The Mercedes mine is a ramp access underground mine located in Sonora, Mexico, approximately 300 kilometres north of Hermosillo. It covers 43 mineral concessions over 69,285 hectares. Up to December 31, 2020, 5.84 million tonnes of grade 4.42 g/t gold and 49.5 g/t silver had been processed, with 781,000 ounces of gold and 3.34 million ounces of silver produced.
Proven and probable reserves stand at 2.6 million tonnes of grade 3.89 g/t gold and 29.2 g/t silver, containing 325,000 ounces of gold and 2.45 million ounces of silver.
Equinox is selling the asset for US$100 million cash of which US$75 million is payable on closing and US$25 million six months after the closing date. Equinox will also receive 24.7 million common shares of Bear Creek, worth $35 million and a 2% net smelter return payable on production from Mercedes.
“We acquired Mercedes in April this year as part of our acquisition of Premier Gold Mines and the large-scale Greenstone Project,’’ said Equinox Gold CEO Christian Milau. “Mercedes is non-core to Equinox Gold, representing 5% of our 2021 production guidance and 2.0% of our resources.”
Equinox shares advanced on the news, rising 1.08% or $0.09 to $8.40 on volume of 1.17 million. The shares currently trade in a 52-week range of $14.33 and $7.53.
Milau went on to say that the sale of Mercedes strengthens Equinox’s balance sheet with US$100 million as the company focuses on growth through expansion and development of large projects, including Greenstone.
“Equinox will also become a significant shareholder of Bear Creek, continuing the participate in the success of Mercedes and in the future development of Bear Creek’s Corani silver-lead-zinc deposit, one of the largest, fully-permitted silver deposits in the world.’’
Before trading in Bear Creek was halted at 8.03 a.m. (ET) Friday, the shares were trading at $1.51 in a 52-week range of $3.37 and 92 cents.
“Moving from a development stage company into a precious metals producer is an important step in Bear Creek’s evolution,’’ said Bear Creek President and CEO Anthony Hawkshaw.
The US$75 million cash payment on the closing date will be funded by $15 million from the company’s treasury and $60 million from Sandstorm Gold Ltd. [SSL-TSX, SAND-NYSE American].
The move comes after Bear Creek and Sandstorm entered into a gold purchase agreement and debt financing deal. Under the agreement, Sandstorm will provide Bear Creek with US$37.5 million and in exchange Bear Creek will sell to Sandstorm 600 ounces of refined gold per month for 42 months (a total of 25,200 ounces) at a price equal to 7.5% of the spot gold price at the time of delivery.
Thereafter, the company will sell to Sandstorm 4.4% of gold produced by Mercedes at a price equal to 25% of the spot price at the time of delivery. Sandstorm will also be granted a right of first refusal on any royalties, streams or similar transactions with respect to the production from Mercedes.
On the closing date, Sandstorm will pay Bear Creek $22.5 million to subscribe for a 6.0% three-year convertible debenture. Interest will be paid quarterly on the outstanding amount.
Bear Creek said the acquisition of Mercedes will add a high-quality, low-cost cash flowing asset to Bear Creek’s project portfolio. It will also provide a source of free cash flow to help fund the development and construction of the Corani silver mine in Peru.