevation with development drifts on the 700, 675, 650, 625, 600, and 575 metre levels (elevations above sea level). Underground stope production in late 2014 consisting of long hole stoping of Stope #1 which is located between the 575 to 600 metre levels and preparation and of stope #2 and #3.
The Santa Elena Mine is located in Sonora, Mexico, approximately 150 kilometres northeast of the state capital city of Hermosillo and seven kilometres east of the community of Banámichi. The Santa Elena Mine consists of nine contiguous concessions (the “Santa Elena Concessions”) covering approximately 9,424.54 hectares registered in the name of Nusantara de México, S.A. de C.V. (“Nusantara”), a wholly owned subsidiary of SilverCrest. Nusantara filed the Santa Elena 7 concession, which surrounds the other concessions. All concessions were ground surveyed by a registered land surveyor at the time of staking.
On December 8, 2005, Nusantara entered into an option agreement with Tungsteno de Mexico SA de C.V. (“Tungsteno”) to acquire a 100% interest in the Santa Elena Mine through staged option payments over five years for a total cost of $4.0 million paid in cash and SilverCrest shares. Payments were completed in August of 2009 with SilverCrest owning 100% of the Santa Elena Mine with no underlying royalties. SilverCrest has maintained all of the necessary permits for exploration and facilities at the Santa Elena Mine. In 2009, the Santa Elena Mine received its Manifestacion de Impacto Ambiental (“MIA”) and operating permit from Secretaría de Medio Ambiente y Recursos Naturales (“SEMARNAT”). Taxes based on the surface area of each concession are due in January and June of each year at a total annual cost of approximately $380,000 and have been paid to date. A further MIA was submitted to SEMARNAT in early January of 2013 for an amendment of the land use licence related to the underground expansion project and was approved in May 2013. The amendment approval allows for tailings facilities that were not previously required for the open pit and heap leach operation.
All mining concessions in Mexico are valid for a period of 50 years. A mining concession in Mexico does not confer any ownership of surface rights. The Santa Elena Concessions are located on Ejido (community or co-op) land, and on November 12, 2007, a lease agreement with the surface owners was signed which allows SilverCrest access and authorization to complete exploration and mine operations activities for 20 years for a maximum of 841 hectares. The annual cost per year ranges from approximately $55,000 to $160,000 dependent on the number of hectares required. Lease obligations have been met to date.
Pursuant to the Santa Elena Gold Stream, 20% of the gold production is forward sold to Sandstorm Gold.
The Santa Elena Mine can be accessed year round by paved highways 90 kilometres east from Hermosillo to Ures, then 50 kilometres north along a paved secondary road to the community of Banamichi, then by a maintained gravel road that runs east for seven kilometres to the mine site.
Climate, Local Resources, Infrastructure and Physiography
The Santa Elena Mine is located on the western edge of the north trending Sierra Madre Occidental mountain range geographically adjacent to the Sonora River Valley. Property elevations range from 800 metres above sea level to 1,000 metres above sea level. The property is located on the range front at a low elevation in relation to the mountains immediately east and west, respectively. Vegetation is scarce during the dry season, limited primarily to juvenile and mature mesquite trees and cactus plants. During the wet season, various blooming cactus, trees and grasses are abundant in drainage areas.
The climate is typical for the Sonoran desert, with a dry season from October to May. Average rainfall is estimated at 300 millimetres per annum. There are two wet seasons, July to September and October to May. The summer rains are short with heavy thunderstorms whereas the winter rains are longer and lighter. Seasonal temperatures vary from zero degrees Celsius to 40 degrees Celsius. Summer afternoon thunderstorms are common and can temporarily impact the local electrical service. Flash flooding is common in the area.
Water for the Santa Elena Mine is available from two wells which were installed and tested in 2009 and 2011. The mine site, including newly completed expansion, has adequate water supply for operations.
A small amount of electrical line power is available from nearby sources that currently supply municipalities and agriculture but is insufficient for the Santa Elena Mine operation. Additional power for production is provided by onsite diesel generators. Provision of grid power is possible in the future, but requires permitting and a significant capital expenditure.
The Santa Elena Mine facilities consist of a seven kilometre main access road from the paved highway and local community of Banamichi, open pit mine (closed April 2014), a new 3,000 tonnes per day CCD/MC processing facility, a waste dump with the estimated permitted capacity of 35 million tonnes, a new 3-stage crusher, a lined and certified leach pad, a lined and certified barren and pregnant solution pond, a lined and certified emergency pond designed for 100 year event, Merrill Crowe plant and refinery (out of commission), an on-site laboratory for production and exploration work, an administration office, a maintenance shop for the mine contractor, a new warehouse for inventory, power magazines, diesel generators (some decommissioned), and all required piping, power and security. The material on the existing heap leach facility will be removed, and there is space on the facility for re-handling of the tailings prior to transport to the waste dump as dry stack tailings. Once pad ore is removed, space will be available for reloading lower grade material for other resources. In January of 2012, the expansion of the Santa Elena Mine from an open pit heap leach operation to an underground mill operation was commenced with ground breaking of the underground portal. As of December 31, 2014, the expansion was completed with all major equipment purchased and the completion of all earthworks for the new processing facility and underground development to approximately the 575 metre elevation. The Santa Elena Mine is located in the foothills of a north-south trending mountain range. Foothills area provides ample space to all required facilities and potential for future expansion.
Northern Mexico has significant precious and base metal mines and there is a significant workforce of trained mining and processing personnel. The communities of Cananea, located approximately 100 kilometres north, and Hermosillo, located 150 kilometres southwest of the Santa Elena Mine, are both considered exploration and mining centres and can provide services for heavy machine purchase and repair, materials fabrication and engineering services and supplies to the Santa Elena Mine. Alternatively, Tucson, Arizona is approximately a four hour drive north across the international Mexican-USA border from the Santa Elena Mine.
History
Although minor amounts of historic production are evident at the Santa Elena Mine, the documentation in support of this work is sparse, not detailed and cannot be relied upon for future projections of economic viability.
Consolidated Fields operated the Santa Elena Mine from the late 19th century until the onset of the Mexican revolution in 1910. It is estimated that the most extensive underground development occurred during this period. The recent commencement of open cut mining has made the underground workings unsafe to enter. SilverCrest estimates that approximately 35,000 tonnes of the original tailings from Consolidated Fields’ operations remain onsite. During the 1960’s, Industrias Peñoles S.A de C.V. drilled two or three holes on the property but no records are available for this drilling. During the early 1980’s, Tungsteno de Baviacora mined 45,000 tonnes grading 3.5 grams per tonne of gold and 60 grams per tonne of silver from an open cut at the Santa Elena Mine.
After 2003, Tungsteno periodically surface mined high silica/low fluorine material from the Santa Elena Mine. During 2003, Tungsteno conducted an exploration program at the Santa Elena Mine consisting of 117 surface and underground samples. In late 2003, Nevada Pacific Gold Inc. completed a brief surface and underground sampling program with the collection of 119 samples. A report was completed and provided to the owner which was subsequently misplaced. Only the ALS-Chemex assay sheets and a rough location map were available for review. Sample lengths are unclear. In early 2004, Fronteer Development Group (“Fronteer”) completed an extensive surface and underground mapping and sampling program. A total of 145 channel samples (89 underground and 56 surfaces) were collected and analyzed by ALS-Chemex of Hermosillo, Mexico. This data was used by SilverCrest for early exploration and target development.
SilverCrest acquired the Santa Elena Mine in December of 2005 and the Santa Elena Mine pit has been in commercial production of gold and silver since July 2011.
Geological Setting
Regional Geology
The Santa Elena Mine is located in northwestern Mexico where much of the geology can be attributed to the subduction and related volcanism of the Farallon Plate beneath the North American Plate. The east-directed subduction of the Farallon Plate began approximately 200 million years ago with the tectonic rifting of the supercontinent Pangea. The resulting northwest/southeast trending Sierra Madre Occidental extends from the USA-Mexican border to Guadalajara in the southeast, a distance of over 1,200 kilometres. It is proposed that subduction of the Farallon Plate occurred at a relatively shallow angle, resulting in continental uplift across northern Mexico with accretionary terrains developing along the western fringes. The shallow subduction is also thought to be responsible for the tectonics that produced the Laramide orogeny. Continental arc volcanism culminated with the Laramide orogeny in the early to late Eocene. The waning of compression coincides with east-west directed extension between late Eocene to the early Oligocene along the eastern Sierra Madre Occidental flank and is considered to be the first formation stage of the Basin and Range province. By early to mid-Miocene, extension migrated west into Northern Sonora and along the western flank of the Sierra Madre Occidental resulting in north/northwest striking normal faults. This extensional regime caused major deformation across the Sierra Madre Occidental resulting in exhumation of pre-Cambrian basement rocks, especially in the Northern Sierra Madre Occidental. Northwest trending shear and fault zones appear to be an important control on mineralization in the Sonora region. Mineralizing fluids may have been sourced from Cenozoic intrusions. The structural separation along the faults formed conduits for mineral bearing solutions. The heat source for the mineralizing fluids was likely from the plutonic rocks that commonly outcrop in Sonora. Many significant porphyry deposits of the Sierra Madre Occidental occur in the Lower Volcanics and are correlated with the various Middle Jurassic through to Tertiary aged intrusions. These include Cananea, Nacozari and La Caridad. In Sonora, emplacement of these systems has been influenced by the early Eocene east-west and east/northeast – west/southwest directed extension. The Santa Elena vein has a similar orientation to this extensional trend. The silicic volcanism is thought to be related to fractional crystallisation of mantle sourced basalts from subduction. The five main igneous deposits of the Sierra Madre Occidental are: (a) Plutonic/volcanic rocks: Late Cretaceous-Paleocene; (b) Andesite and lesser Dacite-Rhyolite: Eocene (Lower Volcanic Complex); (c) Silicic ignimbrites: Early Oligocene & Miocene (Upper Volcanic Complex); (d) Basaltic-andesitic flows: late stage of and after ignimbrites pulses; and (e) repeat and episodic volcanic events related to rifting of the Gulf of California (alkaline basalt and ignimbrite) emplaced to western flanks: Late Miocene Pliocene and Quaternary. To the west of the Sierra Madre Occidental are the parallel ranges and valleys that show structural similarities to the extensional tectonic regimes of the Basin and Ranges Province to the east. Elevations in the west are lower than the eastern Provinces, with transition to the Coastal plains and Gulf of California.
Local and Property Geology
The Santa Elena Mine property is located at the northwestern extent of the Sierra Madre Occidental. The primary rock types observed on the Santa Elena Mine are the tertiary andesite and rhyolite flows. These units have been uplifted and strike north-south with a dip of 10 degrees to 45 degrees east/northeast. The volcanic units in the immediate area of the Santa Elena Mine deposit exhibit propylitic to silicic alteration. Within the main mineralized structure, widespread argillic alteration and silicification proximal to quartz veining is present. Within the andesite beds, chloritic alteration increases away from the mineralized zone. The main mineralized zone is hosted within an east-west tending structure cross-cutting the volcanic units. The structure hosts an epithermal quartz calcite vein that has been mapped for approximately 1.2 kilometres in length with a width from one metre to 35 metres averaging approximately 15 metres. The structure dips from 40 degrees to 60 degrees to the south and has been drill-tested to a down-dip depth of approximately 600 metres below surface. Splaying and cross-cutting northwest trending structures appear to influence mineralization at intersections with the main mineralized zone and along a northwest-southeast trending the footwall of the vein. Andesite and granodiorite dikes have been identified at the Santa Elena Mine deposit. The heat source for mineralization is unknown but an intrusive at depth is postulated. The main structure is infilled with quartz veining, quartz veinlets and stockwork, banded quartz, vuggy quartz and black calcite. Breccias are found locally at areas of fault intersections. Adularia has been identified in a few hand-specimens. Iron oxides including limonite, jarosite, goethite and hematite are associated with mineralization. Results of induced polarization, resistivity and magnetometer surveys by Pacific Geophysical Ltd. in 2007 showed that the main mineralized zone is a resistivity high (silica) and induced polarization low (minor sulphides) which can be traced for approximately 1.2 kilometres along strike of the zone.
Interpretation from surface, open put and underground mapping and drill hole intercepts has shown that there are eight major faults directly related to the Santa Elena main mineralized zone.
Exploration
From 2006 to 2015, SilverCrest has completed several extensive exploration programs at Santa Elena. The 2013 - 2014 exploration programs included surface mapping and channel sampling, underground mapping, underground channel sampling and core drilling. The Exploration Department at the Santa Elena Mine completed a more detailed geological map of the open pit, compiling all geological and structural information defining a revised surface exposure of main geological units and structural setting. An underground mapping and sampling program has been ongoing since 2013 at Santa Elena and includes the underground developed areas. The majority of the sampling and mapping has been done in the exploration cross-cuts. As of December 31, 2014, there have been 1,092 samples taken on the 575, 600, 625, 650, 675 levels. These samples were used in geological modelling and visual validation of the interpolation results.
Mineralization
Mineralization occurs as a series of replacement veins, stockworks and hydrothermal breccias typical of other high level low-sulphidation epithermal deposits found in the Sierra Madre. These deposits form in predominantly felsic sub-aerial volcanic complexes in extensional and strike-slip structural regimes. Samples previously collected by various parties including SilverCrest show a geochemical signature of gold + silver + antimony + lead + zinc + barium +calcium +manganese which is consistent with a high calcium, high level, low-sulphidation system. The mineralization is the result of ascending structurally controlled low-sulphidation silica-rich fluids into a near-surface environment. Mineral deposition takes place as the fluids undergo cooling by fluid mixing, boiling and decompression. Brecciation of the mineralized zone appears to be due to explosive venting from an assumed intrusive at depth followed by deposition of the mineralization by ascending fluids.
The structure consists of multiple banded quartz veins and stockwork with associated adularia, fluorite, calcite and minor sulphides. Bonanza ore shoots (greater than 500 grams per tonne of silver and 30 grams per tonne of gold) appear to be locally present but require more definition to determine their full extent. Metal zonation appears to exist with higher grades and thicker mineralized widths near the epithermal boiling zone, one of which daylights in the open pit area. A trend of higher grades and thicker veining is apparent with a plunge of approximately 25 degrees to the east. Drill hole SE-12-74 intersected the vein at approximately 500 vertical metres depth with an average uncapped grade of 1.56 grams per tonne gold and 133 grams per tonne silver over seven metres (not calculated as true width) along this plunging trend from the current open pit operation. Zonation also appears to correspond to northwest-trending cross-cutting structures that intersect the main zone and form high grade shoots. Vertical zonation shows gold content consistent with depth and silver content increasing. At the surface, the silver to gold ratio is 20:1. At 500 metres below surface, the ratio is approximately 100:1. Minor sulphides have been observed in a few locations within the mineralized zone. The andesite in the hanging-wall shows disseminated pyrite averaging 5%. Calcite is found in close proximity to pyrite and averages about the same. Some select locations in the hanging-wall show greater than 30% of finely disseminated pyrite spatially associated with greater than 30% disseminated and veinlet calcite. Hydrothermal breccias exist in the hanging-wall andesites proximal to the Main Zone with drill holes intercepting up to 200 metres of breccia with a pyrite/calcite matrix.
Alteration within the deposit is widespread and pervasive, with the most significant being silicification, kaolinization, and chloritization. Kaolin and alunite has formed primarily along structures and contacts, which are deeply weathered and oxidized. Limonite within the oxide zone consists of a brick-red colour after pyrite, brown goethite and local yellow jarosite. Manganese occurs locally as pyrolusite and minor psilomelane near the surface. Gangue minerals consist of quartz, calcite, adularia, chlorite and fluorite. Analyses shows calcium content of up to 15%.
Drilling
SilverCrest completed four drill programs from early 2006 through 2011. In 2012-2013, SilverCrest targeted delineation of shallow, below-pit mineralization and deep mineralization, mostly trending to the east, with additional drilling and the first underground drilling program to take place at Santa Elena in fall 2013. Three drilling companies were contracted; Major Drilling de Mexico based in Hermosillo, Mexico, Guardian Drilling from Saskatchewan, Canada, and DrilCor based in Durango, Mexico. All companies were involved in surface drilling programs, however, only DrilCor worked with the underground exploration drilling. This drilling focused on delineating and extending the areas along trend and down-dip of the main mineralized zone. Other drilling was located off strike to explore for near parallel mineralization. A total of 20 drill holes were collared using reverse circulation (“RC”) to expedite hanging wall drilling, then finished with diamond core from approximately 40- 50 metres before the vein target depth through to the barren footwall. This practice was discontinued due to significant deviation in the pre-collared holes. A total of 21 diamond drill (“DD”) holes (1,590.7 metres) were drilled in the underground 2013 program. A total of 218 holes (72,965 metres including RC with DD tails) were drilled during the 2012-13 program, including holes drilled from within the current pit and the 2013 underground program.
During 2014, SilverCrest targeted infill drilling in the underground area for the initial stopes. This drilling resulted in approximate spacing of about 25 metres in the initial stope area, which was previously around 50 metres, allowing SilverCrest to create a more defined model and giving a better idea of grade distribution. This drilling was completed by Major Drilling de Mexico based in Hermosillo, Mexico and DrilCor based in Durango. A series of additional deep drill holes to both the east and the west of the main mineralized zone were done to focus on the delineation and extension of the ore body to depth and also some drill holes targeting the extension of the El Cholugo and Tortuga vein were completed in 2014. To the date of the New Santa Elena Report, down hole surveys were completed on the majority of the drill holes including all 2014 drill holes both at surface and underground drilling. For the 2014 drilling, surveys were taken at an interval of approximately 30 metres, an initial reading at 10 metres was first taken to ensure no deviation had occurred during set up for the drill rig.
Also in 2012, 10 trenches and subsequent bulk composite samples were excavated using an excavator to an average depth of five metres on the leach pad. Sampling was to test spent ore metallurgy for estimated recovery rates through the milling process.
Sampling and Analysis
The 2006 sampling by SilverCrest consisted of continuous surface channel sampling along exposed road cuts and outcrops. The underground verification channel sampling program consisted of semi-continuous horizontal sampling of identified Fronteer sample locations. The samples were collected over selected intervals, placed in plastic bags and periodically shipped to ALS-Chemex in Hermosillo Mexico for preparation, with sample pulps shipped to and analysed by ALS-Chemex, North Vancouver, BC. The 2006, 2007 and 2008 core drilling procedure included the collection and labelling of the drill core. After logging and identifying the mineralized zone, core was selected for splitting and sampling. The 2008 RC drilling program consisted of collecting chips and cataloguing. The 2012 and 2013 drilling program included procedures for the collection and labelling of the drill core. A total of 15 drill holes were first drilled by RC methods and finished with diamond core tails with a further four drilled purely as RC of HQ size drill core (63.5 millimetres diameter). Although RC cuttings were not retained, a number of samples from the hanging wall were sampled.
