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Sabina Gold & Silver: A Top-10 Takeover Target

Dec. 01, 2021 4:23 PM ETB2Gold Corp. (BTG), SBB:CA50 Comments
Taylor Dart profile picture
Taylor Dart


  • Sabina Gold & Silver is one of the worst-performing gold juniors this year, down more than 52% year-to-date.
  • However, the fundamental thesis for the stock remains stronger than ever, especially as we've seen M&A deals accelerate in 2021.
  • With Brucejack, Detour, and potentially Windfall now off the table for potential suitors, Sabina's Back River is one of the few massive projects left that suitors could look at acquiring.
  • Based on Sabina's very attractive valuation of ~0.53x NPV (5%) at $1,600/oz gold and significant upside on its land package, I see the stock as a Speculative Buy at current levels.
Stream winds through wild arctic landscape in Akshayuk Pass, Baffin Island, Canada. Moss valley floor and dramatic cliffs. Arctic summer in remote wilderness.

Petr Kahanek/iStock via Getty Images

It's been a rough year for investors in the ASA Gold & Precious Metals Limited ETF (ASA), with the ETF down 5% year-to-date but many individual gold developers down more than 20%. Sabina Gold & Silver (OTCQX:SGSVF

This article was written by

Taylor Dart profile picture
"A bull market is when you check your stocks every day to see how much they went up. A bear market is when you don't bother to look anymore."- John Hammerslough You can access more in-depth research, my current portfolios, new positions I am entering/exiting, and proprietary sentiment indicators for gold miners in my newsletter below.  Returns Link: https://imgur.com/a/6fcWjD6Subscription Link: https://buy.stripe.com/3cseV37nl9Y7dUcaEI - Disclosure: I am not a financial advisor. All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading or investing.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of AEM, SKREF, SGSVF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (50)

WatchingAction profile picture
Any news on the takeover? I hope it has stalled in favour of a better offer...
Brian Cellars profile picture
Oh, to know such things in advance! I finally sold some yesterday to lock in 39% on my lowest re-buy and considered selling a bunch more but didn't. Oh well, at least I had sold some. Re-bought today with a bit extra.
Le Demiurge profile picture
@Brian Cellars I have wayyyyy too big of a position in THM and even though it does respond to the gold price I think I’m going to dump some for more Sabina and Vista. I think they are all going to go up because gold is headed to $2500 this year but TD has made me very nervous about THM. It’s so strange because THM seems to outperform these guys when the gold price surges despite Taylor’s very logical arguments. Is it possible Paulson knows the dollar is going to decline and this will make the relative valuation of American mines more attractive? Why are institutions like Electrum and Paulson so darn interested in THM. Why does Paulson love mines that Taylor hates (THM and Perpetua) with huge capex costs. Either way I’ve been losing sleep because of TD’s analysis so I know my position is much too big. I still think he is flat out wrong about Vista. It’s capex is not so outrageous (THM does seem quite outrageous now that I have learned more about mining though). I’m going 70/30 Vista and Sabina with my redeployed funds. Hoping nothing crazy happens to prices on Monday. My ultimate target for speculative funds is 60% THM, 25% Vista, and 15% Sabina as insurance. Regardless they are all going to at least double this year I am very certain. It doesn’t matter if someone is ever going to buy them or not.
@Le Demiurge, in general, the macro fund managers are not great stock pickers. The ones who out perform do so, more because they are positioned in the right sectors (a rising tide lifts all boats) and less because they picked the biggest winners. Liquidity is also a major concern. Large fund managers must be ale to take a meaningful position without causing the stock price to double or triple on entry and then halve on exit.
Brian Cellars profile picture
@Le Demiurge "THM seems to outperform these guys when the gold price surges despite Taylor’s very logical arguments." It seems to me that THM made a huge run simply on momentum and speculation in 2020, along with the entire sector, and others like NDM, Northern Dynasty, then crashed back to earth where they may sit for a long time.

