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Adding to its recent slew of corporate activity, Silver Standard (NASDAQ:SSRI) has announced the sale of its Challacollo project in Chile to Mandalay Resources (OTC:MNDJF). This sale constitutes the second transaction of this nature this year for Silver Standard after the sale of the San Augustin project in Mexico in November to Argonaut (OTCPK:ARNGF).

Both transactions were structured very similarly including partial cash payments, shares of the acquiring company, milestone-dependent payments and royalties.

For the latest transaction Silver Standard will receive $7.5M and 12M Mandalay shares at closing, plus 5M Mandalay shares upon declaration of commercial production. Additionally Silver Standard will receive payment of the cash equivalent of 30,000 ounces of silver per quarter for eight quarters following declaration of commercial production. Silver Standard also retains a 2% net smelter royalty, or NSR, on silver sales in excess of 36M ounces up to a maximum of $5M.

The first condition ensures some immediate cash benefits adding to Silver Standard's already impressive cash balance. And the other conditions of the purchase agreement ensure Silver Standard's continued exposure to this asset should it be successfully developed by Mandalay Resources.

Sounds attractive for Silver Standard? We certainly think so.

But what is Mandalay Resources getting out of this deal?

Mandalay Resource's management team has proven its mettle before. We safely assume that this team has conducted very thorough due diligence before agreeing to this transaction. Mandalay already operates the silver-gold Cerro Bayo mines in Chile. Management therefore knows what will be involved in bringing Challacollo into production.

Chollocollo is situated in a desert environment in the very north of Chile near the town of Iquique. Silver has been mined in the project area as early as the 18th century; indeed, the mine was recognized as the largest silver deposit in Chile at the time. Modern exploitation of the silver veins on the property ceased in 1990 and after that ownership has changed several times up until the present transaction.

Silver Standard issued a NI 43-101 report on the project in 2002 and added a resource review in 2003. The reported resource includes 18.6M ounces at a grade of 170.6 g/t in the indicated category and 23.6M ounces at 160.7 g/t in the inferred category.

This is a sizeable deposit that may well be developed into Mandalay's next mine. Mandalay must be anticipating substantial production considering the share it will have to deliver to Silver Standard during the first years. We are already looking forward to reading documentation by Mandalay in the future when management feels ready to share its expectations with investors.

Source: Win-Win For Silver Standard And Mandalay