The drill core was recovered and stored in vinyl boxes, each of which contains approximately 2.25 metres of core. Drill runs were identified in the field by drillers using markers in the core boxes at three metre intervals. These intervals were validated by SilverCrest geologists. Recovered drill core was boxed by the drillers on-site. The core boxes were collected and delivered twice daily to the on-site core logging facility where the core was logged and sampled by SilverCrest technical staff. Core is currently stored on-site for future viewing and reference. Core logging procedures included review of the core quality and recording of recovery, lithological, geotechnical and mineralogical data within standardized company logging forms. After characterizing the mineralization, SilverCrest geologists marked the start and end of each interval for sampling. The drill core sample lengths range from 0.11 to 36.7 metres (the latter was checked in supplied drill logs as being correct) and mode of approximately two metres. Not all drill holes were entirely sampled. The average sample length used in the 2013 resource is 1.74 metres.
Sample intervals were recorded on the core box with sample tags. The intervals were marked on the drill core which was cut in half by a SilverCrest technician using a diamond saw blade. Half of the core was sealed in a sample bag with the corresponding sample tag. The other half of the core sample was returned to the core box for company record and future viewing. Sample numbers, intervals, and descriptions were recorded on the standardized drill logs. SilverCrest inserted certified reference materials (“CRMs”), blanks and duplicates samples at regular intervals into the sampling stream. In addition internal laboratory quality assurance/quality control (“QA/QC”) procedures were followed.
The 2013-2014 drilling program included procedures for the collection and labelling of the drill core. The entire core was checked to make sure it is placed and oriented well. The core boxes are marked with the start and end of each box run. While doing this the geologists look over the core to have a general idea of the geology and mineralization before starting their description. The core is photographed and logged in detail. The samples are measured based on the above sample requirements and includes the percent recovery within the drill run. There are marker tags put in at the start of each sample. If there is a sample that has no sampling to be done after because of waste rock then a marker is put in to indicate the end of the sample for the core cutter. The core is then cut with an electrical diamond saw into halves. The uncut half of the core is carefully placed back into the correct location in the box. After cutting the interval, samples are placed in a bag marked with the sample number, hole name and project name. The sample identification tag is then placed in the bag and the bag is tied. For standards, CRMs contain known metal concentrations (grade and variability). They are used to assess analytical accuracy and to detect biases by comparing the assay results against the expected grade of the standard. For the insertion of standards, a reference standard was created from the source deposit and processed in CDN Laboratory from that result material were measured out on a scale and put into envelopes containing 100 grams. Lab sheets are filled out and the samples are delivered to the lab. Rejects and pulps are picked up directly from the lab as soon as the assay has been completed and stored in the core storage in Santa Elena. Samples collected, that are to be used for resource or reserve evaluation, should contain a minimum of one kilogram of sampled material when appropriate. Exceptions may include narrow widths sampled in outcrop or core intervals where collecting a one kilogram sample is impractical. However, in these cases the sample must be representative of the total material being assessed.
There are three different sample types taken at the underground Santa Elena Mine. They are:
Channel Samples (chip samples) consisting of:
| ● | Face Channel Samples, where: (a) every round of a new development face is sampled, for that purpose the geologist mark the channel to be taken to the geology helpers; (b) this mark is done around 1.5 metres from the floor elevation, from the foot wall to the hanging wall - the channel is divided according the lithology or features of the face, not taking samples greater than 1.5 metres; (c) the sampler takes the samples based on the marked provided by the geologist using a chisel and hammer; (d) to recover the sample the crew use a plastic canvas that is cleaned after every sample is collected; (e ) the sample has an identification number that helps recognize the precedence and assay from the lab; and (f) on every face the geologist marks a composite line that is for QA/QC duplicates. A blank sample is introduced every face, usually after the highest grade are identified by the geologist. |
| ● | Back Sample, where: (a) channels are marked by the geologist every 10 metres long the back to be sampled; (b) From the footwall to the hanging wall - the channel is divided according the lithology or features of the back, not taking samples greater than 1.5 metres; (c) the sampler arrives to the area and takes the samples based on the mark provided by the geologist - these samples are taken on the lifter (tele handler), using a chisel and hammer (d) to recover the sample the crew use a plastic canvas that is cleaned after every sample is collected - this is on the floor of the lifter; (e) the samples have an identification number that help recognize the procedure and assay from the lab. |
| ● | Exploration Crosscuts Sample, where: (a) this mark is done around 1.5 metres from the floor elevation, from the footwall to the hanging wall – the channel is divided according the lithology or features of the face, not taking samples greater than 1.5 metres, marks are done in both walls of the cross-cut; (b) the sampler arrives to the face and takes the samples based on the mark provided by the geologist using a chisel and hammer; (c) to recover the sample the crew use a plastic canvas that is cleaned after every sample is collected; and (d) the samples has an identification number that help recognize the precedence and assay from the lab. |
Muck Samples, where: (a) all the trucks that are sent from UG as ore (from stopes, slashes, development) that are dumped in the stock piles of the primary crusher are sampled; (b) every morning and afternoon the samplers arrive to site and wash the muck; (c) from every muck pile, a 75 centimeter distance grid is marked; they take a sample in all of the intersections of that grid; (d) the sample has an id number that help recognize the precedence and assay from the lab; and (e) QA/QC control consists of rejects resampled from the highest grade samples.
Cuts from Long hole drilling samples, where: (a) the objective is to sample all the holes that are going to be drilled in that shift - the geologist communicates with the operations to know where they are going to be drilling; (b) the person that is in charge of the sample collection has to take a sample of the cuts of the drill hole every two rods (approx. three metres); (c) there are as many bags as the length of the hole, all of the bags have the name of the hole that is being drilled; (d) then the bags are analyzed by the geologist, to choose one or two representative samples - to do that the geologist will use a splitter; and (e) the samples have an identification number that help recognize the precedence and assay from the lab.
For the 2012-2013 sampling, two analytical laboratories were used for sample analyses: Nusantara de Mexico S.A. de C.V (“Nusantara”), an on-site grade control laboratory for Santa Elena operations; and ALS-Chemex. Nusantara either prepared and analysed samples, or prepared and transported samples to ALS-Chemex in Chihuahua or Hermosillo for further preparation before being sent to ALS-Chemex in Vancouver for analyses. For the 2013-2014 sampling, three analytical laboratories were used for sample analyses: Nusantara, ALS-Chemex and Inspectorate. Nusantara either prepared and analysed samples, or prepared and transported samples to ALS-Chemex or Inspectorate in Hermosillo for further preparation before being sent to ALS-Chemex or Inspectorate in Vancouver for analyses.
For the heap leach sampling, preparation and analyses for 2012 to 2013, all sampling was carried out by SilverCrest’s geologists and sampling protocols adopted the following procedures: (a) plastic bags were placed in a tray in the vertical outlet of the cyclone and into a container to avoid loss of material; (b) full interval was sampled and samples were taken at multiple orders according to the depth of the hole – for holes with a length of 10 and 20 metres, samples were taken every two metres - holes with length of 15 metres, samples were collected every three metres and only one five metre sample was collected for holes with five metre length; (c) all bags were labelled with the corresponding depth; and (d) the samples were delivered to the Santa Elena Mine site lab for splitting to pulverization and additional splitting to generate aliquot for analyses. All samples were handled by geologists at the Santa Elena Mine site. Samples were sent to the Santa Elena Mine lab for analyses. Analytical method for gold included Fire Assay finishing in AA as well as gravimetric analyses for comparison purposes and for silver an Aqua Regia digestion finishing in AA. Blanks and CRM were inserted by exploration personnel prior to the sampling preparation at the Santa Elena Mine lab to carry out a QA/QC protocol in the preparation and analyses of the samples collected by the drilling program on the pad. The results did not indicate deviations from the blanks and CRM assay values.
Data Verification and Security of Samples
Historical data prior to the 2006 SilverCrest drilling campaign is not included in the current geological database.
During April 2006, Scott Wilson Roscoe Postle Associates (“SWRPA”) collected select samples for verification, including an underground continuous channel sample and quarter splits of drill core and sent to ALS - Chemex in Hermosillo with a regular shipment of core samples. Overall, the grade comparisons are considered to be within acceptable ranges.
In May 2006, SilverCrest collected 15 underground channel samples to verify the sampling results of Fronteer samples. Although there was variation in the data, SWRPA considered it acceptable at this stage of property development to use the Fronteer data in the resource estimate. Gravimetric silver grades were consistently higher compared to both the Fronteer and the SilverCrest silver fire with AA finish results. The result lends support to the higher values. The fire assay with AA results was used in the resource estimate as they were more similar to the Fronteer results which were also used.
In addition to the underground sampling by SilverCrest, SilverCrest completed silver geochemical analyses on 289 surface samples for fire assay AA finish and fire assay gravimetric analyses. Results show an overall 20.3% increase in silver grade using silver gravimetric assays. AA silver results were used in the resource estimation and are considered conservative for grade estimation. For QA/QC, duplicate analyses on 16 of 298 samples were completed at ACME Laboratories in Vancouver on ALS-Chemex pulps from core sampling and preparation. Although the ACME results have a higher detection limit, the limited results on the duplicate pulps show consistent correlation of grades between laboratories. During the 2008 drilling, approximately every 20th sample was duplicated in a different laboratory for QA/QC purposes. The comparison for 2008 drill sample results show average gold and silver results to be similar and within acceptable limits for QA/QC. The authors of the Santa Elena Report are of the opinion that the data meet accepted industry standards and are suitable for use in estimating resources.
EBA Engineering Consulting (now Tetra Tech EBA), visited the Santa Elena Mine between May 10-11, 2012 and October 13-14, 2012 (during the 2012 – 2013 drilling campaign). At this time, rock exposure in the open pit and exploration underground decline were inspected, sample collection and logging procedures were reviewed, verification samples were collected and recommendations for sampling quality control measures were made.
Insertion of CRM at regular intervals was completed by SilverCrest staff during the 2013-2014 Santa Elena Mine drill program. SilverCrest inserted 114 blank samples in a random fashion and near to expected high grade samples during the 2013-2014 drilling program, each blank was labelled “Blank” or “Blanco” in the drill hole data base.
The author of the Santa Elena Report has reviewed the data verification methods at the Santa Elena Mine and believes that the methods meet an industry standard of practice and are sufficient to support estimation of Mineral Resources and Mineral Reserves.
Mineral Processing and Metallurgical Testing
There has been varied metallurgical test work done on the Santa Elena Mine over the last thirty years. More recently, metallurgical test work was carried out by Inspectorate Mining and Metals (“Inspectorate”) in their Richmond, BC facility on samples from Santa Elena. Inspectorate also generated slurry samples for testing at Pocock Industrial in Salt Lake City for thickening and filtration characterization. Additional test work was carried out in Sonora at the University of Sonora.
As detailed in the Santa Elena Report, extensive metallurgical test work including ongoing operations data show that all declared Mineral Reserves are amenable to conventional leaching by standard CCD milling with a Merrill Crowe recovery system for doré bar production.
Metallurgical Operational Results up to December 31, 2014
The Santa Elena heap leach operation was completed in mid-2014 with the transition to the new CCD/Merrill Crowe (“CCD/MC”) processing facility. The shutdown of the pad took several months as residual leaching provide metal ounces for production and water balance was adjusted as the new processing facility was brought on line as of December 31, 2014, 3.34 million tonnes of leach pad material remain and has been fully or partial leached with overall recovery rates of 60% gold and 30% silver. The leach pad material or ore is currently being reprocessed through the new processing facility. No crushing is required for this ore with direct feed to a reclaim stockpile area where it is mixed with crushed underground or open pit ore. The new 3,000 tonnes per day conventional CCD/MC processing facility was commissioned between May to August 2014 and commercial production was declared on August 1, 2014. For 2014, a total of 526,525 tonnes grade 1.03 grams per tonne gold and 68.23 grams per tonne silver at recovery rates of 90% gold and 66% silver were processed through the new facility. The overall blend (mix) of pad ore and underground ore was approximately 70/30. The open pit was shut down on April 1, 2014 and not reopen until January 2015, therefore no open pit ore was blended in the new process in 2014. A total of 27,609 ounces of gold and 2,813,559 ounces of silver were produced from the final stages of pad leaching and the new facility in 2014. As of the end of 2014, optimization and efficiencies were underway to improve process throughput and recovery rates. Work is being focused on; 1) ball mill grind size to achieve P80, 80% passing 100 microns with December throughput showing 72 to 74% passing, 2) leach tank cyanidation levels ranging from 750 parts per million to 1200 parts per million, 3) leach tank increased oxidation using air and/or lead nitrates, 4) lab work on silver sulphide mineralogy and metallurgical responses for increased recovery, and 5) process tailings washing to collect and recirculate cyanide back into the process.
Updated Mineral Resource and Mineral Reserve Estimates
The update to the Mineral Reserves and Mineral Resources (open pit, underground and leach pad) for the Santa Elena Mine are shown in the table below. Only Indicated Mineral Resources were used to define Mineral Reserves in the updated mine plan, schedule and economic analyses
To summarize, total Probable Mineral Reserves are 7.45 million tonnes grading 1.23 grams per tonne gold and 78.4 grams per tonne silver, containing 295 thousand ounces of gold and 18.76 million ounces of silver. This represents a 10% decrease in contained gold and 5% decrease in contained silver over previous Probable Mineral Reserves. Updated Indicated Mineral Resources (exclusive of Probable Mineral Reserves) are estimated at 1.1 million tonnes grading 1.39 grams per tonne gold and 89.7 grams per tonne silver, containing 50 thousand ounces of gold and 3.2 million ounces of silver. This represents a 57% decrease in contained gold ounces and 59% decrease in contained silver ounces over previous Indicated Mineral Resources. Updated Inferred Mineral Resources are estimated at 0.56 million tonnes grading 1.69 grams per tonne gold and 106.5 grams per tonne silver, containing 31 thousand ounces of gold and 1.9 million ounces of silver. This represents a 57% decrease in contained gold ounces and 74% decrease in contained silver ounces.
The percentage differences in gold and silver from the previous estimate are based on: (a) a minimal of decrease of overall Mineral Reserves from mining depletion even with base case metal price used for cut off analyses changed from $1,450 per ounce of gold to $1,300 and $28 per ounce of silver to $19.50; (b) a decrease in open pit Mineral Reserves due to mining depletion due to mining from April 30, 2013 to April 1, 2014; (c) an increase in leach pad Mineral Reserves with continuation of open pit mining in 2013 and 2014 and partial leaching (300 day leach cycle) of ore; (d) overall, increase in mine life after mining depletion; (e) Mineral Resources have been impacted by conversion to Mineral Reserves, lower base case metal prices, update geological model incorporating infill drilling, changes in estimation supported by additional drilling completed in 2013; and (f) 2014 and production data generated during the life of mine at the open pit operations.
The following table sets forth the updated estimated Mineral Reserves and Mineral Resources for the Santa Elena Mine sourced from the Santa Elena Report (gold only, excludes silver grades for Sandstorm Gold reporting purposes) as of December 31, 2014:
| Classification | Tonnes
(000s) | Gold Grade
(grams per tonne) | Contained Gold
(ounces) |
| Underground Diluted and Recoverable Reserves(1) | | |
| Probable | 3,982 | 1.67 | 214,000 |
| Open Pit Reserves(2) | | |
| Probable | 122 | 2.75 | 11,000 |
| Leach Pad Reserves(3) | | |
| Probable | 3,345 | 0.65 | 70,000 |
| TOTAL RESERVES | 7,448 | 1.23 | 295,000 |
| |
| Resources (4) | | |
| Indicated | 1,117 | 1.39 | 50,000 |
| Inferred | 564 | 1.69 | 31,000 |
All numbers are rounded. Underground and Leach Pad Mineral Reserves and Mineral Resources are based onlife of mine plan metal price trends of $1,300 per ounce gold and $19.50 per ounce silver, and metallurgical recoveries of 92% gold and 67.5% silver. All Mineral Resources and Mineral Reserves conform to NI 43-101 and CIM definitions for Mineral Resources and Mineral Reserves. Inferred Mineral Resources have been estimated from geological evidence and limited sampling and must be treated with a lower level of confidence than Indicated Mineral Resources.
| (1) | Underground Probable Mineral Reserves are based on a cut-off grade of 2.49 grams per tonne gold equivalent with an average estimated 10% dilution and 90% mine recovery. Average true thickness of the designed stopes is ten metres. |
| (2) | Open Pit Mineral Reserve is based on a cut-off grade of 0.20 grams per tonne gold equivalent in a constrained pit shell with applied capping of eight grams per tonne gold and 300 grams per tonne silver. |
| (3) | Leach Pad Mineral Reserve based on production and drill hole data for volumetrics and grade model using a cut-off grade of 0.5 grams per tonne gold equivalent. No capping was applied. |
| (4) | Mineral Resources exclude Mineral Reserves and are based on a 1.5 grams per tonne gold equivalent cut-off grade using assumptions for prices and recoveries as stated above. Capping was applied at 12 grams per tonne gold and 700 grams per tonne silver. |
| (5) | Ramon Mendoza Reyes, P. Eng., Vice President Technical Services for First Majestic, a QP under NI 43-101, has reviewed and approved the Mineral Reserves and Mineral Resources set forth above. |
With the update to Mineral Reserves, the Santa Elena Mine life is scheduled to continue for eight years at nominal milling rate of 3,000 tonnes per day with reduced throughput in the last two years upon depletion of leach pad reserves. The mine schedule is based on mining long hole stopes early in the mine life at attractive lower costs with small reserve being mined using cut and fill stopes towards the end of the mine schedule.
Mining Operations, Exploration, Development and Production
Initially, the Santa Elena Mine open pit heap leach mine was constructed in late 2009 and 2010 and was operational from 2010 to 2014. During 2013 and 2014, the open pit heap leach was transitioned into an underground, milling and CCD /Merrill Crowe 3,000 tonne per day processing facility. As of December 31, 2014, all transition projects have been fully constructed, commissioned and commercial production announced. The Santa Elena Mine ore body varies in dip and thickness along strike and at depth. As a result, two well established underground mining methods have been selected for ore extraction, as follows:
| Orebody Geometry | Mining Method |
| Dip > 55 degrees, Thickness > 5 metres | Longitudinal Long hole Stoping (including Avoca) |
| Dip < 55 Degrees, > 5 metres | Mechanized Cut and Fill |
In general, conventional mechanized mining methods have been selected. The basis of the development of the mining methods and consequent equipment selection has been that SilverCrest will undertake production drilling, blasting and loading using a contractor for the waste rock and ore haulage to surface. Initially a contractor will be retained to carry out mine development, with jumbo drill rigs purchased later in the mining life, after which development will be done in house. Approximately 81% of stoping will be by long hole method and 11% by cut and fill methods. Most long hole stopes are produced early in the mine schedule. Average stope width is 10 metres.
