Sandstorm Metals & Energy Ltd.
TSX VENTURE : SND

Sandstorm Metals & Energy Ltd.

November 26, 2010 14:39 ET

Sandstorm Metals & Energy Agrees to Acquire Six Coal Streams and Launches a Cdn$60 Million Equity Financing

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 26, 2010) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR RELEASE, PUBLICATION, DISTRIBUTION OR DISSEMINATION DIRECTLY, OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES.

Sandstorm Metals & Energy Ltd. ("Sandstorm Energy" or the "Corporation") (TSX VENTURE:SND) is pleased to announce that it has entered into purchase agreements to acquire six coal streams and one coal royalty on currently operating mines and development assets located in the central Appalachian coal belt of the United States of America. These coal stream and royalty acquisitions launch Sandstorm Energy as an emerging non-precious metal streaming company in the resources sector.

Sandstorm Energy has:

  • entered into a purchase agreement with NovaDX Ventures Corp. ("NovaDX") (TSX VENTURE:NDX) to acquire 25% of the first 3,800,000 tons of metallurgical equivalent coal produced, and 16% of the life of mine metallurgical equivalent coal produced thereafter from the following assets (the "NovaDX Assets")(the "NovaDX Transaction"):
    • Rosa Mine: an operating metallurgical coal mine in Alabama (Sandstorm Energy shall only be entitled to purchase coal from any surface mining operations at the Rosa Mine)
    • Rex No. 1 Mine: a permitted and bonded metallurgical coal development project in Tennessee expected to begin production in mid-2011, which NovaDX shall purchase with the proceeds received from the Corporation.
    • Ikerd Mines: a number of industrial coal assets located in Kentucky including the currently producing Flatwoods Mine, which NovaDX shall purchase with the proceeds received from the Corporation.
  • entered into a purchase agreement with Royal Coal Corp. ("Royal Coal") (TSX VENTURE:RDA) to acquire 18% of the first six million tons of coal produced, and 12% of the life of mine coal produced thereafter from the following Royal Coal assets (the "Royal Coal Assets"), all located near the town of Hazard in Kentucky (the "Royal Coal Transaction"):
    • Big Branch Mine: an operating thermal coal mine
    • Big Branch Extension: a thermal coal project expected to be in production in early 2011
    • SID Mine: a permitted thermal coal project expected to begin production in mid-2011
  • engaged Cormark Securities Inc. as lead agent with a syndicate including Paradigm Capital Inc., and NCP Northland Capital Partners Inc. to undertake a best efforts private placement financing to raise gross proceeds of between Cdn$20 million and Cdn$60 million (the "Offering")

NovaDX Transaction

Sandstorm Energy has entered into a purchase agreement with NovaDX pursuant to which the Corporation has agreed to purchase 25% of the first 3,800,000 tons of metallurgical equivalent coal (where three tons of thermal coal equals one ton of metallurgical equivalent coal) produced and 16% of the life of mine metallurgical equivalent coal produced thereafter from the Rosa Mine, the Rex No. 1 Mine and the Ikerd Mines for an upfront payment of US$38 million plus ongoing per ton payments of US$75 for metallurgical coal and US$55 for thermal coal.

The Corporation is not required to contribute to any capital or exploration expenditures in respect of the mining operations of NovaDX. NovaDX has provided the Corporation with a guarantee that Sandstorm Energy will receive minimum cash flows of (i) US$4 million in 2011, (ii) US$6 million in 2012, (iii) US$9 million in 2013, and (iv) US$9.5 million in each of 2014 and 2015, thus providing a 100% return of capital within 5 years.

The Corporation can make a payment of US$5 million by December 31, 2010 to receive the right to purchase 8.5% of the metallurgical coal from the Rosa Mine (the "Minimum NovaDX Transaction"), for the life of the mine for US$75 per ton, and the Corporation would still have the right to make an additional payment of US$33 million to NovaDX by February 15, 2011, to receive the right to purchase 25% of the first 3,800,000 tons of metallurgical equivalent coal produced and 16% of the life of mine metallurgical equivalent coal produced thereafter from the Rosa Mine, the Rex No. 1 Mine and the Ikerd Mines.