I would much rather put my money into companies that have performed well since 2020 and are poised for continued growth. China Gold, CGG, is a good example and has now gone higher, so I wouldn't chase it, but there's much more 'certainty' with such companies, regardless of what gold does this year. Good luck!
BeaBaggage profile picture
AEM shutting Nunavut ops...w covid...
@BeaBaggage Just for Christmas..., sounds like perfect pretext. Wondering, why more people in other mines didn't get the idea.
BeaBaggage profile picture
@georgealphabeta I guess it depends on how Covid goes..maybe they 3x vax everyone up and get some Pfizer new pills and reopen..not sure if/how this affects SBB.
Miners in a lot of 3rd world countries like Papua New Guinea, Ecuador, Zimbabwe etc have led the safety measures for their employees. I guess in a small remote location like Nunavut area where supplies fly in and out, it is hard to avoid. Oh well..
@BeaBaggage Well, Pfizer rakes in $200 million a day, so these Christmas "outbreaks" might become nice little bonus for them. However, if employees don't have to take the jab, then they will have nice little break for Christmas. You have to have boots on the ground in order to know what's going on. For me it looks more like a PR exercise on the part of AEM. Workers really wanted get their Christmas break, so AEM gave them what workers wanted. I wouldn't read too much into it
You must be the best PM writer out there: thorough and concise at the same time. I was thinking about signing up for your https://www.tfsignals.com/ (which you should publicize more). Do you cover more PM companies there, or is the same as the ones you cover on SA?
Taylor Dart profile picture
Hi Helmholz,

Thank you for that, I appreciate the kind words. I cover several names I don't cover here since I save my favorite picks for the newsletter. I also share my exact portfolios there, and all my up-to-date low-risk buy zones on my top-10 takeover targets, top-10 producers, and top-5 royalty companies, as well as price targets.
Hi Taylor, thanks for the great research as usual. Bought addtl shares today at CAD1.45.. I would like to ask you some questions: 1/ update on stream.
2/ actual cash positon 3/ shareholder structure : any existing corporate shareholder? management shareholder? 4/ for how long BARRICK could ‘use’ their tax bosses for a possible acquisition ? Many thanks for your great work. Happy Christmas to you and family.
Taylor Dart profile picture
Hi Thierry, flattered it was of value, thank you!

I will get back to you this weekend if I can with more detail, but:

1) I don't know have privy to any info, unfortunately, I would expect news by Feb

2) $35 million cash

3) Big shareholders are Zhaojin, Dundee PM, Fidelity, Wheaton Precious Metals, insiders hold 1%, and Jupiter Asset Management holds 4%, with 38% institutional holders/17% strategic investors.

4) I am not sure the exact tax implications, but I believe these tax losses are still valid as tax breaks that have accumulated due to Barrick's head office being here.
Great Bear getting bought out should put this, Integra and Marathon nearer the top of the takeover list now. Amex Exploration possible too.
@passionatepiper65 Amex seems to be fully priced already.
Hi, ASA is not an ETF but a closed end fund. Just a friendly correction.
The Bruce has been dropping heavy hints that a creative financing deal, including a substantial equity component, is in the due diligence phase. The alleged possible acquisitors better act quickly if they really want this 10 million ounce plum/prune. Otherwise, they are likely to be confronted with all manner of penalties to break the financing package.

This has been a long time a-coming, the development of this frozen jewellery box. I have a strong suspicion we could be in a bear market for gold by the time this deposit sees daylight in 2025 at the earliest. I have a modest 10,000 share position just on spec that if anything is going to happen, it'll be in weeks not months. Whether that's an announced financing, a takeover bid, or both, I'm in for the short term game.

Merry Christmas to you and yours.
Taylor Dart profile picture
Hi Martin,

Thanks! Yes, thinking we should see something in the next month and it will be a positive catalyst. Merry Christmas to you and yours also, thank you!
WatchingAction profile picture
Thanks for your work. I hope it ends differently, though. Thinking about the value of their unexplored assets, you arrive at a modest $150M. As this has been a speculative investment for me -- I first bought in July of 2017 and added along the way -- I'm hopeful the market cap 3- or 4-Xs from here. In your estimation what would have to happen to get there? Thnx J
Taylor Dart profile picture
Hi J,