Conventional open pit mining will continue using a contractor until the second quarter of 2015 when open pit reserves are depleted. Mining of the heap leach spent ore (“pad ore”) will be completed by loader and conveyor to transport material to the plant until 2021.
SilverCrest’s mining schedule estimates the tonnages to be mined from the underground, open pit and the existing heap leach facility to feed the process plant at a nominal rate of 3,000 tonnes per day. The schedule is based on optimizing higher grade long hole stopes first, with more costly cut and fill mining left for later in the mine life. An underground mining schedule has been developed for the stopes in the reserve model and for development required to access the stopes throughout the life of mine. Peak production is reached in year six. A 50%/50% mix (underground to pad ore) is assumed for the first six years.
Processing and Recovery Operations
The ore from both underground and open pit resources will be processed by conventional milling and cyanide leaching technology. In addition partially leached material from the existing heap leach operations will be blended with open pit and underground ore at a variable rate and reprocessed through the same plant. Santa Elena ore (Open Pit, Underground and Leach Pad) contains an estimated grade of 1.23 grams per tonne gold and 78.4 grams per tonne silver and after crushing and grinding can be leached in cyanide to yield approximately 92% gold recovery and 67.5% silver recovery. Because of the relatively high level of silver in the ore (and hence solutions) there are advantages and benefits to using traditional CCD and Merrill-Crowe for metal recovery rather than CIL/CIP. The partially leached heap ore yielded recoveries of approximately 60% gold and 30% silver when crushed to 10 millimeters and processed on the heap leach (partial leach cycle to Q2 2014). On re-leaching after grinding in the new plant, the balance of the metals are recovered to the level expected from new ore from open pit and underground indicates as 92% for gold and 67.5% for silver. The process plant has been designed to treat a nominal 3,000 tonnes per day of ore, a mixture of freshly mined material and partially leached heap leach residue. The plant has been designed to treat any proportion of these two types of feed.
Infrastructure, Permitting and Compliance Activities
As of December 31, 2014, all transition projects have been fully constructed, commissioned and commercial production announced. Much of the same infrastructure facilities utilized for the open pit mine continue to be used for the new operations, including, but not limited to, access roads, waste dumps, explosive magazines, office buildings, fuel storage facilities, power generation, primary crushing equipment, heap leach pads and solution collection ponds.
Environmental studies have been conducted on the existing open pit excavation occurring at the Santa Elena Mine. An independent Closure and Mine Reclamation Plan was created for the Santa Elena Mine project in March 2010, and updated in January 2014, by Global Resource Engineering Ltd. This initial plan incorporated study results from baseline environmental impact, water quality and geotechnical stability studies for the original open pit, processing and waste dump. The updated plan in 2014 incorporates plans for earthworks in regards to topsoil placement on impacted grounds, earthworks for erosion control, demolition and removal of old buildings. Consideration for mine closure, remediation and ongoing monitoring and stewardship activities are included within the economic model for the Santa Elena Mine. A revision to this closure plan has been recommended.
Capital and Operating Costs
Capital Costs
SilverCrest estimated total sustaining capital costs during the life of mine of $31 million, including contingency, which includes $4.8 million budgeted for surface and underground drilling. SilverCrest estimated total operating costs ranging between $43 and $69 per tonne of ore processed, depending on mining method. The majority of the revised Reserve assumed an approximate 50% underground ore to 50% pad ore blend. An average operating cost based on this assumption is $46.85 per tonne of ore including sustaining capital.
| Sustaining Capital Cost, Including Exploration Drilling Expense |
| Site Infrastructure | $2,066,200 |
| Mill Sustaining Capital | $1,785,000 |
| Underground waste development expenses | $16,086,600 |
| Underground equipment and infrastructure | $6,236,300 |
| Underground and 2015 surface drilling | $4,783,300 |
| TOTAL CAPITAL COSTS: | $30,957,400 |
Note: All numbers have been rounded.
Operating Costs
Operating costs for the Santa Elena Mine have been estimated for the underground mining, processing costs and general and administrative costs. SilverCrest estimated the life of mine plan operating costs at an average of $46.85 per tonne of ore processed.
| Mining Method | Open Pit | Underground
Long Hole
Average | Underground
Cut & Fill
Average | Leach Pad
Reprocess |
| Process Method | CCD Mill | CCD Mill | CCD Mill | CCD Mill |
| Mining Cost/tonne(1) | 9.90 | $28.71 | $50.00 | $0.00(2) |
| Processing Cost/tonne(3) | $24.49 | $24.49 | $24.49 | $24.49 |
| General & Administration/tonne(4) | $5.41 | $5.41 | $5.41 | $5.41 |
Notes:
| (1) | Long hole stopes are 89% of designed stopes by volume and cut & fill stopes are 11% of designed stopes by reserve volume. Excludes ore development costs. Includes adjustment for exchange ratio impact in the mining costs. |
| (2) | Mining cost of spent ore on leach pad is covered under processing costs. |
| (3) | Processing includes crushing, milling, site refining and dry stack tailings disposal. |
| (4) | Estimated based on current operations and may vary on an annual basis. A 4% annual inflation rate has been applied to general and administrative costs. |
Economic Analysis
The Base Case economic analyses use a range of metal prices per ounce for gold and silver. For gold prices, the range is defined as $1,250 (2015), $1,275 (2016) and $1,300 (2017 – 2022) and for silver prices the range is defined as $18 (2015), $19 (2016), $20 (2017) and $21 (2018 – 2022). On this basis, the following economic highlights for a continued 8 year mine life beginning January 2015 are:
| • | Total operating revenue of $555 million from estimated sales of 12.6 million ounces of silver and 270,700 ounces of gold. |
| • | Total operating costs of $349 million. |
| • | Estimated cash operating costs averaging $11.59 per silver equivalent (“AgEq”) ounce (gold:silver average ratio of 64.5:1 based on sold ounces for the life of mine plan. |
| • | Total sustaining capital costs of $31 million including the life of mine plan underground drilling programs and 2015 surface exploration expenditures. |
| • | Total pre-tax undiscounted cash flow of $163 million including estimated closure cost deductions of $6 million. |
| • | Pre-tax Base Case pre-tax NPV (5%) of $144 million. |
| • | Post-tax Base Case post-tax NPV (5%) of $119 million. |
Metal price sensitivities were completed including spot price as $1,193/ounce gold and $16.16/ounce silver (representing spot price in December, 2014) which showed a pre-tax NPV (DCF @ 5%) of $84.3 million. The economic analyses considers SilverCrest delivering 54,133 ounces of gold to Sandstorm Gold at an average price of $412 per ounce ($350 to $450 per ounce with annual 1% inflationary increases) under the Santa Elena Gold Stream.
Santa Elena Mine Milestones
Current activities at the Santa Elena Mine include:
| ● | In January 2016, First Majestic announced that during the quarter ended December 31, 2015, the Santa Elena Mine exceeded guidance by producing 673,969 silver ounces and 11,110 ounces of gold, for a total quarterly production of 1,506,405 silver equivalent ounces. The mill processed a total of 254,625 tonnes during the quarter, consisting of 127,396 tonnes of underground ore and 127,229 tonnes from the above ground heap leach pad. Gold grades and recoveries averaged 1.47 grams per tonne and 92% respectively. Underground development completed in the quarter totalled 1,738 metres. |
Chapada Mine, Brazil
A technical report was prepared for Yamana in accordance with NI 43-101 entitled “Technical Report on the Chapada Mine, Brazil” dated July 31, 2014 (the “Chapada Report”).
The following description of the Chapada Mine has been sourced, in part, from the Chapada Report and readers should consult the Chapada Report to obtain further particulars regarding the Chapada Mine. The Chapada Report is available for review under Yamana’s profile on the SEDAR website located at www.sedar.com.
Information in this section that provides non-material updates to the information in the Chapada Report has been provided by Yamana and/or has been sourced from their press releases with respect to the Chapada Mine. Certain capitalized terms in this section not otherwise defined have the meanings ascribed to them in the Chapada Report. Theupdated Mineral Reserves and Mineral Resources information to December 31, 2015 has been sourced from Yamana’s press release dated February 18, 2016, as filed on SEDAR.
Property Description, Location and Access
The Chapada Mine is located in northern Goiás State, approximately 320 kilometres north of the state capital of Goiania and 270 kilometres northwest of the national capital of Brasilia. It is situated at latitude 14° 14’ S, longitude 49° 22’ W. The Corpo Sul deposit is situated at the southwest extremity of the Chapada deposit. The Suruca deposit is located six kilometres northeast of the Chapada Mine at approximately latitude 14° 11’ S, longitude 49° 20’ W.
The Chapada Mine is divided into 16 claims covering 18,921.37 hectares. The claims are held in the name of Mineração Maracá Indústria e Comércio S/A (“Mineração Maracá”), a 100% owned subsidiary of Yamana. See also “– Current Exploration and Development”.
Yamana (via Mineração Maracá) holds all of the surface rights in the area of the Chapada Mine, which incorporates all of the proposed locations of buildings, fixed installations, waste dumps, and tailing disposal in the current mine plan. Yamana is of the opinion that it can acquire the right to dispose of waste rock and tailings on additional surface property, if and when required. The land ownership is registered with the Registrar of Real Estate in Mara Rosa, Goiás.
Other than statutory royalties which are paid to the Brazilian government based on commercial copper and gold production, as detailed in the Chapada Report, the authors are not aware of any rights, agreements or encumbrances to which the Chapada Mine is subject, which would adversely affect the value of the property or Mineração Maracá’s ownership interest. The environmental licensing process for Corpo Sul started in 2013 and the required licences were granted in 2014. No current environmental liabilities have been identified within the mine area. Ongoing items such as waste stockpiles, depleted heap leach piles, and tailings storage facilities will be rehabilitated during the mine life or at the time of mine closure.
Access to the project area from Brasilia is via BR-153 (Belem/Brasilia) to Campinorte (GO) and then via GO-465 (Campinorte/Santa Terezinha) west to Alto Horizonte. The town of Alto Horizonte lies between the Suruca and Chapada deposits. Chapada Airport, suitable for small aircraft with an 800 metres long airstrip, is located close to Alto Horizonte, approximately four kilometres northeast of the Mine. Suruca is located six kilometres northeast of the Chapada Mine.
Climate, Local Resources, Infrastructure and Physiography
The region has a tropical climate characterized by two well defined seasons; the rainy season from November to March and the dry season from April to October, with an annual average rainfall of 1,500 millimetres. The average annual temperature is approximately 22 degrees Celsius. Mining operations occur throughout the year.
The local economic activity is principally agro-pastoral, but there are some small scale mining activities related to gold in alluvium and quartz veins and for clay used to make bricks. The most important towns in the region are Uruaçu, Campinorte, Porangatu, Mara Rosa and Nova Iguaçu de Goiás. They all have good infrastructure to support exploration activities. The municipality of Alto Horizonte has a population of approximately 3,100 and the nearby towns (within 50 kilometres) of Campinorte has 9,700, Mara Rosa 10,400 and Uruaçu 33,300.
Electrical power is provided by the Brazilian National Grid. The power line (230 kilovolt) is 85 kilometres long and taps into the national grid near Itapaci in Goiás State. The Chapada Mine requires approximately 1,000 cubic metres per hour of water. Rio Dos Bois currently supplies approximately 750 cubic metres per hour, with mine drainage water, rainfall, and industrial drainage areas making up the difference.
The average elevation of the project area is approximately 300 metres above sea level. The topography is characterized by low rolling hills, with large contiguous flat areas. The vegetation is referred to as “cerrado”, a tropical savannah eco-region which comprises a diverse variety of low tropical trees, shrubs, and native grasses, most of which have been cleared and serves as cattle grazing land for local landowners.
History
The Chapada deposit was discovered in 1973 by a Canadian company, INCO Ltda. (“INCO”), which followed up with geochemistry, geophysics, trenching, and initial drilling. There are few outcrops in the mine area due to laterite-saprolite cover. Consequently, deposit definition required extensive diamond drill exploration. Development drilling of the deposit occurred in several campaigns from 1976 through 1996 by INCO, Parsons- Eluma Projetos e Consultoria S/C (“Parsons”), a Brazilian copper company, Eluma — Noranda, Santa Elina, and Santa Elina-Echo Bay (“Echo Bay”). Historical ownership and exploration activities are summarized below.
Chapada Deposit
Ownership and Exploration Activity
| Date | Owner | Activity |
| 1973 | INCO | Chapada discovery. |
| 1975-1976 | | 2,000 metres x 500 metres grid drilling program. Parsons acquires a 50% interest in the Chapada project. |
| 1976-1979 | INCO & Parsons | 200 metres x 100 metres drill grid. A 92 metres deep shaft is completed with 255 metres of cross-cuts for exploration and metallurgical sampling. |
1979 | | Mining concession No. 2394 covering 3,000 hectares is issued to Minerção Alonte by the Departamento Nacional da Prodicao Mineral (“DNPM”). |
| 1980-1981 | | Soil drilling completed in the plant, tailing ponds, and potential water dam areas. |
| 1981 | Parsons | Feasibility Study completed. |
| 1994-1995 | | A 4,500 metres drilling program re-evaluation of a near surface gold deposit. Preliminary feasibility study by Watts, Griffis and McOuat. |
| May 1994 | SERCOR | Minerção Santa Elina Industria e Comercio S/A (“SERCOR”) acquires the Chapada deposit through a subsidiary, Minerção Maracá. |
| July 1994 | SERCOR and Echo Bay | Echo Bay acquires an initial interest in Santa Elina by purchasing 5% of the outstanding shares from SERCOR. |
| Dec 1994 | | Santa Elina completes its initial public offering. |
| Sep 1995 | | Santa Elina and Echo Bay approve the Chapada project joint venture. Santa Elina issues about 3% of the outstanding shares to Echo Bay. Echo Bay received the option to acquire 50% interest in the project. |
| May 1996 | | Santa Elina is privatized and SERCOR and Echo bay become equal owners of the company. |
| Dec 1996 | | Santa Elina completes an in-fill drilling program. |
| Dec 1997 | | Independent Mining Consultants, Inc. reviews the Echo Bay model and completes a mine feasibility study. |
| Jan 1998 | | Kilborn Holdings Inc. (now SNC-Lavalin Group Inc.), completes the Chapada project bankable feasibility study. |
| Apr 2001 | | Construction licence issued. |
| May 2000 | PINUS | PINUS acquires 100% of the Minerção Maracá. |
| 2003 | Yamana | The property is purchased by Yamana |
| 2004 | | The feasibility study is completed. |
| 2007 | | Commercial production starts. |
In 2008, Yamana started a plant expansion to increase throughput from 16 million tons per annum to 22 million tons per annum.
From 2007 to the end of 2013, the Chapada Mine has produced 129 million tonnes grading 0.36 grams per tonne gold and 0.41% copper.
The Suruca deposit has been explored by various companies since the 1970s, as summarized below, and was exploited by garimpeiros in the 1980s. Yamana reports that garimpeiros produced approximately 200 kilograms of gold in that period.
Suruca Deposit
Exploration Activity
Date | Ownership |
| 1980-1981 | INCO/Eluma |
| 1987-1988 | Cominco |
| 1993-1994 | WMC |
| 1996-1997 | Santa |
| 2008 to present | Yamana |
Geological Setting
The Chapada area is located between the Amazonian craton to the northwest and the San Francisco craton to the southeast, within the north-northeast striking metavolcano-sedimentary Mara Rosa Magmatic Arc which is part of a large system of mobile belts that have a complex, multi-phased history of deformation.
The Chapada, Corpo Sul and Suruca deposits are located in the Eastern Belt of the Mara Rosa volcano sedimentary sequence. The Eastern Belt in the vicinity of the Chapada Mine comprises a thick package of amphibolites succeeded by volcanic and volcanoclastic rocks and overlying metasedimentary rocks. The metavolcanic-sedimentary units are intruded by metaplutonic rocks of dioritic to quartz-diorite composition. These intrusions are associated with magmatic fluids responsible for copper-gold and gold mineralization. The volcanics and sediments have been metamorphosed to biotite and amphibolite schist in the Chapada mineralized area.
In the immediate area of the Chapada deposit, the biotite and amphibolite schist units have been folded into a broad anticline with a north-easterly fold axis. The two limbs of the anticlinal structure dip to the northwest and southeast. There is a minor secondary synclinal fold of the major antiform so that the northeast and southwest ends are somewhat higher than the central zone of the structure in the middle of the deposit. This combination of folds gives the deposit a broad “saddle” shape.
The deposit has undergone hydrothermal alteration typical of a copper-gold porphyry system. Alteration styles include biotitization, sericitization, argillitization, and propylitization.
The bedrock schists are overlain by approximately 25 metres of saprolite material with a minor lateritic component near the top of the saprolite zone. Within that laterite component, there is a ferricrete zone at surface.
The Corpo Sul deposit is located immediately on-strike and two kilometres to the southwest of the Chapada open pit. It is interpreted as another intrusive Copper-Gold Porphyry center, less deformed than Chapada Mine, and associated with an intrusion of Quartz Porphyry Diorite/Tonalite (Potassic alteration), enveloped by a Feldspathic Biotite Schist (Potassic alteration) surrounded by sericite schists (Sericitic alteration). Corpo Sul has largely the same stratigraphic units as found in Chapada, however at Corpo Sul the tuffs and lapilli tuffs are less deformed.
The area is covered by a 30 metre lateritic profile. The lateritic profile comprises an immature lateritic terrain that was subdivided from base to the top in: coarse saprolite, saprolite, mottled zone or argillic zone, lateritic duricrust and pisolitic soils (products of alteration of duricrust).
The Suruca deposit, north of the main Chapada pit, has geology that is grouped from base to top as: Amphibolite, Intermediate Metavolcanic rocks and Metasediments. There are several intrusions of quartz diorite porphyry that occur preferentially in the intermediate metavolcanic rocks and metasediments. Hydrothermal alteration overprints the lithologies and is characterized by inner and outer halos. The inner halo occurs in the intermediate rocks, metasediments and diorites with strong and pervasive sericitic alteration and the outer halo is characterized by propylitic alteration that occurs mainly in the amphibolites.