The completion of the NovaDX Transaction remains subject to the completion of the Offering and receipt of all necessary regulatory and other approvals, including acceptance by the TSX Venture Exchange (the "TSXV").

NovaDX Assets

The Rosa Mine in Alabama is a current producing auger mine expanding its operations to include some strip mine operations in addition to increased auger mining operations. The coal from the Rosa Mine is being sold to domestic users as coking coal and activated carbon applications at prices averaging US$150 per ton. Although the current mine life under 43-101 mineral reserves allows for three and a half years of operations, additional mineral resources are present in currently permitted land and adjacent properties that will be included under the Corporation's transaction with NovaDX in the event that NovaDX produces coal from these properties.

The Rex No. 1 Mine in Tennessee is a development asset expected to begin construction in January 2011 and begin production by mid-2011. The Rex seam is known for its high quality metallurgical coal; a high volatile A bituminous coal with very low ash, very low sulphur, and high BTU that is often used in the production of silicon metal. It is one of the largest single continuous resources of metallurgical coal located in the Central Appalachian coal belt. There is opportunity to expand the resource by increased drilling and increasing the lease area in the immediate vicinity.

The Ikerd Mines includes the Flatwoods Mine, an operating coal mine producing industrial coal, and the Elk Mountain and Little Bushy Creek development projects all located in Kentucky. Most of the current production is marketed as industrial coal through the Ikerd load out station located in Somerset, Kentucky. Sandstorm Energy does not consider the Ikerd Mines to be a material mineral project.

For further details regarding the Rosa Mine and the Rex Mine, see the tables below which set out the estimated mineral resources and mineral reserves. Technical reports in support of these estimates will be filed within 45 days of the date of this press release and will be available under the Corporation's SEDAR profile at www.sedar.com.

Royal Coal Transaction

Sandstorm Energy has entered into a purchase agreement with Royal Coal pursuant to which the Corporation has agreed to purchase 18% of the first six million tons of coal produced and 12% of the life of mine coal produced thereafter from the Big Branch Mine, the Big Branch Extension and the SID Mine for an upfront payment of US$11 million plus ongoing per ton payments of US$55, subject to certain adjustments.

The Corporation is not required to contribute to any capital or exploration expenditures in respect of the mining operations of Royal Coal. Royal Coal has provided the Corporation with a guarantee that Sandstorm Energy will receive minimum cash flows of (i) US$2 million in 2011 and (ii) US$2.5 million in each of 2012, 2013, 2014 and 2015, thus providing a 100% return of capital within 5 years.

Sandstorm Energy has also entered into an agreement, for an upfront payment of US$3 million (to be paid by December 17, 2010) to purchase a gross royalty of 2.7% of revenue, decreasing to 1.35% (once the Corporation has received a return of capital equal to 150% of its initial investment), on all of Royal Coal's current assets (the "Royalty").

The completion of the Royal Coal Transaction remains subject to the completion of the Offering and receipt of all necessary regulatory and other approvals, including acceptance by the TSXV.

Royal Coal Assets

All of the Royal Coal Assets are located near Hazard, Kentucky and include the Big Branch Mine, the Big Branch Extension and the SID Mine. All assets are strip and contour mining operations mining multiple seams of low sulpher, low ash, high BTU thermal coal. The town of Hazard is the centre of a prolific coal mining district with an abundance of skilled labour and coal mining related infrastructure.

The Big Branch Mine is currently an operating strip and contour mine accessing multiple coal seams. The operation is currently operating at a 40,000 ton per month run rate and is expected to ramp up to 50,000 tons per month in the first quarter of 2011 with the potential to expand production beyond that level. The coal is trucked a short distance to Royal Coal's self-operated load out facility. The coal does not need to be washed resulting in lower cost of production. The current coal resource would provide a 10 year mine life at the expected production rate but there are opportunities to expand resources by additional permitting and an increased leased land position.

The SID Mine is located to the south of Big Branch and is expected to mine at a rate of 35,000 tons per month by the end of 2011. After the initial access, the strip ratio is expected to be 16:1. The asset is permitted for strip and contour mining, but could also continue with auger and high wall mining methods. Ample opportunities exist to increase the resource through additional permitting and pursuing leases contiguous with the currently planned mined area. Royal Coal has been very successful in marketing the high quality coal coming from this asset. Coal from the SID Mine will be trucked to the nearby Wolverine load out for use as thermal and industrial coal.

