Update: Santacruz Silver Mining Amends Its San Filipe Agreement

Sep. 4.14 | About: Santacruz Silver (SZSMF)

Summary

SantaCruz Silver Mining announed that it has amended its San Felipe payment agreement to push its payments back a year.

I had not anticipated this last August.

This is clearly good news as the company now has an extra year to develop the San Felipe Project before it needs to make its largest payment.

This means there is a smaller chance that the company will have to dilute shareholders or to issue debt in order to make this payment.

SantaCruz Silver Mining (OTCPK:SZSMF) just announced an amendment to its San Felipe purchase agreement. Prior to the announcement the company had to pay Hochschild (OTCPK:HCHDF) according to the following schedule:

  • $5 million on or before October 31st, 2014
  • $16 million on or before October 31st, 2015

Now the company owes Hochschild according to a new, amended schedule:

  • $2 million on or before December 1st, 2014
  • $5 million on or before December 1st, 2015
  • $14 million on or before December 15th, 2016

In addition if SantaCruz issues stock in 2015, then Hochschild is entitled to 30% of the proceeds up to $4 million plus the $5 million due in 2015. Any funds paid in 2015 beyond the $5 million due would be applied to the 2016 payment. This is clearly beneficial for the company, especially since it plans on bringing its San Felipe mine into production in 2016 when the bulk of the payment is due.

Investors will recall that last August one of the things that I pointed out as a positive for the company was that it is going to be able to keep dilution to a minimum as it brings three projects into production. It has already brought the first--Rosario--into production, and San Felipe is next assuming the PEA (which should be released shortly) shows positive results. This announcement bolsters this thesis, as the company will now have an extra year to raise the capital needed to pay Hochschild.

I continue to remain constructive on the stock and confident in management's ability to keep costs and dilution down. I am also encouraged by the 38% insider ownership, which aligns management's and shareholders' interests.

Disclosure: The author is long SZSMF.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.