Mineralization
The primary copper-gold mineralization at Chapada is epigenetic. Copper is principally present as chalcopyrite with minor amounts of bornite. Fine grained gold is closely associated with the sulphide mineralization and was likely to be contemporaneous with the copper.
Copper mineralization occurs as finely disseminated crystals, elongated pods, lenses along foliation, crosscutting stringers, and coarse clots in occasional late stage quartz veins or pegmatites. The copper mineralization and grade are somewhat better in the central zone of the deposit along the anticline axis than in the surrounding anticlinal limbs; however, copper mineralization is pervasive over a broad area. Gold mineralization is more uneven spatially and may have been remobilized by post mineral low temperature alteration events.
The Corpo Sul mineralization includes oxide and sulphide ores. The oxide ore comprises approximately 7% of the deposit and is associated with the weathering surface. The width varies between 20 metres and 40 metres at an average grade of 0.26 grams per tonne gold and 0.35% copper. The oxide mineralization comprises soil, mottled zone, fine saprolite, and coarse saprolite. The sulphide ore represents the majority of the mineralization with widths from 25 metres to 300 metres at an average grade of 0.24 grams per tonne gold and 0.31% copper.
The gold at Suruca is related to folded quartz vein/veinlets with sericitic and biotite alteration, rather than high sulphide concentrations. The second generation of quartz veins/veinlets with sulphides (sphalerite + galena + pyrite), carbonates and epidote also host gold which is related to zinc.
Mineralization predominately pre-dates deformation hence the gold is associated with epithermal features and not structurally controlled.
Exploration
Yamana started exploration work in 2007 with diamond drilling mainly to the east of the pit to check for the extension of the mineralization potentially hosted in a synclinal structure.
In early 2008, consultant Richard Sillitoe defined a genetic model of mineralization with a typical porphyry copper-gold system (Cu-Au-Mo association) that underwent intense isoclinal folding and amphibolite facies metamorphism during continental collision at the end of the Neoproterozoic. However, original mineralogy may not have been profoundly changed, due to the stability of minerals like quartz, anhydrite, pyrite, chalcopyrite, magnetite and biotite under amphibolite facies conditions.
Yamana began exploration work at Suruca in 2008 with geological mapping, chip sampling and shallow drilling at Suruca South.
See also “– Current Exploration and Development”.
Drilling
Yamana commenced drilling the Chapada deposit in 2008. To the end of 2013, Yamana has drilled 344 holes for 73,891 metres. Drilling has delineated the main deposit areas at a spacing of 100 metres by 50 metres, with a tighter 50 metres pattern in the central portion of the deposit.
Chapada Deposit
Drilling
| Year | | | No. Drill Holes | | Metres |
| 2008 | | | 30 | | 5,126 |
| 2009 | | | 7 | | 2,352 |
| 2010 | | | 18 | | 4,373 |
| 2011 | | | 85 | | 19,305 |
| 2012 | | | 131 | | 28,568 |
| 2013 | | | 73 | | 14,167 |
| Total | | | 344 | | 73,891 |
The 2008 and 2009 drilling campaigns were concentrated in the region named “Near Mine” and in the south portion of the area. The 2010 and 2011 campaigns targeted the Near Mine and Corpo Sul areas. In 2013, Yamana drilled in the northeast section of Chapada Corpo Principal with the objective of delineating an Inferred Mineral Resource. In Corpo Sul, an infill drilling program was carried out in the southwest portion of the deposit on a 50 metre by 50 metre grid to upgrade Indicated to Measured Mineral Resources and on a 100 metre by 100 metre grid to convert Inferred to Indicated Mineral Resources.
The majority of holes were drilled at an azimuth of 130 degrees and an 85 degree dip. Drill holes with inclination between 45 degrees and 85 degrees were surveyed every three metres downhole using a Deviflex electronic surveying instrument. No significant deviation issues were found.
To date, Yamana has drilled 186 holes for 37,899.16 metres at Suruca, as summarized below.
Suruca Deposit
Drilling
| Year | | No. Drill Holes | | Metres |
| 2008 | | 7 | | 439.5 |
| 2009 | | 21 | | 6,457.8 |
| 2010* | | 103 | | 20,476.9 |
| 2011 | | 55 | | 10,524.96 |
| Total | | 186 | | 37,899.16 |
* Includes 11 metallurgical holes for 1,014 metres
At Suruca in 2009, Yamana completed successful drilling to test a magnetic anomaly and the area of the garimpeiro workings. The 2010 drilling program focused on delineation of the Suruca deposit at 400 metres by 200 metres spacing followed by infill drilling at 200 metres by 200 metres spacing. An infill program of 100 metres by 100 metres spacing was completed in the north portion of deposit.
The majority of holes were drilled at an azimuth of 130 degrees and a 60 degree dip; some holes were drilled at an azimuth of 310 degrees. Drill holes with inclination between 45 degrees and 85 degrees were surveyed every three metres downhole using a Reflex Maxibor II or Devicom Deviflex electronic surveying instrument. In sub-vertical holes, a PeeWee or EZ- Shot instrument was used. All holes were surveyed and no significant deviation issues were found.
See also “– Current Exploration and Development”.
Sampling, Analysis and Data Verification
Yamana’s samples are selected down the entire length of the drill hole core, sawn in half with an electric diamond bladed core saw, and sampled prior to logging. Half core samples are selected by a geology technician or trained sampler. The samples are then placed in a numbered plastic bag along with a paper sample tag, and tied closed with a piece of string. Sample weight is approximately 3.5 kilograms. Six to eight samples are placed in a larger plastic bag, loaded onto a truck owned and driven by a locally based transport company, and driven to the ALS Chemex laboratory sample preparation facility in Goiania, State of Goiás.
After sampling, the geologist completes a graphic log and logs the core in detail for lithology, structure, mineralization and alteration. Codes are assigned for the oxidation state, consistency and alteration including alteration halo, sulphides, silicification, biotite, sericite, epidote, amphibolite, garnet, carbonate, rhodochrosite, chlorite, and kyanite content. Angles of structures such as foliation and faults are recorded.
Approximately four samples from each alteration halo per drill hole are selected for density testwork by two different methods after sampling and logging. The first method used is the water displacement method, performed in the logging shed. The second method, which is gravimetric, is done in the laboratory using pulverized samples.
Sample preparation involves crushing and pulverization. Upon receipt of the samples, each sample is weighed and dried at 100 degrees Celsius for eight to 12 hours. The entire sample is then crushed to 90% passing <2 millimetres (10 mesh), split to 0.5 kilograms in a riffle splitter, and pulverised to 95% passing 150# (mesh). The samples are then split again to 50 grams using a rotating splitter/spatula. The crusher and pulveriser are cleaned between each sample. Each fraction retained is returned to Yamana.
All Yamana samples are analyzed for precious metals by fire assay (“FA”) with atomic absorption spectrometry (“AAS”) or ICP finish and for copper by AAS by ALS Chemex, Lima, Peru and/or SGS Geosol, Belo Horizonte, Brazil.
Yamana conducts an industry-standard QA/QC program for its drill campaigns, which follows written protocols. Its QA/QC program consisted of the insertion of blanks and CRMs into the sample stream and the running of duplicate field (quarter-core) samples. Later, pulp duplicate samples were re-assayed at a secondary facility.
As further detailed in the Chapada Report, Yamana’s QA/QC program was found to be industry-standard with a generally acceptable rate of insertion for CRMs and pulp duplicates. The results of the pulp duplicate assays showed good reproducibility with no discernible grade biases. The insertion of CRMs showed that laboratory results from SGS Geosol and ALS Chemex were acceptable with respect to precision and accuracy. The results from the insertion of blanks are also generally acceptable.
In 1996 Echo Bay became actively involved in the drilling and sampling program for the project. Samples taken by Santa Elina in 1996 were subject to a rigorous QA/QC program. As detailed in the Chapada Report, a review was undertaken of all historical QA/QC control files and historical data compared with re-assayed data from analytical laboratories in the United States and the review indicated the historical data was appropriate for estimation of Mineral Resources.
As detailed in the Chapada Report, a review was undertaken of the Chapada assay database. This did not involve independent assaying, but did involve a review of considerable existing data. It was found that the database was of sufficient quality for a feasibility level study.
A total of 18 Suruca diamond drill holes from Mineração Alonte were re-analysed following Yamana’s procedures. The new assay results were compatible with the historical results.
Samples are transported from the drill rig to Yamana’s core storage facilities at the Chapada project exploration camp by the drilling contractor, where Yamana geological staff log and sample the core. The samples are transported to the independent sample preparation facility by a locally based transport company, after which the samples are sent for preparation in ALS Chemex in Goiania, Brazil and for analysis in Lima, Peru. The analytical laboratory stores all pulps and coarse rejects for forty-five days and then transports them back to the Chapada project where all samples are stored in the core storage facility for the life of the project.
Mineral Processing and Metallurgical Testing
There was a significant amount of process testing completed on the Chapada Mine by third parties. The results of this test work provided the basis for the development of a straightforward process flow sheet for treating the ore. Test results indicated that a clean, predominately chalcopyrite concentrate could be produced with associated gold. Tests and design work indicated that a concentrate grade of 28% copper was achievable with acceptable recoveries of copper and gold.
The metallurgical test work included the following major components:
| ● | Grinding and Bond Work index tests. |
| ● | Grind size versus flotation recovery studies including the evaluation of regrind after rougher flotation. |
| ● | Flotation studies to evaluate reagents, pulp density, pH, and residence time. |
| ● | Settling tests for thickener design. |
Sufficient testing was completed such that a bankable feasibility design was developed for the process plant in 1997. That flow sheet and plant design was used by Yamana’s predecessors to obtain an updated turnkey cost estimate for plant construction and operation.
Mining and Milling Operations
The Chapada Mine is a traditional open pit truck/shovel operation that has been in continuous operation since 2007. The Chapada open pit, which is currently being mined, has ultimate design dimensions of approximately 4.5 kilometres along strike, up to 1.2 kilometres wide, and 200 metres deep. Benches are ten metres high, doubling to 20 metres towards the limit of the pit, except in upper benches, where the benches are ten metres high in soil. Six operating phases have been designed to support the mine production from initial topography to the final pit geometry. An in-pit primary crusher was installed, allowing a more flexible operation for ore blending to plant and reducing major truck fleet requirements.
The mine plan includes three open pit mining areas to be developed on the property. Current production is from the Chapada Corpo Principal and Corpo Sul open pits. The Corpo Sul open pit began production in 2014.
Processing and Recovery Operations
The processing plant is located at the northwest end of the Chapada Corpo Principal pit rim. The tailings storage facility is located to the northwest of the open pit, with the pond as close as 0.5 kilometres to the pit rim and the tailings dam being up to five kilometres to the northwest. Waste rock dumps are located to the south and southeast of the open pit. Limits of the waste rock dumps start just past the ultimate pit rim in order to minimize waste haulage distances.
The existing Chapada Mine treatment plant is designed to treat sulphide ore at a nominal rate of 60,000 tpd. The process recoveries for copper and gold averaged approximately 80% and 59%, respectively, from June 2013 to May 2014. Run-of-mine (“ROM”) material from the Suruca mineralization will be treated and incorporated into the system through two separate processes. The oxide ore will be processed using conventional heap leaching technology, and sulphide ore will be processed in the existing plant after some modifications.
Sulphide Ore
The first step for sulphide material occurs in the primary grinding circuit in two parallel crushing systems. Both systems perform the primary crushing with a P70 of five inches. The ore processed is then transported by conveyor belt to an intermediate stockpile. A feeder conveyor belt delivers the feed to the grinding circuit.
The grinding circuit is divided into four systems:
| · | Reclaim Ore — Ore taken from the crushed ore stockpile and delivered to the semi-autogenous grinding (“SAG”) mill. |
| · | Primary Grinding and Pre-Classification — SAG mill grinding and pre-classification using cyclones. |
| · | Pebble Crushing — Transportation and crushing coarse pebbles screened from the SAG mill discharge. |
| · | Secondary Grinding and Classification — Ball mill grinding and classification using cyclones. |
The ore is then brought to the flotation process in pulp form with approximately 35% solids. There are two flotation cell lines, rougher and rougher/scavenger. Each cell line produces two concentrates. The tailings from the rougher/scavenger system are sent to the final tailings storage facility. The last step in the process is thickening and filtration. The thickening process reduces the ore concentrate moisture content to an average of 8%. This is discharged in the concentrate storage shed to be loaded and shipped to customers.
Oxide Ore
The crushing circuit consists of two MMD sizers in series and associated equipment. Material is pre-screened ahead of the MMD sizer and crusher product then combines with screen undersize and is conveyed to the crushed product stockpile. Crushed product is then fed to an agglomeration drum. Prior to the drum, cement is added in a controlled fashion and a weak cyanide solution (barren pond solution) is added in the agglomeration drum, and mixed to produce agglomerates which are conveyed and stacked.
The agglomerated material is stacked on pads which are approximately 100 metres wide and 620 metres long. A weak cyanide solution from the barren solution pond is then used to leach the gold from the stacked ore. The solution filters through the agglomerated ore with the gold inherent in the ore leached to produce a gold rich solution. The gold rich solution collects at the base of the pad and is collected in the pregnant solution pond.
Pregnant solution flows through four adsorption columns in series and flows by gravity from one adsorption column to the next. The total residence time in the adsorption columns is in the order of 25 minutes. After acid washing, the loaded carbon is washed and sent to the elution column to remove gold from the loaded carbon. The gold removed from the loaded carbon cools in a flash cell and then reports to the two electrowinning cells in parallel. Gold in solution is removed onto stainless steel cathodes. The stainless steel cathodes are rinsed off with a high pressure washer. The cathode sludge is then filtered, dried in an oven, transferred to the barring furnace and the gold is then poured into molds.
Markets
The principal product at Chapada is a copper concentrate with gold and silver, which is readily marketable on world markets.
Infrastructure, Permitting and Compliance Activities
The Chapada Mine has all required infrastructure necessary for a mining complex including:
| ● | Mine and mill infrastructure including office buildings, shops, and equipment. |
| ● | A tailings storage facility with additional capacity for two years with plans for further expansion. |
| ● | Electric power from the national grid. |
| ● | Haulage roads from the mines to the plant. |
| ● | Administrative office facilities. |
| ● | Core storage and exploration offices. |
| ● | Access road network connecting the mine infrastructure to the town site and to public roads. |
It also has all necessary infrastructure for a large open pit mine operation. Mining related infrastructure includes a truck shop, truck wash facility, warehouse, fuel storage and distribution facility, explosives storage and magazine sites, and electrical power distribution and substations to support construction projects and mine operations.
The Chapada Mine operates on a 24-hour per day, 365 days per year schedule. For most operating positions, there are four work crews with three on site at any time working three 8-hour shifts per day. Mining operating manpower is based on approximately four operators for each operating position. Mining manpower for operations, maintenance, and technical services in 2014 was budgeted for approximately 930 staff, employees, and contractors.
Yamana has all of the necessary environmental permits to operate at Chapada including the main operating licence, which was obtained on November 20, 2006. It was renewed on September 29, 2008, and is renewed every few years according to the terms of the regulating body. Further licences will be obtained as required to carry out or expand operations at Chapada.
The licensing process for the development of Corpo Sul began in 2013. The open pit and waste dump licences, legal reserves relocation processes, and deforestation licences were granted in early 2014. The permitting process for the Suruca deposit started with the preliminary licence granted in May 2012. The installation licence was applied for in 2013. See also “– Current Exploration and Development”.
The first version of the plan for mining closure including rehabilitation of the tailings storage facilities, mine sites, waste piles was submitted in 2008 and is revised on a regular basis.
Capital and Operating Costs
Capital Costs
The life of mine capital costs are for capital projects, primarily Suruca and Corpo Sul development, the Chapada in-pit crusher and regrind circuit, and sustaining capital, which includes closure costs. Capital costs are in first quarter 2014 US dollars. The life of mine capital costs for the Chapada Mine are approximately $200 million and sustaining costs are approximately $373 million. An additional $12 million is allocated as exploration to support the expansion of Mineral Resources and Mineral Reserves. Exclusions from the capital and sustaining cost estimate include, but are not limited to: (i) project financing and interest charges, (ii) working capital; and (iii) escalation during construction.
Operating Costs
The Chapada Mine has been in production since 2007. Operating costs are tracked and well understood. Operating costs are estimated for the life of mine, with projected inflationary increases. All in unit life of mine operating costs are estimated at $9.59 per tonne processed. The reductions in operating costs from the 2014 budget will be realized partly as a result of the capital spending discussed in the Chapada Report under Capital Costs. The 2014 budgeted and life of mine operating costs are summarized below:
| Cost | 2014 $/tonne Processed | Life of Mine $/tonne Processed |
| Mining | $5.32 | $4.32 |
| Processing | $3.68 | $3.83 |
| Concentrate Refining/Transport | $1.32 | $1.05 |
| G&A | $0.38 | $0.34 |
| Other | $0.07 | $0.05 |
| TOTAL: | $10.77 | $9.59 |
Notes:
| (1) | Excludes allowance for adjustment to stockpiles. |
| (2) | Numbers may not add up due to rounding. |
Economic Analysis
The Chapada Report notes that Yamana is a producing issuer, the Chapada Mine is currently in production, and a material expansion is not being planned. An economic analysis of the Chapada Mine and Suruca Project has been conducted using the estimates presented in the Chapada Report which confirm that the outcome is a positive cash flow that supports the statement of Mineral Reserves.
Exploration, Development and Production
The 2014 exploration program at Chapada included a 12,000 metre infill program to upgrade and better define inferred and indicated mineral deposits at Corpo Sul and a 9,700 metre near mine program to explore southwest of the Corpo Sul deposit and elsewhere for new deposits and to test for skarn related deposits close to the main Chapada pit. A total of 13,217 metres were completed in 56 infill holes and 8,194 metres were completed in the near mine exploration program.
The infill programs at Corpo Sul were completed on 50 metre by 50 metre and 100 metre by 100 metre grid patterns and were successful in improving the mineral resource status of the areas drilled. The Near Mine exploration program discovered the Santa Cruz near surface mineral deposit 700 metres southwest of the Corpo Sul pit boundary. The Santa Cruz deposit is currently defined by ten drill holes completed on four northwest drill sections spaced 200 metres apart. Mineral intercepts range from 20 to 70 metres wide containing lower average grades than seen at the Chapada Mine complex. The near mine program also tested for skarn-type mineralization immediately north of the main Chapada pit. Hole NM-101 cut 172 metres of higher than average grade copper and gold porphyry-style mineralization alongside and deeper than the current mineral bodies at Chapada.
