Capstone merger means silver streams for Silverstone (SST)?

Could Capstone-Sherwood merger lead to silver streams for Silverstone Resources (SST: TSE-V)?

Here is the merger news:
http://www.capstonemining.com/news/2008/index.php?&content_id=196

How much silver sales are there at Sherwood Coppers's Minto mine in the Canadian Yukon? How much of a silver stream could theoretically be arranged with Silverstone for Minto's current and near-term silver production?

I consider the current sales rate to be based on Q2 x 4 quarters, or 149,216 ounces a year. The company is doing a 33.33% expansion of throughput which will be completed sometime before, or early in, 2009. Assuming this results in a commensurate 33% increase in silver sales, this would result in sales at the annual rate of 198,950 ounces of silver, say 200,000 ounces, after the expansion is complete. I don't think anyone would consider a stream of 200,000 ounces to be anything big, but it would be 200,000 ounces more than Silverstone has at the moment, all coming from a sister company (Capstone-Sherwood). Further resource expansion at Minto and still another throughput expansion would increase silver sales further than this to say 250,000 ounces a year. I am sure that Capstone would do everything possible to tweak these numbers higher still.

Much more substantial would be a silver stream based on future production from Sherwood's high grade Kutcho Copper Project in B.C., Canada, currently advancing toward a production decision with a feasibility study coming in the first half of 2009.

http://www.sherwoodcopper.com/s/KutchoProject.asp?ReportID=293795

A preliminary economic assessment is in the process of being updated, and is based on just the main zone, and excludes a lot of resource expansion drilling. Even so, the payable silver is projected to be 588,000 ounces in the first year. Expanded to other zones, more completely incorporating the present and future drilling data, and taking advantage of Capstone management's operating expertise that they have demonstrated by running Cozamin, I would expect this figure to increase 100% or more. However, all this is complicated by various back-in rights as discussed at the link shown above, and copied verbatim below. Capstone/Sherwood would have to work out how a silver stream deal on the Kutcho project would still be workable despite these back in rights:

Back In and Off Take Rights

"Upon receipt of a feasibility study, Barrick and AMI, or Barrick alone, have a 120 day period to provide Western Keltic written notice of its intention to earn a 50% back in interest on the Kutcho property subject to aggregate payments equal to 300% of development expenditures on the Kutcho property. This would give Barrick and AMI, or Barrick alone, a 20% interest in the Main deposit and a 50% interest in the Esso deposit, based on the property definition per the acquisition agreements and as interpreted in the September 2007 Pre-feasibility Study. In addition, Sumitomo Metal Mining Co. Ltd. have right of first refusal on the sale of concentrates from the Kutcho property subject to a 30 day written notice period from Western Keltic."


Conclusion: I am confident that Capstone, after finishing the merger with Sherwood Copper, will do a silver stream with Silverstone on the Minto mine and the Kutcho project. The Minto Mine will provide Silverstone with immediate, modest but expandable silver sales. The Kutcho project will provide Silverstone substantial amounts of silver sales in the long term, beginning as early as 2011, subject to a positive production decision and the back-in rights of other companies.


tooclassy