I don't think it will happen without $2,500/oz gold or without production from another mining center, too much dilution along the way, and likely a little more to go. I see the potential for a double to my price target, but that's about it here assuming a sub $2,000/oz gold price.
WatchingAction profile picture
@Taylor Dart Thnx! I was wondering if you were being too conservative on how much the rest of the properties can be worth... Your insights have been very helpful. J
Taylor Dart profile picture
It all depends on what they find, of course, but I imagine the focus for the next 3 years is probably get into production, tighten up drilling in areas that may be added to the mine plan (resources not in reserves + Hook), and then regional exploration would be 2026 or later before you really start defining meaningful resources. From that view, I think the $150 million in exploration upside is conservative, but it's hard to value something you can't quantify, hence being conservative.
rosedalepaint profile picture
Great article as per usual from you. Haven’t looked at SBB for some time as I sold my shares several years ago. The reason I bought the stock was for it’s silver stream from Hackett River on a Glencore property if memory serves. What has happened to that asset as you didn’t speak to it?
Taylor Dart profile picture
Hi Rosedale,

Thank you, flattered it was of value. It requires much higher silver prices, in my opinion, it's a lower grade silver project if an established jurisdiction to my knowledge. I can't see it being developed unless silver stays above $30.00/oz for a prolonged period of time, so I've valued it at zero.
DanShirey profile picture
@Taylor Dart

December 2020
Effective Dec. 31, 2020 Glencore reported an Indicated Mineral Resource of 27.1 Mt containing 4.5% zinc, 130 g/t silver as well as 0.6% lead, 0.5% copper and 0.3 g/t gold. The Inferred Mineral Resource at Hackett River contains 60.0 Mt of 4.0% zinc, 1.0% lead, 0.4% copper, 150 g/t silver and 0.2 g/t gold. The cut-off grade was not reported"

What grade silver do you feel they would need?
Always appreciated. Just a matter of time on this one.
Taylor Dart profile picture
Hi Tman,

No prob! Thanks for reading!
Brian Cellars profile picture
Thanks for the update. In hindsight, I wish I had sold out in January and forgot about it till now. I never dreamed it would fall all year! Oh well, I bought some at C$1.70 and then more at C$1.50, so will consider buying more now given the promising potential. It's hard to imagine it falling further so it's safer than other buys and lots of upside.
Heywood Silvers profile picture
SBB is trading at a 60% discount from it's 52 week highs. A 100% ROI is already baked into the cake. The longer it takes to be bought out combined with increasing projections for the price of gold will only give an added boost to share price. Let's get north of $3 and then maybe I'll warm to the possibility of a takeout. I didn't invest in SBB for a piddly one bagger though.......expecting much more in a renewed bull market with more vigor.
WatchingAction profile picture
@Heywood Silvers Agreed! It seems these projections are fractions of what the stock price could rise to. Holding for much higher prices!
Good article, thank you. I trade Sabina constantly while keeping my core position. I agree, the company is worth much, much more then present capitalisation. I don't see any potential takeover attempts in the very near future. As potential suitors, realistically, I can see only Barrick and possibly Kinross, but these two got enough issues on their plates. One more thing, contrary to other posters I wouldn't expect the offer to come at full NAV value, that would be a dreamland territory..., something in the vicinity CAN$ 1.80 - 1.90 seems more likely at present time.
Taylor Dart profile picture
Hi George,

Glad it was of value, agree that trading is wise. I wouldn’t rule out either, and while they do have a lot on plate, they both have massive teams, and this isn’t a massive project by any means.