Mine Life
The life of mine plan presented in the Chapada Report is based on production tonnes and grade and development requirements, as forecasted by Yamana. The plan, which only considers production from Mineral Reserves, spans a total effective mine life of 24 years.
Current Production
Production at the Chapada Mine in 2015 consisted of 119,059 ounces of gold and 274,533 ounces of silver, contained in concentrate compared to 107,447 ounces of gold and 296,955 ounces of silver contained in concentrate in 2014. Chapada Mine copper production was 131.0 million pounds in 2015 compared to production of 133.5 million pounds of copper in 2014. Lower throughput at the Chapada Mine resulted in lower production.
Yamana continues to pursue efforts to further improve operational performance, with targets to increase recoveries and throughput with minimal expenditures, in addition to the implementation of cost improvement initiatives. In particular, the retrofit of the flotation circuit is on schedule to be completed in the second quarter of 2016, expected to improve flotation recoveries, costs and overall plant availability. Other initiatives in the crushing and grinding circuit are aimed towards improving available time and utilization in these areas.
Updated Mineral Reserves and Mineral Resources to December 31, 2015
On February 18, 2016, Yamana publicly announced their updated Mineral Reserve and Mineral Resource estimates to December 31, 2015 for the Chapada Mine.
The following tables set forth the estimatedupdated Mineral Resources for the Chapada Mine as of December 31, 2015.
Mineral Resources – December 31, 20151,2,3,4,5,6
| Category | Tonnes | Gold | Tonnes | Silver | Tonnes | Copper |
| | (000) | (grams
per
tonne) | (000
ounces) | (000) | (grams
per
tonne) | (000
ounces) | (000) | (%) | (Mlb) |
| Measured | 22,209 | 0.23 | 164 | - | - | - | 14,383 | 0.22 | 69 |
| Indicated | 225,531 | 0.26 | 1,873 | 82,161 | 1.4 | 3,775 | 143,370 | 0.24 | 769 |
| Measured + Indicated | 247,740 | 0.26 | 2,037 | 82,161 | 1.4 | 3,775 | 157,753 | 0.24 | 838 |
| | | | | | | | | | |
| Inferred | 133,118 | 0.23 | 972 | 27,553 | 1.1 | 982 | 105,565 | 0.29 | 678 |
_____________
| (1) | William Wulftange, P. Geo., Senior Vice President of Exploration at Yamana, a QP under NI 43-101, has reviewed and approved the Mineral Resources set forth above. |
| (2) | Mineral Resources Metals Prices and Cut-Off Grades: $1,500 gold, $3.50 copper and $5.17 NSR cut-off out of pit for Chapada Mine (Main Pit, Corpo Sul, Cava Norte and Corpo NE); 0.2 grams per tonne gold cut-off for oxide and 0.3 grams per tonne gold cut-off for sulphide in Suruca Gold Project. |
| (3) | All Mineral Reserves have been calculated in accordance with the CIM Standards and NI 43-101. |
| (4) | Mineral Resources are exclusive of Mineral Reserves. Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability. |
| (5) | Reported as of December 31, 2015. |
| (6) | Numbers may not add up due to rounding. |
The following tables set forth the estimatedupdated Mineral Reserves for the Chapada Mine as of December 31, 2015.
Mineral Reserves – December 31, 20151,2,3,4,5
| Category | Tonnes | Gold | Tonnes | Copper |
| | (000) | (grams
per
tonne) | (000
ounces) | (000) | (%) | (Mlb) |
| Proven | 263,900 | 0.20 | 1,738 | 263,900 | 0.27 | 1,555 |
| Probable | 315,621 | 0.23 | 2,380 | 256,751 | 0.26 | 1,478 |
| Proven + Probable | 579,521 | 0.22 | 4,118 | 520,651 | 0.26 | 3,033 |
| | | | | | | |
_____________
| (1) | William Wulftange, P. Geo., Senior Vice President of Exploration at Yamana, a QP under NI 43-101, has reviewed and approved the Mineral Reserves set forth above. |
| (2) | Mineral Reserves Metal Prices and Cut-Off Grades: $1,150 gold, $3.00 copper, $5.17 NSR cutoff (Main Pit, Corpo Sul and Cava Norte); $900 gold, 0.2 grams per tonne gold cut-off for oxide ore and 0.3 grams per tonne gold cut-off for sulphide ore in Suruca Gold Project. Metallurgical recoveries for copper are 83% and gold ranges from 52% to 85% dependent on zone. |
| (3) | All Mineral Reserves have been calculated in accordance with the CIM Standards and NI 43-101. |
| (4) | Reported as of December 31, 2015. |
| (5) | Numbers may not add up due to rounding. |
Chapada Mine Milestones
Current activities at the Chapada Mine include:
| ● | In July 2015, Yamana announced an exploration program update for its Chapada Mine. Exploration drilling at the recently discovered Sucupira target continues to support the extension of the high grade gold and copper core, and surrounding moderate to low grade gold and copper halo to the southwest. During the first half of 2015, over 4,230 metres of exploration drilling were completed in 12 holes at the Sucupira target. Drilling at Sucupira has intersected mineral intervals along a 1.1 kilometre northeast-southwest trend and supports the extension of the Cava Norte mineral body for a minimum of 1.5 kilometres to the southwest. This mineral trend remains open to the southwest and to depth and the 2015 exploration drill program has confirmed continuity of the mineralization zone with numerous high grade intercepts. |
| ● | In January 2016, Yamana announced its 2016 – 2018 silver and copper production expectations for the Chapada Mine. Yamana stated that silver production from the Chapada Mine is projected to be 270,000–278,000 ounces for 2016, 270,000 ounces for 2017 and 245,000 ounces for 2018. Copper production is expected to be 122 – 125 million pounds for 2016, 122 million pounds for 2017 and 115 million pounds for 2018. Cash costs are forecast to be approximately $2.72 per ounce for silver and $1.32 per pound for copper. |
Diavik Mine, Canada
A technical report was prepared for Dominion in accordance with NI 43-101 entitled “Diavik Diamond Mine, Northwest Territories, Canada NI 43-101 Technical Report” dated March 25, 2015, having an effective date of March 18, 2015 (the “Diavik Report”).
The following description of the Diavik Mine has been sourced, in part, from the Diavik Report and readers should consult the Diavik Report to obtain further particulars regarding the Diavik Mine. The Diavik Report is available for review under Dominion’s profile on the SEDAR website located at www.sedar.com. Information in this section that provides non-material updates to the information in the Diavik Report has been sourced from their press releases with respect to the Diavik Mine. Certain capitalized terms in this section not otherwise defined have the meanings ascribed to them in the Diavik Report. Theupdated Mineral Reserves and Mineral Resources information to December 31, 2015 has been sourced from Dominion’s press release dated March 8, 2016, as filed on SEDAR.
Property Description, Location, Access and Infrastructure
TheDiavikMineislocatedinCanada’sNorthwest Territories,approximately300kilometres northeastofthe cityofYellowknifeonthearcticbarrenlands. The mine site is situated on a 20 square kilometre island in Lac de Gras, at latitude 64°30’ North and longitude 110°20’ West. The Diavik Joint Venture consists of the Diavik Mine and its surrounding exploration properties. A total of 302 mining leases are held in the Diavik Joint Venture which represents a land package of approximately 678,220 acres. There are no known surface rights issues affecting the mine facilities or access to the mineral resources and mineral reserves.
The Diavik Mine is a remote site with strictly controlled access and security. Access to the mine is by air year-round, and by a 425 kilometre ice road that is constructed annually in winter that operates for only eight to ten weeks between January and March. Most of the supplies required for the mine including fuels, lubricants, construction materials and bulk explosives, are transported over this road. For year-round air access, the Diavik Mine has a 1,600 metre long airstrip able to accommodate passenger aircraft and large Hercules-class transports. Personnel are transported to and from the site from several northern communities by small commuter aircraft. Also, weekly service to and from Edmonton is provided by Boeing 737 jet aircraft and Avro RJ85 regional jet.Themovementofgoodsandpersonnelissupportedbystrict security controlsfor theprotectionofpeople,thegoods,thesite,andtheorganization.
The remoteness of the Diavik Mine requires it to operate like a self-contained community, generating its own electricity and potable water, managing its own wastes including sewage and effluent treatment, maintaining emergency response and medical services, offering site-based recreation and education facilities, and providing wholesome meals and single-occupancy quarters. All of the mine workings, tailings impoundments, mine rock stockpiles, ore processing operations, shops and other service facilities/utilities including dining and accommodations are integrated at a single site.
The Lac de Gras region is north of the tree line in the barrenlands and is characterized by a profusion of shallow lakes large and small, impeded drainage, low relief, and a mix of hummocky boulder-strewn terrain and rock exposures. The elevation of the flat topography typically ranges between 400 to 435 metres above sea level. Lac de Gras itself varies from 4 metres to more than 25 metres deep in the area of the Diavik kimberlites, and forms the headwaters of the Coppermine River system. The area was studied extensively during 1994 to 1997 to develop a knowledge baseline for the local and regional environment surrounding the Diavik Mine.
History
The original Diavik claims were staked by Aber Resources Ltd. in late 1991 and early 1992. Under an option agreement, Kennecott Canada Inc. (“Kennecott”) acquired the right to earn a 60% joint venture interest which Kennecott exercised following the discovery of four diamond-bearing kimberlite pipes under the waters of Lac de Gras. The Diavik Joint Venture was consummated in 1995 between Kennecott and a predecessor to Dominion, with Kennecott acting as manager. Kennecott assigned its rights and interests in the Diavik Mine to DDMI in 1996. Both Kennecott and DDMI are subsidiaries of Rio Tinto.
The A-21, A-154 North and A-154 South kimberlite pipes were discovered in 1994. The A-418 pipe was discovered in 1995. Subsequently, mini-bulk samples were obtained from the A-154 South, A-154 North, A-418 and A-21 pipes by large diameter core drilling. Additional delineation drilling was also carried out. An underground decline was driven and bulk samples were mined from the A-154 South and A-418 pipes.
The initial mineral resource estimate was completed in 1998, comprised of all four pipes, which was the basis for the Diavik feasibility study prepared during 1999. Following economic analysis of the project, a production decision was taken in 2000 to develop the Diavik Mine.
Construction on site commenced in 2001 and continued into early 2003. Equipment, construction materials, fuel and supplies were trucked to the site on the annual winter road.Sitefacilitiesbuiltincludean oreprocessingplant,diesel-firedpowergenerationplant,electricaldistributionnetworks,boilerhouse,maintenance shops,office complex,accommodationandrecreationfacilities,fuel storagetanks,processed kimberlite(tailings)containment,water storageandtreatmentfacilities,andanairstrip.
A 3.9 kilometre long water retention dike was constructed around the planned site of the A-154 open pit. After dewatering the pool within the dike, lake-bottom sediments and till overburden were removed to expose the A-154 South and A-154 North pipes for mining. Initial mining and trial processing of kimberlite commenced in November 2002. Commercial production commenced in January 2003 with first sales taking place later that year.
A second dike 1.3 kilometres long was built during 2005 and 2006 around the planned A-418 open pit adjacent to the A-154 open pit. Following dewatering of the A-418 pool, overburden and waste rock stripping began in late 2006 with A-418 kimberlite becoming available for mining during 2008. Mining of the two open pits was concurrent and carried out by the same crew.
During the period 2005 to 2007, a new underground decline was advanced for exploring and sampling the A-418, A-154 North and A-154 South pipes at depth and for collecting engineering data for designing the underground mining of these kimberlites below the open pits. Feasibility studies supported corporate approvals in late 2007 to proceed with underground mining in the three pipes to be phased in as open pit production tapered off. Underground mine development and supporting infrastructure expansions took place from 2008 to 2010.
The open pit portion of A-154 North depleted in 2008, A-154 South finished in 2010 and A-418 ended in late 2012. Against the backdrop of these planned open pit depletions, underground mine production from all three pipes concurrently was ‘ramped up’ beginning with A-154 North and A-154 South in 2010 and A-418 commencing in 2012 to achieve full underground production by the start of 2013.
The Diavik Mine was designed to process 1.5 million tonnes per year through the plant. After the first year of operation, throughput has consistently exceeded 2 million tonnes processed each year to date with the exception of a planned curtailment for 2009 during a market adjustment.
The A-21 pipe will host a third dike and open pit for Diavik. Construction is expected to commence in 2015. Completion of the dike and pool dewatering is expected in 2018, followed by pre-production stripping leading to first kimberlite production anticipated by the end of 2018. The timing of A-21 in the mine plan does not extend the existing mine life but strengthens the enterprise by complementing production from an increasingly deepening underground mine. The timing of capital expenditure and maximizing of benefit for the mine as a whole were considerations in the strategic timing of A-21.
Geology
The Diavik Mine is located in the central part of the Slave Structural Province which forms a distinct cratonic block within the Canadian Precambrian Shield.
Local geology in the Lac de Gras area contains three main Archean lithologies: (1) greywacke-mudstone metaturbidites, (2) biotite±hornblende tonalite to quartz diorite (2610 – 2600 Ma), and (3) two-mica or K-spar porphyritic granite and granodiorite (2590 – 2580 Ma). The metasedimentary greywacke, siltstone and mudstone rocks exhibit features ascribable to turbidity deposition, including graded beds, and are typical of the metaturbidite domains in the Slave Structural Province. In areas of tonalite to quartz diorite, the principal components are biotite and hornblende and plagioclase but local alteration zones can contain epidote, sericite and chlorite. The two-mica granitoids are believed to be representative of an extensive pan-Slave suite of granite, granodiorite and pegmatite. The granite and granodiorite in the local area vary compositionally and texturally with primary constituents in all phases being quartz, K-spar, plagioclase, muscovite and biotite. Distinctive accessory minerals include tourmaline, apatite and garnet.
Three sets of diabase dykes are present in the area, grouped on the basis of orientation. Typically occurring en echelon within sets, individual dykes are irregular in width and texturally indistinguishable. Dykes are steely dipping and strike northwest, north, and north-northeast.
Kimberlite pipes were intruded into the sequence by much younger, recent volcanic eruptions (54 – 58 Ma) which intruded the older Archean granitoid and metasedimentary rocks of the Slave Craton. The kimberlites and their host rocks were then covered by a Quaternary glacial till which was generally up to 40 metres thick in the immediate vicinity of the pipes.
Mineralization
The mineral resource and reserve for the Diavik Mine consists of four diamond-bearing kimberlite pipes located under water in Lac de Gras. The pipes are relatively small, each having surface expressions less than 200 metres in diameter.
The Diavik kimberlite pipes are made up of three facies. A coherent (hypabyssal) facies was formed by the crystallization of kimberlite magma, often at depth, and has not been explosively emplaced. The pyroclastic facies is interpreted as an explosive air-fall deposit which may have been deposited in water. The volcaniclastic facies was formed by a mixture of pyroclastic deposition and re-sedimentation of pyroclastic kimberlite and host material from a volcanic edifice which flowed back into the open crater remaining after eruption. The pipes also contain varying amounts of host rock dilution which was incorporated during the eruption.
Diamonds are generally included as xenocrysts in kimberlite magma as it was formed and ascended through the upper mantle and crust. As the earth’s surface was approached, the kimberlite magma erupted explosively to form the characteristic root-like pipe shape. Abundant kimberlite erupted as pyroclastic ejecta and fell both within and adjacent to the pipe. The pipe was filled with a combination of pyroclastic kimberlite, hypabyssal kimberlite, and mudstone that slumped back into the pipe. At Lac de Gras, the tops of the pipes were removed by continental glaciation. The kimberlites are softer than the surrounding rocks so that depressions were formed after the glaciers retreated and filled with water to become lakes. When the pipes occur under larger lakes, such as Lac de Gras, the pipes typically lie beneath small depressions on the lake bottom.
The kimberlite within each of the Diavik pipes has been subdivided into four to seven geology units for resource modeling. Units were broadly defined with the purpose of correlation across the pipe on a mine scale. The units were defined on the basis of macroscopic criteria, mud dilution, grain size, magnetic susceptibility, and textural and alteration characteristics. These aspects of kimberlite composition can exert control on diamond stone size and stone count, and hence diamond grade (carats per tonne), as well as geotechnical and processing characteristics.
Diamonds are present in all of the kimberlite units with some variation in grade and stone size distributions. For each of the Diavik pipes in the mineral reserve and mine plan, average grades are higher than economic cut-off/break-even so mining selectivity is not required and all of the kimberlite is expected to be mined and processed.
Exploration
Airborne geophysical techniques and heavy mineral sampling in till were applied to identify targets which were ranked for additional exploration by more detailed geophysics and sampling. The most prospective targets were subsequently drilled to define the extent of the kimberlite and for micro-diamond determination. Where results were encouraging, large diameter core drilling was used to obtain mini-bulk samples (6 inch diameter core to depths of 250 metres followed by 3.5 inch diameter (PQ) to the end of hole). This approach led to the discovery of a number of kimberlite pipes which were further tested by small- and large-diameter core drilling. Four of the kimberlite pipes were found to have potentially economic concentrations of diamonds and were subject to mini-bulk sampling by large-diameter core drilling, underground bulk sampling and feasibility studies, culminating in the construction of the Diavik Mine.
Exploration continued after the mine start-up and into operations, until 2013. Activities included additional geophysical surveying, till sampling, sample processing, indicator mineral counts and analyses, mapping and drilling. Many more kimberlites were found but none have been economic to date.
There are currently no active field programs underway on the joint venture leases. A compilation report reviewing all available data on the 67 non-economic kimberlites on the property is in progress.
Drilling and Sampling
Now in advanced stages of production, Diavik’s three current production pipes are well delineated except at great depth. The pipes have sharp contacts with the granitoid host rock. Collection of pierce point drill hole data to define the size and shape of the kimberlitic bodies began during initial evaluation activities in 1995. Early delineation efforts supported the calculation of volumes and spatial dimensions leading to the first mineral resource estimate in 1998 and initial mine designs in 1999. Further delineation drilling was conducted in each of the four pipes once mining commenced after 2003, guiding important volume updates and increasing significantly the number of pierce points for resource modeling. Since the start of underground mining in 2010, still more pierce points have been added to the models from ongoing underground probe drilling that has been adopted to delineate the kimberlite boundaries at close range. In addition, as the pipes are mined, exposed contacts are surveyed and these as-mined contact points are also added to the pipe models.