For further details regarding the Big Branch Mine and the SID Mine, see the tables below which set out the estimated mineral resources and mineral reserves. Technical reports in support of these estimates will be filed within 45 days of the date of this press release and will be available under the SEDAR Corporation's profile at www.sedar.com.

Equity Financing

The Corporation has entered into an agreement with a syndicate of agents led by Cormark Securities Ltd. and including Paradigm Capital Inc., and NCP Northland Capital Partners Inc. (collectively the "Agents") to issue, on a private placement "best efforts" basis, a minimum of 44,500,000 special warrants (the "Special Warrants") and a maximum of 133,500,000 at a price of Cdn$0.45 per Special Warrant for gross proceeds of between approximately Cdn$20 million and approximately Cdn$60 million (the "Offering").

Each Special Warrant will entitle the holder thereof to receive one unit (a "Unit") on the exercise or deemed exercise of the Special Warrant without payment of any additional consideration. Each Unit will consist of one common share of the Company (a "Common Share") and one-half of one Common Share purchase warrant (a whole warrant a "Warrant"). Each Warrant will entitle the holder to acquire one Common Share at a price of US$0.70 for a period of two years following the date of closing of the Offering, subject to adjustment as described below.

The Corporation will use its commercially reasonable best efforts to file a prospectus qualifying the distribution of the Common Shares and Warrants and to have a receipt for a final prospectus issued by the securities commissions in Canada by January 21, 2011. In the event that the Corporation has not received a receipt for a final prospectus within 60 days of closing, the terms of the Warrants will be extended from two years to five years and the exercise price per Warrant will be reduced from US$0.70 to US$0.65.

The net proceeds of the Offering will be used to fund the upfront consideration for each of the NovaDX Transaction (US$38 million), the Royal Coal Transaction (US$11 million), the Royalty (US$3 million), and for future streaming acquisitions and for general corporate and working capital purposes.

In the event that Sandstorm Energy does not raise the maximum amount of CDN$60 million under the Offering, the Corporation will endeavour to raise the additional capital by February 15, 2011. In the alternative, the Corporation will endeavour to increase the size of the Minimum NovaDX Transaction (US$5 million) so that the majority of the funds raised under the Offering can be applied to the Minimum NovaDX Transaction and the Royal Coal Transaction.

The Offering is expected to close on or about December 14, 2010 and is subject to certain conditions including, but not limited to, the receipt of all necessary regulatory approvals, including the approval of the TSXV.

The securities offered have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act") or any U.S. state securities laws, and may not be offered or sold in the United States or to, or for the account or benefit of, United States persons absent registration or any applicable exemption from the registration requirements of the U.S. Securities Act and applicable U.S. state securities laws. This press release shall not constitute an offer to sell or the solicitation of an offer to buy securities in the United States, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Summary of Mineral Resource and Mineral Reserve Estimates

NovaDX - Rosa Mine

The following table sets forth the estimated mineral resources and mineral reserves for the Rosa Mine as of March 18, 2010:

Mineral Resources and Mineral Reserves (1)(2)

  Coal Resource in-situ tons Coal Reserve in-situ tons
Area Measured & Indicated Inferred Proven Probable
Phase 1 783,000 0 453,000 0
Total 783,000 0 453,000 0

(1) The mineral resource and mineral reserve estimates set out in the table above have been prepared by Sanford M. Hendon, P.E., Vice President of McGehee Engineering Corporation, who is a qualified person under NI 43-101. The mineral resources are classified as measured and indicated, and the mineral reserves are classified as proven, based on the CIM Standards.
(2) Quality by split is as follows:

Seam   As-Received Basis  
              # of
% Ash % VM % FC % SUL Btu/lb. %Fe2O3 %TiO2 Samples
Rex Average 4.88 38.31 56.81 0.92 14,358 0.55 0.046 9
  Minimum 2.07 38 54.66 0.72 13,989 0.28 0.02  
  Maximum 7.23 39.16 59.26 1.56 14,842 0.83 0.06  
Seam   Float 1.3-1.35 S.G. Dry Basis  
              # of
% Ash % VM % FC % SUL Btu/lb. %Fe2O3 %TiO2 Samples
Rex Average 1.9 39.31 56.81 0.77 14,850 0.24 0.018 5
  Minimum 1.47 38.41 58.09 0.71 14,759 0.17 0.013  
  Maximum 2.61 40.41 59.81 0.87 14,924 0.31 0.021  

NovaDX - Rex No. 1 Mine

The following table sets forth the estimated mineral resources and mineral reserves for the Rex No. 1 Mine as of July 21, 2010:
Mineral Resources and Mineral Reserves (1)(2)

  Coal Resource in-situ tons Coal Reserve in-situ tons
Area Measured Indicated Inferred Proven Probable
1 1,410,000 3,697,000 13,552,000 1,410,000 3,697,000
2 3,409,000 5,699,000 9,749,000 3,409,000 5,699,000
3 7,963,000 10,025,000 4,341,000 7,963,000 10,025,000
Sum 12,782,000 19,421,000 27,642,000 12,782,000 19,421,000
  Total Reserve In-situ tons 32,203,000

(1) Mr. Sanford Hendon, P.E., Vice President of McGehee Engineering Corporation, who is a qualified person as such term is defined under NI 43-101, has reviewed and approved the table above and below, including the reserves and resources, as stated in a technical report prepared by Gress Engineering, PC, delivered to MCoal dated July 21, 2010. The mineral resources are classified as measured, indicated and inferred, and the mineral reserves are classified as proven and probable, based on the CIM Standards.
(2) Quality by split is as follows:

Seam   As-Received Basis  
              # of
% Ash % VM % FC % SUL Btu/lb. %Fe2O3 %TiO2 Samples
Rex Average 4.88 38.31 56.81 0.92 14,358 0.55 0.046 9
  Minimum 2.07 38 54.66 0.72 13,989 0.28 0.02  
  Maximum 7.23 39.16 59.26 1.56 14,842 0.83 0.06  
Seam   Float 1.3-1.35 S.G. Dry Basis  
              # of
% Ash % VM % FC % SUL Btu/lb. %Fe2O3 %TiO2 Samples
Rex Average 1.9 39.31 56.81 0.77 14,850 0.24 0.018 5
  Minimum 1.47 38.41 58.09 0.71 14,759 0.17 0.013  
  Maximum 2.61 40.41 59.81 0.87 14,924 0.31 0.021  

Royal Coal – Big Branch Mine

The following table sets forth the estimated mineral resources and mineral reserves for the Big Branch Mine as of January 21, 2010:

Mineral Resources and Mineral Reserves (1)(2)

Seam Mineral Resource Tons Mineral Reserve Tons
Measured Indicated Inferred Proven Probable
5 Top 447,767 182,881 0 406,102 155,449
5 Middle 928,788 325,328 0 789,470 276,529
5 Bottom 1,351,884 306,816 0 1,149,101 260,794
7 1,492,389 64,913 0 1,268,531 55,176
8 Top 294,674 0 0 250,473 0
8 Middle 505,454 0 0 429,636 0
8 Bottom 398,992 0 0 339,143 0
Sub Total 5,449,948 879,939 0 4,632,456 747,948

(1) The mineral resource and mineral reserve estimates set out in the table above have been prepared by Philip Lucas, P.E., P.L.S., Vice President of Summit Engineering, Inc., who is a qualified person under NI 43-101. The mineral resources are classified as measured and indicated, and the mineral reserves are classified as proven and probable, based on the CIM Standards.
(2) Quality by split is as follows:

Seam BTU ASH Sulfur Moisture
5A Rider 12200 11.20 4.49 4.46
5A Top 11607 17.08 0.75 4.86
5A Middle 12497 11.60 0.76 3.57
5A Bottom 12736 7.45 0.77 6.63
7 Top 12268 12.09 0.72 7.36
7 Bottom 9917 25.32 0.72 7.05
8 Top 9788 26.16 0.95 7.49
8 Middle 12798 9.71 0.72 4.71
8 Bottom 12206 12.80 5.81 5.18
9 12073 12.64 1.90 5.95
5A Wash 10100 33.10 1.560 6.700

