A 10 Million Ounce Call Option On Gold

| About: Sandspring Resources (SSPXF)

Summary

Sandspring Resources' Toroparu project in Guyana is the fourth-largest gold deposit in South America currently held by a junior.

Toroparu contains ~10 million ounces of near-surface gold mineralization in all categories, amenable to simple metallurgy.

Experienced backers include Silver Wheaton, the John Adams / Energy Fuels group (Denver, CO) and Frank Giustra's Fiore Group (Vancouver, BC).

2013 PFS shows strong economics for this large-scale mine at US$1400 gold, but with a current gold price of $1210, Sandspring is for the true believers….

Sandspring Resources (OTCPK:SSPXF, OTCPK:SSPXD)
Market cap: $27.3 million
Shares outstanding: 82,594,545
Cash: $3.557 million (as of Sept. 30, 2015)

Denver, Colorado-based mining entrepreneurs John Adams and Rich Munson left the uranium and coal businesses for gold in the late 1990s. By 1999, they had set their sights on Guyana, where they met with prospectors and local landowners in Georgetown, the capital, to discuss potential projects. "We rented a conference room and listened to all the landowners who came in."

They were captivated by the story of a gold property called Toroparu owned by Alfro Alphonso, a prominent entrepreneur in Guyana. It was deep in the interior and could only be accessed during the rainy season, when the rivers were high enough. Alphonso's crew would transport 900 55-gallon diesel drums by boat up river and around three waterfalls, two guys carrying each 55-gallon drum, to get access to Toroparu.

"It didn't take a genius to listen to that story and think - for all that effort there's got to be something going on," Sandspring Resources CEO Rich Munson told CEO.CA on an introductory call last week.

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CEO Rich Munson crossing Sandspring's river pontoon in Guyana. Exploration manager, Pascal van Osta, is in the foreground. Munson still spends 7-10 days a month in country.

Munson and Adams saw evidence of the region's riches when they flew to the project aboard an old Russian Sikorsky helicopter - the country's only helicopter. "There were people on top of people running sluices and land dredges. There were probably 30 of these operations in a postage stamp area and everybody was making good gold."

They took samples from the tails of the sluices - which assayed 8-14 grams per ton gold. "We were pretty excited," says Munson. On the flight back to Georgetown, Adams told Munson, "There's ten million ounces of gold here." Adams' conviction led the company to cut a deal with Alphonso to acquire the property, and even construct a $4-million road to Toroparu before drilling a single hole.

Adams' 10-million-ounces prediction materialized a little over a decade later after some 180,000 metres of drilling. About US$25 million was raised from 1999-2009 when the company was private, and over $90 million has been raised since it went public in November 2009 via a reverse takeover of TSXV-listed Sandspring Resources.

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Guyana map via Sandspring Resources

Toroparu is located about 45 km as the crow flies from Guyana Goldfield's Aurora deposit, which achieved production in August 2015. Toroparu is at an advanced stage of permitting and contains 4.1 million ounces of gold in the reserves category at average grades of roughly a gram per tonne, an additional 6 million ounces in other categories, and a healthy amount of copper and silver. Munson says it's the fourth largest gold deposit in South America held by a junior developer. A Pre-Feasibility study completed in 2013 using US$1,400 gold pegged annual production at ~227,000 oz. gold over an initial 16-year mine life.

Toroparu's biggest challenge is the gold price. Munson himself admits it would be a stretch to build the mine at current prices, but with every dollar the gold price rises, the project becomes more economic. At US$1,400, Toroparu has strong economics.

The project's viability is also boosted by a unique financing agreement with Silver Wheaton - its first with a junior developer. As part of a US$153.5 million gold and silver streaming deal, Silver Wheaton advanced Sandspring US$15.5 million to complete a Feasibility Study, which is due at the end of 2016. Silver Wheaton will then decide whether to move forward with Toroparu and contribute the remaining US$138 million to finance construction. Silver Wheaton CEO Randy Smallwood has indicated in multiple presentations in 2015 that he's committed to the project. The streaming deal gives Silver Wheaton the right to buy 10% of Toroparu's gold for US$400 an ounce and 50% of the silver for US$3.90 an ounce.

"I've never had anybody look as thoroughly and deeply as Silver Wheaton did at our operation," Munson recalls. "They tore down our economic models to less than square one, came back to us and said, okay, we'll do this deal."

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Rich Munson, Sandspring CEO

The streaming deal was struck in November 2013 and amended last year to include silver. By that point, Sandspring's equity price had been in decline since peaking at over $3.50 in December 2010, when the company had a market cap of roughly $400 million. By mid-2015, Sandspring's stock had followed the resource sector slide and fallen to under 10 cents per share.

In July 2015, Sandspring announced a transaction with Frank Giustra and Gord Keep's PNO Resources, landing PNO's $1.88 million in cash and an additional $4.1 million raised by Keep and Giustra in a private placement. The financing was for 20-cent units with full five-year warrants at 30 cents (full disclosure, I participated in that financing and continue to hold the position).

I was travelling with Giustra in Africa when the Sandspring-PNO deal was announced. He told me he wanted proven projects in good jurisdictions with leverage to gold, and that Silver Wheaton CEO Randy Smallwood had encouraged him to do the deal.

Following the PNO transaction, Sandspring was able to complete a modest exploration program at one of its prime drill targets. Sandspring drilled 4,000 metres in Q4 2015 at an exploration target 5 km from existing reserves and found higher-grade material, including 5.9 metres of 23.41 g/t Au.

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The Toroparu project from the air. Note the camp has its own air strip now.

Munson says there's exploration upside at the 98,000-hectare property. "You don't find a 10-million-ounce deposit in isolation. We have a lot of geological evidence to support the model for why that gold is there and why other structures in the area have great potential."

The company's shares were consolidated three for one last year and have climbed from 12 cents to 32 cents in the past month on a rising gold price and insider purchases by Giustra. Working capital of more than $3.5 million will take Sandspring into 2017, says Munson. Sandspring has 82,594,545 common shares out, 29,284,008 warrants, and 7,912,639 options, according to the latest MD&A, with insiders holding more than 40%.

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