Initial work during 1995 to 1997 included large diameter core (“LDC”) holes drilled in each pipe to produce sufficiently large samples for macrodiamond (>1 millimetre) analysis. LDC holes were drilled vertically, starting with six-inch core and stepping down to three- to four-inch core at depths of around 250 metres (drilling equipment limitations). Samples were recovered in varying lengths (nominally 15 metres for six-inch core and 25 metres for three- and four-inch core) attempting to maintain consistent sample weight and yielding a minimum of around 30 stones per sample.
Large diameter reverse circulation (“LDRC”) drilling for bulk sampling has been carried out in all four of the pipes to improve mineral resource and reserve definition since the mine started up. This has provided increased accuracy and confidence in production-scale forecasting for the mine. All of the LDRC holes were vertical with diameters ranging from 13.75 to 24 inches depending on the grade of the pipe.
LDRC drill sampling prior to commencing production was possible for A-154 North, A-418 and A-21. In 2004, an in-pit LDRC program for A-154 North sought to increase local grade confidence in the upper part of the pipe as well as to drill deep LDRC holes to produce a package of diamonds for further price valuation. A-418 was also a focus in 2004 as well as 2005 during which LDRC drilling was conducted from lake ice to the bottom of the open pit that was being planned at the time. LDRC drilling from lake ice was also carried out for A-21, in 2008, to augment an underground bulk sample that had been mined in 2007.
LDRC drilling in A-154 South was performed only as open pit mining was finishing, in 2009, in preparation for underground mining that would commence the following year.
In 2011, in-pit LDRC drilling also took place in A-418 which extended the reserve into the underground mining of the pipe that would commence in late 2012.
In addition to planned drilling programs, ad hoc sampling for ‘trouble shooting’ in support of production have been carried out. On two occasions – once in A-154 South and once in A-418 – when grade reconciliation was consistently negative for a period of time, a set of mini-bulk samples of approximately two tonnes each were collected on a single bench to examine local grade variability at higher resolution and fill in data gaps in the forecasting models.
Since the transition to underground mining, kimberlite samples are being collected routinely from ore development drifts in A-154 South, A-154 North and A-418 as mining progresses. In areas where grade samples have not been collected previously, two- to four-tonne samples are collected from the mined ore.
The collection, handling, transport, custody and processing of samples is performed under strict security that has been established for the Diavik diamond operations. This includes limited physical access, card-lock controls, strategically located cameras with full-time monitoring, employee search policies and procedures. DDMI has a separate, trained, full time security force.
Mineral Processing and Metallurgical Testing
As aproducingmine,theDiavikMineoperationincludes a full-scalepermanentoreprocessingplantthattreatsrun-of-minematerialandproducesroughdiamonds.TheDiavikoreprocessingplanthasoperated continuously since commissioninginlate2002andhasbeenprocessing ablendofhardandsoft kimberlitesfromA-154South,A-154NorthandA-418.Production-scalebulksamplesminedfromtheoperation –knownas‘specialbatches’ –havebeentreatedthroughthefullDiavikprocessfromtimetotimeasmentionedin the Diavik Report.Theseeffortshaveprovidedpertinentinsightsintotheproduction-scaleprocessing characteristics,thesizesandqualitiesofstonesrecovered,theoverallgrade,andtheexpected(anddifferent)pricesfor specificpipesorgeologicaldomains.
Furthermore,themetallurgicaltestingandassociatedanalyticalprocedureshavebeenplannedappropriatelyandcarriedoutcompetently,andhaveprovidedplausibleoutcomes supportingthe economic viabilityoftheDiavikMineandtheestimationof MineralResourcesand MineralReserves.UsingtheDiavikprocessingoperationitselfformetallurgicaltestwork,when studying‘specialbatch’bulksamplesfromtheminingoperation,hasprovideddirectlyrelevantinsightintotheprocessingandproduct characteristicsofspecificpipesand/ordomainsandtheirexpected valuesas theyareactuallyminedandprocessed.Thisinformation contributestotheevaluationandestimationof MineralResourcesandMineral ReservesfortheDiavikMine.
Mining Operations
The Diavik Mine operates 24 hours per day, 365 days of the year. Crews are resident on site while they work 12-hour shifts for 14 days, then rotate home for 14 days of rest. Four rotating crews cover 12-hour dayshifts, 12-hour nightshifts, on-site and off-site rotation.
Three pipes are in production concurrently: A-154 South, A-154 North, and A-418. The fourth pipe, A-21, is in development with first production anticipated for late 2018.
Mine operation began in 2003 with open pit mining. Diavik became a fully underground mine in late 2012 after a planned three-year transition phase. The three current production pipes are adjacent to one another and share common underground portal access and infrastructure.
Sub-level retreat is the mining method in A-154 South and A-418. This top-down method relies on the competence of the surrounding host rock while the kimberlite within is bulk-mined in a retreating sequence. An increasingly deepening open-air void is left as mining pushes deeper over time. With competent surrounding wall rock and virtually complete removal of kimberlite in a single pass without primary and secondary phases, mined voids are not backfilled.
Blast hole stoping with cemented rockfill is the mining method in A-154 North. The location of A-154 North within the wall of the A-154 open pit and within the foundation rock mass very near the A-154 dike makes the requirement for backfill in this mining method most suitable for overall stability of the integrated pit-dike-underground system. Alternating panels (stopes) of kimberlite on a given level are mined and then backfilled with cemented rockfill. After curing, the remaining secondary panels of kimberlite in between are then mined and similarly backfilled. Levels are mined in a bottom-up sequence so that the rock mass underfoot becomes increasingly strengthened by rising volumes of cemented rockfill as the mining activity over time approaches the critical infrastructure on surface. In addition to the cost for backfill in this mining method, advanced development of access and infrastructure at depth ahead of production is an upfront cost.
The underground mine is mechanized and conventional. Personnel and materials enter and leave the mine through three portals. The mining fleet includes drills, rock bolters, scooptrams, haulage trucks, personnel carriers and vehicles, and various specialized utility pieces. Daily activities include drilling, blasting, loading and hauling, backfill handling, and mine drainage activities.
Blast-hole stopes are planned 25 metres high and sub-level retreat stopes are also 25 metres. Both mining methods take place simultaneously and multiple faces are in production from more than one level.
Ore (and waste) from underground is brought to surface at the portal entrances by underground haulage trucks and placed in designated piles. The “portal muck” is then picked up by front-end loader and put onto surface haulage trucks – kept in service from the earlier open pit mining – and taken to the ore processing plant (or waste rock storage, if waste rock).
A-21 production in the near future will bring open pit mining back to Diavik. Much of the surface mining fleet has been retained and kept in running condition, and many of the operators remain available on site. The A-21 open pit has been designed and will be mined similarly to the A-154 and A-418 open pits. Benches in the two completed pits and for A-21 are 10 metres high. Catchment berms in the final walls are located every three benches, and the ‘triple-benched’ 30 metre walls are pre-sheared (pre-split) in a single 30 metre pass. The daily activities of drilling, blasting, loading, hauling, dozing and dewatering are supported by drills, excavators, 240- ton (216-tonne) and 100-ton (91-tonne) haulage trucks, dozers, graders and service vehicles.
AllpermitsandapprovalsnecessarytooperatetheDiavikMineareinplace.Upcomingrenewalsareknownandproactiveeffortsareunderway.Environmental stewardshipissoundandingood standingwithnobreachesornon-conformances.Minereclamationresearchisbeingconductedandinterimmine closureplansarein placewithfinancial securityarrangementsestablishedtosatisfytheestimatedreclamationliabilities.
Environmental Considerations
A full-time environmental staff is responsible for monitoring, directing and reporting environmental matters. The Diavik Mine has at all times since inception been in compliance with all permits and there are no outstanding liabilities or charges known at this time. The environmental management system has achieved ISO 14001 certification.
TheInterimClosureandReclamationPlan(“ICRP”)fortheDiavik Minewassubmittedtoandacceptedbyfederalregulatorspriortoproduction start-up.Scientificresearchina numberofareashasbeenongoingaswellascommunityengagementandaquestformoreinclusionof traditionalknowledge.ICRPProgressReportsarepreparedand submittedannuallytoreportontheprogressoftheseinitiatives,andtodatetherehavebeenthreeupdatesandresubmissionsoftheICRPitself.
Mine closureplansubmission,researchprograms, closure costestimate,liabilityassessmentandfinancialsecurityfor closureobligationsareinplaceanduptodate.To the date of the Diavik Report,therehave been nobreachesornon-compliancesinenvironmentalorclosurerelatedregulations.
Processing and Recovery Operations
The processing plant uses no chemicals or reagents. Gravity-based methods rely on the relatively heavier weight of diamonds to separate them. The process involves crushing, screening, separation in dense media (ferro-silicon) and x-ray sorting. The recovered diamonds are separated and packaged by size, weighed, secured in a vault to await transport, packed into a special container and flown discreetlybutunder securityescort to the mine’s high-security facility in the city of Yellowknife. In Yellowknife the diamonds are cleaned, sorted and split into DDDLP’s 40% share and DDMI’s 60% share. The cleaning and sorting facility’s quality management earned ISO 9001 certification.
Capital and Operating Costs
Capital Costs
The DiavikMinedevelopmentcontinueswiththedecisiontoproceedwiththeA-21dikeandopenpit.Theengineeringandcostinghavebeen completedtofullfeasibilitydetail.Dike constructionisphasedoverthree seasons,2015to2017,followedbyopenpitpre-productionoverburdenstrippingin2018andfirstdeliveriesof-kimberlitetotheprocessingplantlaterthat year.Including a15% contingencyandallowance forescalationinrealtermsoverthefour-year constructionperiod,theprojectwasestimatedin2014tocostC$385.6million(ofwhichC$0.8millionwastobesunkduring2014).AlthoughA-21isthe smallestofthefourDiavik kimberlitepipes,thedikewillbeinwatersdeeperthanfortheotherdikes;the costtobuildthediketakesupmost(morethan80%)ofthetotalA-21capitalcost.TheA-21dikeandopenpitwillbeDiavik’sthird,andwillbebuiltin-houselargelywithlocalworkers.Sinceproductionbeganat theDiavik Mine,capitalexpenditureshavebeenmadeannuallytosustaintheoperationandfundminedevelopmentsrequired for continuedproduction. TheDiavikMinecapitalplanisafive-yeardetailedplanthatis budgetedannuallywithquarterlyreviewsandupdates.Capital costestimatesapproved forinclusioninthe five-yearbusinessplanarerequiredtobebasedon firmquotesand/or first principlestosupportfeasibilitylevelsofaccuracyandmustalsoincludetheassociatedindirect costs,owner’scosts, contingencies, freightandanycommissioningcosts.Moreover,eachcapitalexpenditureorprojectisrequiredtodemonstrate avalidbusinesscaseorelsehave someothercompellingjustification.Awell-establishedinternalduediligenceprocessisinplaceand inuse.Forlonger-termbusinessplanning,the five-yearcapitalplanisprojectedaheadwith consideration fortherateofmining,camppopulationandoverall scaleofactivityon site.As such, capital costassumptionsbeyondtheimmediate five-yearplancaninclude conceptualestimatesandplaceholderallowancesespeciallytowardouteryears.The capital costassumptionsforthe Diavik Reportreflectprevailingestimatesinthecurrentbusinessmodelfor theDiavik Mine. The below tablesummarizestheprofileofexpenditurefortheA-21minedevelopment capital,expressedin2015dollars(2014’sC$0.8millionsunkamountdoes notappear).
Estimated capitalcosts,C$millions(100% JVbasis)
Calendar Year | Development C$millions | Sustaining C$millions | TOTAL C$millions |
| 2015 | 65.6 | 70.6 | 136.1 |
| 2016 | 116.3 | 61.1 | 177.4 |
| 2017 | 131.1 | 61.7 | 192.7 |
| 2018 | 79.1 | 45.1 | 124.2 |
| 2019 | 0.3 | 42.9 | 43.2 |
| 2020 | —— | 31.7 | 31.7 |
| 2021 | —— | 6.2 | 6.2 |
| 2022 | —— | 1.6 | 1.6 |
| 2023 | —— | —— | —— |
| 2024 | —— | —— | —— |
| TOTALS: | 392.3 | 320.9 | 713.2 |
Operating Costs
Operatingcostsrepresentthenormalandrecurring costsof production.Five-yearforecastsofoperatingcostsarebasedonregularlyupdated(quarterly)first-principles calculationsprovidedbyorthrougheachofthefunctionheadsoftheDiavikMine,basedonanagreedandmanagement-approvedupdatedmineplan.Approvalofeacharea’sfive-yearoperatingbudgetsincludes aprocessofinternal scrutinyandchallengebypeersand seniormanagement.Businessplanningbeyondfiveyearsisnotundertakenbyoperationspersonnelbutisdoneatabusiness-widelevelbystrategicplannersandfinancialanalysts.Assuch,life-of-mineoperating cost assumptionsbeyond year 5aremodeled valuesbasedonthedetailedfive-yearoperatingbudgetsandcorrespondingmineplan.Mostareasoftheoperationhavefixedaswellasvariable costs.Whilethevariableportionofoperating costsmayvarylinearlywithcostdrivers,fixed costswouldnot.Therefore,atanoveralllevel,different categoriesofoperating costsfortheDiavikMinevarywithcostdriversindifferentwaysandnotalwayslinearly.FortheMineral Reservesinthe Diavik Reportandthescheduleofminingandprocessingenvisionedforthem, the below tabledepictsmodeled estimatesoftheassociated operatingcostsby yearinCanadiandollarsandinrealterms. Becausetheproduction scheduleforthe MineralReservesin the Diavik Reportisnotthecurrentfive-yearplan(butmimicsit),theoperating costs forthefirstfiveyearsareonly amodeledreplicaofthecurrentbusinessplan.
Modeledoperating costs,C$millions(100%JVbasis)
Calendar
Year | Underground
Mining | OpenPit
Mining | Ore
Processing | Site Support
&Corporate | Private
Royalties | Marketing
Costs | TOTAL
OPERATING |
| 2015 | 181.5 | —— | 42.4 | 174.0 | 21.6 | 15.7 | 435.1 |
| 2016 | 185.4 | —— | 42.4 | 174.0 | 20.9 | 15.7 | 438.4 |
| 2017 | 187.4 | —— | 42.4 | 174.0 | 21.9 | 15.7 | 441.4 |
| 2018 | 179.2 | 10.9 | 42.4 | 174.0 | 22.1 | 15.7 | 444.4 |
| 2019 | 169.3 | 68.3 | 42.4 | 174.0 | 22.3 | 15.7 | 492.1 |
| 2020 | 165.2 | 47.4 | 43.6 | 175.2 | 23.8 | 15.7 | 470.9 |
| 2021 | 158.5 | 38.4 | 44.8 | 176.3 | 23.8 | 15.7 | 457.1 |
| 2022 | 106.6 | 28.4 | 44.8 | 176.3 | 24.4 | 15.7 | 396.3 |
| 2023 | 85.1 | 16.2 | 26.7 | 152.4 | 9.3 | 7.8 | 297.4 |
| Totals | 1,418.2 | 209.7 | 372.0 | 1,550.3 | 189.6 | 133.4 | 3,873.1 |
Note: Mine closure costs not shown;they are incurred after the end ofproduction and extend for a number of years afterward.
Economic Analysis
Adiscounted cashflowanalysis summaryis contained within the Diavik Report.Inthatmodel,future cash flowsarediscountedtoreflectpresent-daydollarswiththediscountingappliedneithertothebeginningnortheendofayearbuttomid-years.ThediscountedcashflowanalysisindicatespositiveeconomicsfortheMineral Reservesovertheremainingproductivelifeofthe Diavik Mine, endingin2023.Assumingmid-yeardiscountingusing a7% discountrate,thenetpresent valueisnearly$2.3billion.Thecashflowmodel shown in the Diavik Reportispresented solelytoindicatetheeconomic viabilityofthe MineralReservesinthe Diavik Report.Itisnot aforecastofeithertheDiavikJointVenture’sorDDDLP’sshareofcashflowfromthe DiavikMine.The Diavik Mineisawell-establishedoperationinproductionwithcashflowsthatareimmediatelypositiveandsufficientlyrobust suchthattheforecastedcapitalinvestmentsareself-funded.Hence,paybackandrateofreturnarenotrelevantatthis stageoftheproject.
Production
Production at the Diavik Mine is currently from the underground mining of three ore bodies concurrently: A-154 South, A-154 North, and A-418. Future production will include a fourth ore body, A-21, which is in development as an open pit.
In calendar 2014, 7.2 million carats of diamonds were recovered from more than 2.2 million tonnes processed (on a 100% basis). The increase in carats from the original 2014 calendar plan of approximately 6.9 million carats was largely due to an increase in plant throughput from a planned mining rate of 1.9 million tonnes in 2014 to 2.1 million tonnes as the underground mine continued its strong operating performance.
The mine plan for calendar year 2015 foresaw Diavik Mine production (on a 100% basis) of approximately 6.7 million carats from the mining and processing of approximately 2.1 million tonnes of ore. Mining activities will be exclusively underground with approximately 0.8 million tonnes expected to be sourced from A-154 North, approximately 0.4 million tonnes from A-154 South and approximately 0.9 million tonnes from A-418 kimberlite pipes. In addition to the 6.7 million carats produced from underground mining there will be production from coarse ore rejects (“COR”). This additional production is not included in Dominion’s Mineral Reserves, and is therefore incremental. Based on historical recovery rates, the tonnage of COR which is planned to be processed during calendar 2015 would have produced 0.3 million carats.
Cumulative production from the Diavik Mine to December 31, 2014 totaled 91.1 million carats of diamonds (100% basis).
Markets
DDMI’s shareofDiavikdiamondsismarketedandsoldseparatelythroughitsparent,RioTinto,whosediamondmarketingandsalesorganizationiswell-establishedwith30yearsofexperienceinthediamondindustryandaloyal customerbase.Dominion –anditsearlier corporateincarnationsincludingtheHarry Winstonbrand –has astrongreputationinthemarketandmaintains apreferredpositionas asupplierofroughdiamondstocuttersandpolishersaroundtheworld.Dominionhas asolidtrackrecordinmarketingandsellingits40% shareofDiavikdiamonds.Foranindividual stone,priceisdeterminedbasedon several criteriaincluding colour, clarity, shapeandsize,basedona proprietaryPriceBookwhichisreviewedandupdateduptoseveraltimesper yearfollowingeach sale.
Updated Mineral Reserves and Mineral Resources to December 31, 2015
On March 8, 2016, Dominion publicly announced an updated Mineral Reserve and Mineral Resource statement to December 31, 2015 for the Diavik Mine.