As for 1.0x NAV, I agree they will be lucky to get that. But at spot price you’ve got NPV of ~$1.1+ billion. At 0.70x you’ve got $725+ million, which equates to US$2.01 or C$2.50. If we were to see a takeover, I think we would see better than a 25% premium, I think it would have to be at least 35-40%. I agree though, I don’t see anywhere near 1.0x NPV (5%), but even at 0.65 you’re north of C$2.00.
@Taylor Dart In Canada there are only 12 projects with 2M ounces reserves/resources or more with workable open pit. SBB stand very well between these projects. Saying that, the reasons I discounted more NPV is simple. Financing and construction costs. Financing is obvious with risks of dilution with out having a partner with deep pockets. In reality (from my own experience) nobody knows real construction costs, at best these are educated guesses , that's the reason construction companies do not offer hard bids on the projects. Construction companies bid on costs plus basis. Projects have to be sellable to investors otherwise they won't get build. With Sabina there is a potential issue with cost overruns due to location, climate, infrastructure. My experience tells me there is a real potential for up to 30% to 40% in costs overruns, simply, because nobody knows all variables that might affect construction process. Engineers in mining companies advise top management during bidding activities and they aware of that, and I think after multiyear gold bear market mining executives will listen to experienced technical advisors and will err on side of caution and will not repeat bidding excesses that occurred prior to 2011. Sabina present capitalisation is over CAN$520 million @CAN$ 1.45/share Capitalisation at $1.90 would be around CAN$ 700 million, that amount would represent reasonable offer from acquirer point of view (after calculating in potential additional cost overruns). Taylor, I agree with the proposed mine and additional discoveries on this land are worth much much more and I agree with the points you made in your article, absolutely. The thing is, I would expect acquirer be cautious, saying that, hahahaha, there is always possibility of 2nd offer. Best regards.
Taylor Dart profile picture
Hi George,

I agree with you that there won't be an outrageous bid. My point is that there is a huge discrepancy between the crazy bids we saw in the past bull market cycle and Sabina's valuation. Previously, majors were bidding 1.10x+ P/NAV for developers in Tier-1 jurisdictions on average, and in this cycle already where they are being more conservative, we're seeing bids at 0.80x P/NAV or better.

With an $925M NPV (5%) at $1,700/oz gold, and ~365 million shares outstanding, even 0.65x P/NPV = US$1.65 per share. So with that bid, you're baking in a huge discount to NPV (this cycle and next), and a discount on the gold price, and getting all the exploration upside + ounces outside for free. So, while the premium might seem high (40%), it's a more than 20% discount on an NPV basis. For this reason, I don't think a 40% premium from current levels would be a shock, only because the stock is already down so much and is just so cheap. If Sabina were at US$1.80 currently, I would expect a 10% premium at best to try and get the deal done.
BeaBaggage profile picture
Well here is Sabina back to US$1.15 where I sold post AEM/KL buy.. might have to put it back on watch. Feels like a sell off in miners is starting again. B
I have 2 problems with Sabina. One is a catch-22, a year ago they had a $1B valuation and funding the capex was easy. The lower the stock price goes the more dilution to fund vs say Osisko who needs no more equity or Skeena who has the market cap. The second is capex. Nobody I talk to believes they can build the mine for that price. Look what happened to TMAC when they went cheap on capex. A massive build in Nunavut is going to end up closer to $750M than $500M at the end of the day. I used to own the stock and I agree that they aren't getting credit for the upside in already defined resources but I don't see anybody buying this before the mine is built which is 3+ years away.
Taylor Dart profile picture
1. They have discussed a creative stream or other financing opportunities to fund which should minimize share dilution.

2. They just did an updated Feasibility Study looking into costs with contingencies baked in, this is a very current study, so I think you’re way off if you think there’s going to be a 50% cost increase. In addition, they have been spending along the way on procuring equipment and underground development ahead of the spend. The Canadian Dollar is also working in their favor recently.

3. There’s nothing stopping a potential suitor from acquiring before the project is built - we’ve seen many examples of this in the past. There is no benefit to acquiring before a project is built if it trades expensively, but Sabina trades at nearly 50% of average price paid for Tier-1 developers.

4. The investment case is solid whether they’re taken over or not. Any time you can buy a permitted developer in a safe jurisdiction with a world-class project for sub 0.5x NPV after baking in a 10% decline in the gold price, it’s hard to lose money.
Simont profile picture
@Taylor Dart My worry is that they will sell out too soon/too cheap during a downmarket.
badford's IRA profile picture
Thanks Taylor for the excellent report on Sabina. If this gets bought by a bidder I will double my money on this one! Cheers!
Taylor Dart profile picture
Hi Badford,

Happy it was of value - thanks for reading!
Good article, thank you.

Topped up today at C$1.45 and fingers crossed a bidder comes a bidding at C$3.
Taylor Dart profile picture
Hi Diottica,

Nice buy & good luck!
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