Royal Coal - SID Mine

The following table sets forth the estimated mineral resources and mineral reserves for the SID Mine as of January 20, 2010:
Mineral Resources and Mineral Reserves (1)(2)

Seam Mining Type Mineral Resource Tons Mineral Reserve Tons
Measured Indicated Inferred Proven Probable
Fireclay Contour 234,000 841,000 0 199,000 715,000
  Auger 223,000 747,000 0 67,000 224,000
             
Haddix Point Removal 54,000 0 0 46,000 0
  Contour 260,000 529,000 0 221,000 450,000
  Auger 150,000 177,000 0 45,000 53,000
             
Hazard 5A Point Removal 71,000 0 0 60,000 0
  Contour 388,000 172,000 0 330,000 146,000
  High-wall Miner 756,000 196,000 0 340,000 88,000
             
Hazard 7 N/A 0 0 0 0 0
             
Hazard 8 Point Removal 20,000 0 0 17,000 0
  Area 198,000 0 0 168,000 0
             
Hazard 9 Point Removal 9,000 0 0 8,000 0
  Area 104,000 0 0 88,000 0
             
Total Surface 1,338,000 1,542,000 0 1,137,000 1,311,000
Total Auger/ HW Mining 1,129,000 1,120,000 0 452,000 365,000
Sub Total 2,467,000 2,662,000 0 1,589,000 1,676,000

(1) The mineral resource and mineral reserve estimates set out in the table above have been prepared by Philip Lucas, P.E., P.L.S., Vice President of Summit Engineering, Inc., who is a qualified person under NI 43-101. The mineral resources are classified as measured and indicated, and the mineral reserves are classified as proven and probable, based on the CIM Standards.
(2) Quality by split is as follows:

Seam Inches BTU ASH Sulfur Moisture
#8 14.00 11,996 14.97 0.72 4.35
Rider 5.00        
#7 12.00 13,041 7.69 0.62 4.48
Rider 7.00        
5A Rider 10.00 13,644 5.45 1.41 3.04
Rider 6.00        
#5A 37.00 13,288 6.64 0.63 4.54
Haddix 24.00 12,643 11.50 0.65 3.60
Copland 19.00 12,597 12.35 2.98 2.97
4 Rider 8.00 12,223 14.83 3.57 2.66
Hazard #4 Top 24.00 13,448 6.95 1.94 2.7
Hazard #4 Bot 16.00 12,763 11.34 2.210 2.930
Elkhorn #3 16.00 13,097 7.71 0.86 4.45
Elkhorn #4 12.00 13,519 6.54 2.51 2.55
Total          
Average / Pr. Prod   13,160 7.74 0.73 4.14

The qualified persons set out in the above tables have reviewed and approved the scientific or technical information included in this press release.

Cautionary Note Regarding Forward-Looking Information

Except for the statements of historical fact contained herein, the information presented constitutes "forward-looking information" within the meaning of applicable Canadian securities legislation. Forward-looking information is based on reasonable assumptions that have been made by Sandstorm Energy 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 Sandstorm Energy to be materially different from those expressed or implied by the 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 Energy will purchase coal and risks related to those mining operations, including risks related to international operations, government and environmental regulation, actual results of current exploration activities, conclusions of economic evaluations and changes in project parameters as plans continue to be refined; problems inherent to the marketability of minerals; industry conditions, including fluctuations in the price of metals, fluctuations in foreign exchange rates and fluctuations in interest rates; stock market volatility and competition. Although Sandstorm Energy has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. Sandstorm Energy does not undertake to update any forward-looking information that is contained or incorporated by reference herein, except in accordance with applicable securities laws. Sandstorm Energy does not provide any representation as to its comparability with other companies in its industry including, but not limited to Franco-Nevada Corporation, BHP Billiton, Rio Tinto and Western Coal.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Sandstorm Metals & Energy Ltd.
    Nolan Watson
    President and Chief Executive Officer
    (604) 689-0234
    or
    Sandstorm Metals & Energy Ltd.
    Denver Harris
    Investor Relations Contact
    (604) 689-0234
    www.sandstormmetalsandenergy.com