The following table sets forth the estimatedupdated Mineral Resources for the Diavik Mine as of December 31, 2015. The values shown are for 100% of the Diavik Joint Venture:
Mineral Resources1,2,3,4,5,6
Kimberlite Pipe | Measured MineralResource | Indicated MineralResource | Inferred MineralResource |
| | Mt | cpt | Mct | | Mt | cpt | Mct | | Mt | cpt | Mct | |
| A-154North Underground | — | — | — | | — | — | — | | 0.5 | 2.4 | 1.2 | |
| A-154South Underground | — | — | — | | — | — | — | | 0.3 | 3.0 | 0.8 | |
| A-418 Underground | — | — | — | | — | — | — | | 0.3 | 2.4 | 0.7 | |
| A-21 Openpit | — | — | — | | 0.4 | 2.6 | 1.0 | | 0.8 | 3.0 | 2.3 | |
| Totals | — | — | — | | 0.4 | 2.6 | 1.0 | | 1.8 | 2.8 | 5.0 | |
| (1) | Keith Laskowski, MSc., Vice President Technical Services for Sandstorm Gold and a QP under NI 43-101, has reviewed and approved the scientific and technical disclosure regarding the Diavik Mine contained in this AIF. |
| (2) | Totalsmaynotaddupdueto rounding. |
| (3) | MineralResourcesthatarenotMineralReservesdonothavedemonstratedeconomicviability. |
| (4) | MineralResourcesarereportedexclusiveof MineralReserves,andrepresentmaterialremainingafterMineralReserveshavebeenremovedforreportingseparatelyelsewhere. |
| (5) | This Mineral Resources estimate reflects a bottom screen size of one millimetre. |
| (6) | Tonnesarereportedas Mt,diamondgradesas cpt,andcontaineddiamondcaratsas Mct. |
The following table sets forth the estimatedupdated Mineral Reserves for the Diavik Mine as of December 31, 2015. The values shown are for 100% of the Diavik Joint Venture:
Mineral Reserves1,2,3,4,5
| Pipe | Proven Mineral
Reserve | Probable
Mineral
Reserve | Provenand
Probable
MineralReserve |
| | Mt | cpt | Mct | | Mt | cpt | Mct | | Mt | cpt | Mct | |
| A-154North Underground | 4.1 | 2.4 | 9.7 | | 4.7 | 2.4 | 11.1 | | 8.8 | 2.4 | 20.8 | |
| A-154South Underground | 0.3 | 3.2 | 1.1 | | 1.2 | 3.4 | 4.0 | | 1.5 | 3.3 | 5.1 | |
| A-418 Underground | 2.6 | 4.1 | 10.9 | | 2.0 | 2.9 | 5.8 | | 4.6 | 3.6 | 16.7 | |
| A-21 Openpit | 3.7 | 2.7 | 10.0 | | — | — | — | | 3.7 | 2.7 | 10.0 | |
| Stockpile | 0.1 | 3.5 | 0.3 | | — | — | — | | 0.1 | 3.5 | 0.3 | |
| Sub-Total - Underground | 7.1 | 3.1 | 21.7 | | 7.9 | 2.7 | 20.9 | | 14.9 | 2.9 | 42.6 | |
| Sub-Total – Open Pit | 3.7 | 2.7 | 10.0 | | — | — | — | | 3.7 | 2.7 | 10.0 | |
| Sub-Total - Stockpile | 0.1 | 3.5 | 0.3 | | — | — | — | | 0.1 | 3.5 | 0.3 | |
| Total Reserves | 10.8 | 3.0 | 32.0 | | 7.9 | 2.7 | 20.9 | | 18.7 | 2.8 | 52.8 | |
| (1) | Keith Laskowski, MSc., Vice President Technical Services for Sandstorm Gold and a QP under NI 43-101, has reviewed and approved the scientific and technical disclosure regarding the Diavik Mine contained in this AIF. |
| (2) | Totalsmaynotaddupduetorounding. |
| (3) | Tonnesarereportedas Mt,diamondgradesas cpt,andcontaineddiamondcaratsas Mct. |
| (4) | Accounts for all depletions due to production and sampling to December 31, 2015. Mineral Reserves also include forecasted mining losses and dilution. This Mineral Reserves estimate reflects a bottom screen size of one millimetre. |
| (5) | Stockpiles are minor run-of-mine stockpiles that are maintained at or near the process plant and are available to maintain blending of kimberlite sources to the plant. |
Dominion stated that because more than one mining method is underway in the underground mine, dilution and losses are a function of the method used, experience and observation. The future A-21 open pit is expected to have dilution and losses similar to those achieved during Diavik’s first decade as an open pit operation. New data from surveying along with the results of new samples taken in active mining areas were incorporated into the updated Mineral Reserve and Mineral Resource models in calendar 2015. There were three new samples taken in A-154 South, 16 new samples taken in A-418 and four new samples taken in A-154 North. Beyond the active mining areas of A-154 North, a further 53 samples were collected from a drilling campaign to access deeper regions. This resulted in the amount of A-154 North Probable Mineral Reserves more than doubling to approximately 4.7 million tonnes (11.1 million carats) through the promotion of Inferred Mineral Resources and the addition of new kimberlite at depth. A-21 is in development as an open pit and is on track to commence production in the second half of 2018.
Diavik Mine Milestones
Current activities at the Diavik Mine include:
| ● | On December 2, 2015, Rio Rinto unveiled one of the largest diamonds ever discovered in Canada. The 187.7 carat gem-quality rough diamond, known as the Diavik Foxfire, was discovered at the Diavik Mine. The Diavik Foxfire has also been bestowed an indigenous name, Noi?eh Kwe, which references the strong ties to the land and its legacy. |
| ● | In January 2016, Dominion announced that 6.4 million carats of diamonds were recovered in calendar 2015 from the Diavik Mine. The development of the A-21 pipe continues to progress according to plan and a new mine plan and budget for calendar 2016 is under review by Rio Rinto and Dominion. The preliminary mine plan for calendar 2016 (on a 100% basis) is for 2.1 million tonnes to be mined, 2.1 million tonnes to be processed and 7 million carats to be recovered. |
DIVIDENDS
The Company currently intends to retain future earnings, if any, for use in its business and does not anticipate paying dividends on the Common Shares in the foreseeable future. Any determination to pay any future dividends will remain at the discretion of the Company’s Board of Directors and will be made taking into account its financial condition and other factors deemed relevant by the Board. The Company has not paid any dividends since its incorporation.
DESCRIPTION OF CAPITAL STRUCTURE
Common Shares
The authorized share capital of the Company consists of an unlimited number of Common Shares. As of March 30, 2016, 137,930,795 Common Shares are issued and outstanding.
Holders of Common Shares are entitled to receive notice of any meetings of shareholders of the Company, to attend and to cast one vote per Common Share at all such meetings. Holders of Common Shares do not have cumulative voting rights with respect to the election of directors and, accordingly, holders of a majority of theCommon Shares entitled to vote in any election of directors may elect all directors standing for election. Holders of Common Shares are entitled to receive on a pro rata basis such dividends, if any, as and when declared by the Company’s Board of Directors at its discretion from funds legally available therefor and upon the liquidation, dissolution or winding up of the Company are entitled to receive on a pro rata basis the net assets of the Company after payment of debts and other liabilities, in each case subject to the rights, privileges, restrictions and conditions attaching to any other series or class of shares ranking senior in priority to or on a pro rata basis with the holders of Common Shares with respect to dividends or liquidation. The Common Shares do not carry any pre-emptive, subscription, redemption or conversion rights, nor do they contain any sinking or purchase fund provisions.
Warrants
Publicly Traded
During the financial year ended December 31, 2015, the Company had a series of 19,429,649 warrants outstanding, pursuant to which each five (5) warrants entitled the holder to purchase one Common Share at a price of $5.00 until October 19, 2015 (the “2010 Warrants”). The 2010 Warrants were listed and posted for trading on the TSX under the symbol “SSL.WT.A” until October 19, 2015, when they expired in accordance with their terms.
As of December 31, 2015 and as of the date hereof, the Company has:
| (a) | a series of 5,002,500 warrants outstanding pursuant to which one (1) warrant entitles the holder to purchase one Common Share at a price of $14.00 until September 7, 2017 (the “2012 Warrants”) - the 2012 Warrants are listed and posted for trading on the TSX under the symbol “SSL.WT.B”; and |
| (b) | a series of 5,043,900 warrants outstanding pursuant to which one (1) warrant entitles the holder to purchase one Common Share at a price of $4.00 until November 3, 2020 (the “2015 Warrants”) - the 2015 Warrants are listed and posted for trading on the TSX under the symbol “SSL.WT”. |
The 2012 Warrants and the 2015 Warrants are each governed by the terms of a warrant indenture (the “Warrant Indentures”) which provides for adjustment in the number of warrant shares issuable upon the exercise of the 2012 Warrants and the 2015 Warrants warrants and/or the exercise price per warrant share upon the occurrence of certain events. From time to time, the Company and the warrant agent under the Warrant Indentures, without the consent of the holders of the 2012 Warrants and the 2015 Warrants, may amend or supplement the Warrant Indentures for certain purposes, including curing defects or inconsistencies or making any change that does not adversely affect the rights of any holder of the 2012 Warrants and the 2015 Warrants. For further details, please refer to the full text of the respective Warrant Indentures which are filed on SEDAR at www.sedar.com.
Non Publicly Traded
As of the date hereof, the Diavik Warrants and the Yamana Warrants are each outstanding, both of which are exercisable upon the holders having achieved certain development and/or production criteria.
Trading Price and Volume
The Common Shares are listed and posted for trading on the TSX under the symbol “SSL” and on the NYSE MKT under the symbol “SAND”. None of the Company’s above-mentioned publicly traded warrants (SSL.WT.A,SSL.WT.B andSSL.WT) are or were listed and posted for trading on the NYSE MKT.
Common Shares
The following table sets forth information relating to the trading of the Common Shares on the TSX for the most recently completed financial year.
| Month | High (C$) | Low (C$) | Volume |
| | | | |
| January 2015 | 5.300 | 3.830 | 8,836,904 |
| February 2015 | 5.140 | 4.120 | 3,877,025 |
| March 2015 | 4.650 | 3.330 | 4,846,396 |
| April 2015 | 4.690 | 4.130 | 3,575,062 |
| May 2015 | 4.480 | 3.880 | 3,796,006 |
| June 2015 | 4.230 | 3.610 | 2,573,060 |
| July 2015 | 4.150 | 2.880 | 3,232,094 |
| August 2015 | 4.120 | 3.040 | 4,522,519 |
| September 2015 | 3.900 | 3.190 | 3,281,089 |
| October 2015 | 4.060 | 3.400 | 4,201,634 |
| November 2015 | 3.700 | 3.360 | 3,072,941 |
| December 2015 | 3.870 | 3.490 | 2,712,880 |
The price of the Common Shares as quoted by the TSX at the close of business on December 31, 2015 was C$3.60 and on March 29, 2016 was C$4.32.
Warrants
SSL.WT.A
The following table sets forth information relating to the trading of the 2010 Warrants on the TSX for the most recently completed financial year until the date of their expiration (October 19, 2015).
| Month | High (C$) | Low (C$) | Volume |
| | | | |
| January 2015 | 0.210 | 0.140 | 663,727 |
| February 2015 | 0.195 | 0.120 | 346,255 |
| March 2015 | 0.130 | 0.070 | 539,766 |
| April 2015 | 0.110 | 0.020 | 538,190 |
| May 2015 | 0.060 | 0.030 | 535,508 |
| June 2015 | 0.045 | 0.010 | 1,021,218 |
| July 2015 | 0.030 | 0.010 | 450,129 |
| August 2015 | 0.020 | 0.005 | 412,240 |
| September 2015 | 0.010 | 0.005 | 92,300 |
| October 1 – 19, 2015 | 0.005 | 0.005 | 114,000 |
SSL.WT.B
The following table sets forth information relating to the trading of the 2012 Warrants on the TSX for the most recently completed financial year.
| Month | High (C$) | Low (C$) | Volume |
| | | | |
| January 2015 | 0.840 | 0.600 | 74,118 |
| February 2015 | 0.800 | 0.530 | 51,636 |
| March 2015 | 0.570 | 0.300 | 149,492 |
| April 2015 | 0.380 | 0.260 | 160,432 |
| May 2015 | 0.385 | 0.300 | 15,450 |
| June 2015 | 0.350 | 0.300 | 13,734 |
| July 2015 | 0.350 | 0.170 | 190,466 |
| August 2015 | 0.300 | 0.150 | 163,833 |
| September 2015 | 0.240 | 0.135 | 172,941 |
| Month | High (C$) | Low (C$) | Volume |
| October 2015 | 0.200 | 0.120 | 244,402 |
| November 2015 | 0.145 | 0.090 | 93,917 |
| December 2015 | 0.195 | 0.120 | 44,833 |
The price of the 2012 Warrants as quoted by the TSX at the close of business on December 31, 2015 was C$0.17 and on March 29, 2016 was C$0.145.
SSL.WT
The following table sets forth information relating to the trading of the 2015 Warrants on the TSX for the months indicated during the most recently completed financial year.
| Month | High (C$) | Low (C$) | Volume |
| | | | |
| November 3 – 30, 2015 | 0.950 | 0.500 | 1,393,773 |
| December 2015 | 1.090 | 0.780 | 258,120 |
The price of the 2015 Warrants as quoted by the TSX at the close of business on December 31, 2015 was C$0.92 and on March 29, 2016 was C$1.40.
DIRECTORS AND OFFICERS
The following table sets forth the name, province/state and country of residence, position held with the Company and principal occupation of each person who is a director and/or an executive officer of the Company.
Name, Province/State and
Country of Residence | Position(s) with the Company | Principal Occupation |
| | | |
Nolan Watson
British Columbia, Canada | President, Chief Executive Officer and Director since September 2008; Chairman of the Board since January 2013 | Chairman of the Board, President and Chief Executive Officer of the Company. |
| | | |
David Awram British Columbia, Canada | Director since March 2007; Executive Vice President from July 2009 to January 2013; Senior Executive Vice President since January 2013 | Senior Executive Vice President of the Company. |
| | | |
John P.A. Budreski(1)(2) (3)
British Columbia, Canada | Director since June 2009 | President and Chief Executive Officer of Morien Resources Corp.; Executive Chairman of EnWave Corporation. |
| | | |
David E. De Witt(1) (2) (3) British Columbia, Canada | Director since April 2008; LeadIndependent Director since January 2013 | Independent Businessman; Chairman of Pathway Capital Ltd. (“Pathway”). |
| | | |
Andrew T. Swarthout(1) (2) Arizona, United States | Director since March 2009 | Chief Executive Officer and Director of Bear Creek Mining Corporation. |
Mary L. Little(2) (3) Colorado, United States | Director since June 2014 | Independent geological consultant. |
| | | |
Erfan Kazemi British Columbia, Canada | Chief Financial Officer since August 2011 | Chief Financial Officer of the Company. |
| (1) | Member of the Audit Committee. |
| (2) | Member of the Corporate Governance & Nominating Committee. |
| (3) | Member of the Compensation Committee. |
Each director’s term of office expires at the next annual meeting of shareholders of the Company or when his/her successor is duly elected or appointed, unless his/her term ends earlier in accordance with the articles or by-laws of the Company, he/she resigns from office or he becomes disqualified to act as a director of the Company.
The principal occupations, businesses or employments of each of the Company’s directors and executive officers within the past five years are disclosed in the brief biographies set forth below.
Nolan Watson– Chairman of the Board, President and Chief Executive Officer.Mr. Watson has been the President and Chief Executive Officer of the Company since September 2008 and its Chairman since January 2013. From May 2010 to May 2014 (when Sandstorm Metals was acquired by the Company), Mr. Watson was President and Chief Executive Officer of Sandstorm Metals and its Chairman from January 2013 to May 2014. From July 2008 to September 2008, Mr. Watson was an independent businessman. From April 2006 to July 2008, Mr. Watson was the Chief Financial Officer of Silver Wheaton Corp. (“Silver Wheaton”). Mr. Watson was the Corporate Controller of Silver Wheaton from 2005 to 2006. Mr. Watson is a Chartered Financial Analyst Charterholder, a Fellow of the Institute of Chartered Accountants of British Columbia, and he holds a Bachelor of Commerce degree (with honours) from the University of British Columbia.
David Awram– Senior Executive Vice President and Director.Mr. Awram was Executive Vice President of the Company from July 2009 to January 2013 and has been its Senior Executive Vice President since January 2013. Mr. Awram was Executive Vice President of Sandstorm Metals from January 2010 to January 2013 and then its Senior Executive Vice President from January 2013 to May 2014. From July 2008 to July 2009, Mr. Awram was an independent businessman. From May 2005 to July 2008, Mr. Awram was the Director of Investor Relations for Silver Wheaton. Prior to May 2005, he was Manager, Investor Relations with Diamond Fields International Ltd. from April 2004 to April 2005. He holds a Bachelor of Science degree (Honours) in Geology from the University of British Columbia in 1996.
John P.A. Budreski – Director.Mr. Budreski has been the President and Chief Executive Officer of Morien Resources Corp. since November 2012 and Executive Chairman of EnWave Corporation since June 2014. He was a Managing Director and a Vice Chairman with Cormark Securities Inc. from 2009 to 2012. He was the President and Chief Executive Officer of Orion Securities Inc. from 2005 to 2007. Prior to this, he filled the roles of a Managing Director of Equity Capital Markets and Head of Investment Banking for Scotia Capital Inc. from March 1998 to February 2005 after starting out as a Managing Director of US Institutional Equity Group for Scotia Capital. He also held senior roles in investment banking and equity sales and trading for RBC Dominion Securities and worked for Toronto Dominion Bank. He holds an MBA from the University of Calgary and a Bachelor of Engineering from TUNS/Dalhousie.
David E. De Witt – Lead Independent Director.Since October 2004, Mr. De Witt has been a co-founder and Chairman of Pathway, a Vancouver-based private venture capital company. Mr. De Witt graduated with a BComm/LLB from the University of British Columbia in 1978 and practiced corporate, securities and mining law until his retirement from the practice of law in January 1997. He currently holds directorships in a number of public companies involved in the natural resource field and has experience in resource projects located in Latin America, North America and Asia.
Andrew T. Swarthout – Director.Mr. Swarthout has been the Chief Executive Officer and a director of Bear Creek Mining Corporation since 2003. He was also its President until February 2011 and then again from August 2013 to present. Mr. Swarthout was a Director of Rio Cristal Resources Corporation from December 2006 to September 2013 and he was a Director of Esperanza Resources Corp. from May 2012 to August 2013. Formerly he was an officer and member of the management committee of Southern Peru Copper Corporation from 1995 to 2000 where he participated in decision making during a dynamic period of corporate expansions, financing and project development. Mr. Swarthout served as a member of the National Mining Society of Peru’s Committee for the Promotion of Private Investment, where he initiated favourable environmental and taxation policies to promote foreign mining investment in Peru. Mr. Swarthout graduated in 1974 from the University of Arizona with a Bachelor of Geosciences degree and he is a Professional Geologist.
Mary L. Little – Director.Ms. Little has been an independent geological consultant since 2014. Formerly, she was a director, Chief Executive Officer, President and founder (from October 2003 to May 2014) of Mirasol Resources Ltd., a precious metals company focused on exploration in Latin America. On March 11, 2015, Ms. Little became a director of Pure Energy Minerals Ltd. Her industry experience includes 15 years in Latin America with major mining companies Newmont, Cyprus Amax and WMC Ltd., where she held management positions including Business Development Manager and Country Manager. Ms. Little has extensive experience in the exploration and evaluation of epithermal precious metals deposits, as well as porphyry and sediment-hosted mineral environments. Ms. Little has also served as trustee for the Society of Economic Geologists Foundation from 2010 to 2014. She holds a M.Sc. degree in Earth Sciences from the University of California and an MBA from the University of Colorado.
Erfan Kazemi – Chief Financial Officer.Since August 2011, Mr. Kazemi has been the Chief Financial Officer of the Company and he was the Chief Financial Officer of Sandstorm Metals from August 2011 to May 2014. Formerly, Mr. Kazemi was a Senior Manager at PricewaterhouseCoopers LLP where he worked commencing in January 2005 (as an Associate) until June 2011 and where he managed the audits of billion dollar multinational entities and co-authored several publications. In the community, Mr. Kazemi is a former member of the Vancouver Public Library Board and of the University of British Columbia Board of Governors. Mr. Kazemi is a Chartered Financial Analyst Charterholder, a Chartered Accountant and he also holds a Bachelor of Science (Mathematics) from the University of British Columbia.
As at March 29, 2016, the directors and executive officers of Sandstorm Gold, as a group, beneficially owned, directly and indirectly, or exercised control or direction over, 2,123,351 Common Shares, representing approximately 1.54% of the total number of Common Shares outstanding before giving effect to the exercise of options, restricted share rights or warrants to purchase Common Shares held by such directors and executive officers.
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
To the knowledge of the Company, no director or executive officer of the Company, is, or within ten years prior to the date of this AIF has been, a director, chief executive officer or chief financial officer of any company (including Sandstorm Gold) that,
| (i) | was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, that was issued while the director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer; or |
| (ii) | was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer. |
No director or executive officer of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially control of the Company,
| (i) | is, or within ten years prior to the date of this AIF has been, a director or executive officer of any company (including Sandstorm Gold) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, other than John P.A. Budreski, who was a director of EarthFirst Canada Inc. (“EarthFirst”) until March 2, 2010. EarthFirst was engaged in the development of wind power and related generation facilities, when it obtained creditor protection under theCompanies’ Creditors Arrangement Act (Canada) (the “CCAA”) on November 4, 2008. The CCAA process has now been completed and EarthFirst amalgamated with another entity and no longer exists as a separate entity. In addition, Mr. Budreski became a director of Colossus Minerals Inc. (“Colossus”) in late March of 2014 pursuant to the terms of, and upon the completion of, a Court supervised restructuring. Prior to Mr. Budreski joining the Board of Colossus, Colossus had failed to file its requisite disclosure materials with the applicable regulatory bodies and, on April 29, 2014, the Ontario Securities Commission issued a cease trade order against Colossus. As of the date hereof, the cease trade order remains in effect; or |
| (ii) | has, within ten years prior to the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder. |
No director or executive officer of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company, has been subject to (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
Conflicts of Interest
To the best of Sandstorm Gold’s knowledge, and other than as disclosed in this AIF, there are no known existing or potential material conflicts of interest between Sandstorm Gold and any director or officer of Sandstorm Gold, except that certain of the directors and officers serve as directors and officers of other public companies and therefore it is possible that a conflict may arise between their duties as a director or officer of Sandstorm Gold and their duties as a director or officer of such other companies. See “Description of the Business - Risk Factors - Risks Relating to the Company - Conflicts of Interest”.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Other than as described below, no directors, executive officers or principal shareholders of Sandstorm Gold or any associate or affiliate of the foregoing have had any material interest, direct or indirect, in any transactions in which Sandstorm Gold has participated since January 1, 2013, which has materially affected or is reasonably expected to materially affect Sandstorm Gold.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is Computershare Investor Services Inc. at its principal offices in Vancouver, British Columbia and Toronto, Ontario. The co-transfer agent and registrar for the Common Shares in the United States of America is Computershare Trust Company, N.A. in Golden, Colorado.
The warrant agent for the 2012 Warrants and the 2015 Warrants is Computershare Trust Company of Canada at its principal offices in Vancouver, British Columbia and Toronto, Ontario.
MATERIAL CONTRACTS
The only material contracts entered into by the Company within the financial period ended December 31, 2015 or since such time or before such time that are still in effect, other than in the ordinary course of business, are as follows:
| 1. | The (a) termination agreement dated May 7, 2015 among the Company, Luna, Mineração Aurizona, Sandstorm Gold (Canada) Ltd. and Sandstorm Gold Bank Limited with respect to the restructuring with Luna, and (b) the Aurizona royalty agreement dated May 7, 2015 among Luna, Mineração Aurizona and Sandstorm Gold (Canada) Ltd. with respect to the Aurizona Project NSR. See “General Development of the Business - Mineral Interests - Aurizona Gold Stream” for further details. |
| | |
| 2. | The Santa Elena Gold Stream. See “General Development of the Business - Mineral Interests - Santa Elena Gold Stream” for further details. |
| | |
| 3. | The Amended and Restated Credit Agreement dated February 7, 2013 between the Company and The Bank of Nova Scotia, Bank of Montreal and National Bank of Canada. See “General Development of the Business – Credit Facility” for further details. |
| | |
| 4. | The Diavik Royalty purchase agreement. See “General Development of the Business – Mineral Interests – Diavik Mine Royalty” for further details. |
| | |
| 5. | The Copper Purchase Agreement and the Silver Purchase Agreement. See “General Development of the Business – Mineral Interests – Multi-Asset Stream with Yamana Gold Inc.” for further details. |
INTERESTS OF EXPERTS
Qualified Persons Under NI 43-101
Ramon Mendoza Reyes, P. Eng., Vice President Technical Services for First Majestic, a qualified person under NI 43-101, has reviewed and approved the scientific and technical disclosure relating to the Santa Elena Mine contained in this AIF.
William Wulftange, P.Geo., Senior Vice President of Exploration of Yamana, a qualified person under NI 43-101, has reviewed and approved the scientific and technical disclosure relating to the Chapada Mine contained in this AIF.
Keith Laskowski, MSc., Vice President Technical Services for the Company, a qualified person under NI 43-101, has reviewed and approved the scientific and technical disclosure relating to the Diavik Mine contained in this AIF.
Each of the aforementioned firms or persons are independent of the Company (with the exception of Mr. Laskowski), and held either less than 1% of the outstanding Common Shares or no securities of the Company or of any associate or affiliate of the Company at the time of preparation of the respective reports and/or at the time of the preparation of the technical information contained in this AIF and did not receive any direct or indirect interest in any securities of the Company or of any associate or affiliate of the Company. None of the aforementioned persons are currently expected to be elected, appointed or employed as a director, officer or employee of the Company or of any associate or affiliate of the Company, other than Mr. Laskowski who is an employee of the Company.
Auditors
Deloitte LLP are the independent auditors for the Company. Deloitte LLP have advised the Company that they are independent with respect to the Company within the meaning of the Rules of Professional Conduct of the Institute of Chartered Professional Accountants of British Columbia and the rules and standards of the PCAOB and the securities laws and regulations administered by the SEC.
AUDIT COMMITTEE
The Company’s Audit Committee is responsible for monitoring the Company’s systems and procedures for financial reporting and internal control, reviewing certain public disclosure documents and monitoring the performance and independence of the Company’s external auditors. The committee is also responsible for reviewing the Company’s annual audited financial statements, unaudited quarterly financial statements and management’s discussion and analysis of financial results of operations for both annual and interim financial statements and review of related operations prior to their approval by the full board of directors of the Company.
The Audit Committee’s charter sets out its responsibilities and duties, qualifications for membership, procedures for committee member removal and appointment and reporting to the Company’s Board of Directors. A copy of the charter is attached hereto as Schedule “A” to this AIF.
The following are the current members of the Committee:
| John P.A. Budreski | Independent(1) | Financially literate(1) |
| | | |
| David E. De Witt | Independent(1) | Financially literate(1) |
| | | |
| Andrew T. Swarthout | Independent(1) | Financially literate(1) |
| (1) | As defined by National Instrument 52-110Audit Committees(“NI 52-110”). |
Relevant Education and Experience
As noted above, each member of the Audit Committee is financially literate, i.e. has the ability to read and understand financial statements. Collectively, the Audit Committee members have the education and experience to fulfill their responsibilities as outlined in the Audit Committee Charter.
Set out below is a description of the education and experience of each Audit Committee member that is relevant to the performance of his responsibilities as an Audit Committee member.
John P.A. Budreski – Mr. Budreski has been involved in capital markets since 1987 and has acted as an advisor or consultant on a variety of capital markets matters. From 2009 to 2012, he was a Managing Director and a Vice Chairman with Cormark Securities Inc. He was the President and Chief Executive Officer of Orion Securities Inc. from 2005 to 2007. Mr. Budreski’s work has required extensive review and analysis of financial statements. He graduated in 1981 from TUNS/Dalhousie with a Bachelor of Engineering degree and then in 1986 from the University of Calgary with an MBA degree.
David E. De Witt– Mr. De Witt is a founding partner and the Chairman of Pathway Capital Ltd., a private venture capital company which was founded in October 2004. He has been a director and officer of numerous publicly traded companies since 1991 and his work has required extensive review and analysis of financial statements. Mr. De Witt graduated in 1975 from the University of British Columbia with a Bachelor of Commerce degree and then in 1978 with a Bachelor of Laws degree.
Andrew T. Swarthout– In addition to being a Director of the Company, Mr. Swarthout has been the Chief Executive Officer and a Director of Bear Creek Mining Corporation since 2003. He was a Director of Rio Cristal Resources Corporation from December 2006 to September 3013 and a Director of Esperanza Resources Corp. from May 2012 to August 2013. These are all publicly traded companies and Mr. Swarthout’s work has required extensive review of financial statements. Mr. Swarthout graduated in 1974 from the University of Arizona with a Bachelor of Geosciences degree and he is a Professional Geologist.
Reliance on Certain Exemptions
At no time since the commencement of the Company’s most recently completed financial year has the Company relied on any exemption from NI 52-110.
Audit Committee Oversight
At no time since the commencement of the Company’s most recently completed financial year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Board of Directors of the Company.
Pre-Approval Policies and Procedures
The Audit Committee’s charter sets out responsibilities regarding the provision of non-audit services by the Company’s external auditors. This policy encourages consideration of whether the provision of services other than audit services is compatible with maintaining the auditor’s independence and requires Audit Committee pre-approval of permitted audit and audit-related services.
External Auditor Service Fees
The aggregate fees billed by the Company’s external auditors in each of the last two financial years are as follows:
Financial Year
Ending | Audit Fees | Audit-Related Fees
(1) | Tax Fees | All Other Fees |
| 2015 (December 31) | $283,984 (C$393,057) | NIL | NIL | NIL |
| 2014 (December 31) | $255,755 (C$296,700) | NIL | NIL | NIL |
ADDITIONAL INFORMATION
Additional information relating to the Company can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities and securities authorized for issuance under equity compensation plans is contained in the management information circular of the Company dated April 2, 2015 filed on SEDAR at www.sedar.com. This information will also be contained in the management information circular of the Company to be prepared in connection with the Company’s 2016 annual meeting of shareholders currently scheduled to be held in June 2016 which will be available on SEDAR atwww.sedar.com and on EDGAR atwww.sec.gov. Additional financial information is provided in the Company’s audited consolidated financial statements and management’s discussion and analysis for the financial year ended December 31, 2015.
SCHEDULE “A”
SANDSTORM GOLD LTD.
(the "Company")
AUDIT COMMITTEE CHARTER
I. Mandate
The primary function of the Audit Committee (the “Committee”) is to assist the Board of Directors in fulfilling its financial oversight responsibilities by reviewing the financial reports and other financial information provided by the Company to regulatory authorities and shareholders, the Company’s systems of internal controls regarding finance and accounting, and the Company’s auditing, accounting and financial reporting processes. Consistent with this function, the Committee will encourage continuous improvement of, and should foster adherence to, the Company’s policies, procedures and practices at all levels. The Committee’s primary duties and responsibilities are to:
| · | Serve as an independent and objective party to monitor the Company’s financial reporting and internal control system and review the Company’s financial statements. |
| · | Oversee the audit of the Company’s financial statements. |
| · | Review and appraise the performance of the Company’s external auditors. |
| · | Provide an open avenue of communication among the Company’s auditors, financial and senior management and the Board of Directors. |
II. Composition
The Committee shall be comprised of three or more directors as determined by the Board of Directors. Each of these directors shall be independent as required by the applicable rules of the Company’s regulators. No member of the Committee is permitted to have participated in the preparation of the financial statements of the Company or any current subsidiary at any time during the past three years.
If permitted by applicable stock exchange laws and regulations in effect from time to time, one director who (i) is not independent as defined and required under applicable stock exchange rules, and (ii) is not a current employee or an immediate family member (as defined under applicable stock exchange rules) of such employee, may be appointed to the Audit Committee if the Board, under exceptional and limited circumstances, determines that membership on the Audit Committee by the individual is required in the best interests of the Company and its stockholders. In such event, the Board will disclose in the Company’s next annual proxy statement the nature of that director’s relationship with the Company and the reasons for that determination. A director appointed to the Committee pursuant to this exception may not serve in excess of two consecutive years and may not chair the Committee.
Each member of the Committee will be able to read and understand fundamental financial statements. At least one member of the Committee shall have accounting or related financial management expertise to qualify as a financial expert. A financial expert is a member who understands generally accepted accounting principles and financial statements; can assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; has experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities; understands internal control over financial reporting; and understands audit committee functions.
The members of the Committee shall be elected by the Board of Directors. Unless a Chair is elected by the full Board of Directors, the members of the Committee may designate a Chair by a majority vote of the full Committee membership.
III. Meetings
The Committee shall meet at least quarterly,or more frequently as circumstances dictate. As part of its job to foster open communication, the Committee will meet at least annually with the Chief Financial Officer and the external auditors in separate sessions.
IV. Responsibilities and Duties
To fulfill its responsibilities and duties, the Committee shall:
Documents/Reports Review
| 1. | Review and update this Charter annually. |
| 2. | Review the Company’s financial statements, MD&A and any annual and interim earnings, press releases before the Company publicly discloses this information and any reports or other financial information (including quarterly financial statements), which are submitted to any governmental body, or to the public, including any certification, report, opinion, or review rendered by the external auditors. |
| 3. | Review the expenses of the Chief Executive Officer on an annual basis. |
External Auditors
| 4. | Review annually, the performance of the external auditors who shall be ultimately accountable to the Board of Directors and the Committee as representatives of the shareholders of the Company. |
| 5. | Obtain annually, a formal written statement of external auditors setting forth all relationships between the external auditors and the Company. |
| 6. | Review and discuss with the external auditors any disclosed relationships or services that may impact the objectivity and independence of the external auditors. |
| 7. | Take, or recommend that the full Board of Directors take, appropriate action to oversee the independence of the external auditors. |
| 8. | Recommend to the Board of Directors the selection and, where applicable, the replacement of the external auditors nominated annually for shareholder approval. |
| 9. | At each meeting, consult with the external auditors, without the presence of management, about the quality of the Company’s accounting principles, internal controls and the completeness and accuracy of the Company’s financial statements. |
| 10. | Review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Company. |
| 11. | Review with management and the external auditors the audit plan for the year-end financial statements. |
| 12. | Review and pre-approve all audit and audit-related services and the fees and other compensation related thereto, and any non-audit services, provided by the Company’s external auditors. The pre-approval requirement is waived with respect to the provision of non-audit services if: |
| i. | the aggregate amount of all such non-audit services provided to the Company constitutes not more than five percent of the total amount of revenues paid by the Company to its external auditors during the fiscal year in which the non-audit services are provided; |
| ii. | such services were not recognized by the Company at the time of the engagement to be non-audit services; and |
| iii. | such services are promptly brought to the attention of the Committee by the Company and approved prior to the completion of the audit by the Committee or by one or more members of the Committee who are members of the Board of Directors to whom authority to grant such approvals has been delegated by the Committee. |
Provided the pre-approval of the non-audit services is presented to the Committee’s first scheduled meeting following such approval such authority may be delegated by the Committee to one or more independent members of the Committee.
Financial Reporting Processes
| 13. | In consultation with the external auditors, review with management the integrity of the Company’s financial reporting process, both internal and external. |
| 14. | Consider the external auditors’ judgments about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting. |
| 15. | Consider and approve, if appropriate, changes to the Company’s auditing and accounting principles and practices as suggested by the external auditors and management. |
| 16. | Review significant judgments made by management in the preparation of the financial statements and the view of the external auditors as to appropriateness of such judgments. |
| 17. | Following completion of the annual audit, review separately with management and the external auditors any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information. |
| 18. | Review any significant disagreement among management and the external auditors in connection with the preparation of the financial statements. Where there are significant unsettled issues, the Committee shall ensure that there is an agreed course of action for the resolution of such matters. |
| 19. | Review with the external auditors and management the extent to which changes and improvements in financial or accounting practices have been implemented. |
| 20. | Solicit and review complaints or concerns about any questionable accounting, internal accounting controls or auditing matters. |
| 21. | Review certification process. |
| 22. | Allow for the solicitation of confidential and/or anonymous submissions by employees of the Company of concerns regarding questionable accounting or auditing matters. |
| 23. | Review any related-party transactions. |
General
| 24. | The Committee shall be empowered to retain independent counsel and other advisers as necessary to carry out its duties. |
| 25. | The Committee shall be provided appropriate funding from the Company, as determined by the Committee, for payment of compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit review or attest services for the Company, to any advisers employed by the Committee, and for ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties. |
APPROVED by the Audit Committee of SANDSTORM GOLD LTD. on May 3, 2012.
APPROVED AND ADOPTED by the Board of Directors of SANDSTORM GOLD LTD. on May 3, 2012.
