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We do think that there's a healthy process going on with San Dimas and there's a lot of interest in that asset and we look forward to getting away through this one.


john Tumazos

Thank you. Could you just review what the old formula was on San Dimas and the new formula, first question? Second question, I’m thinking a little bit of your friends at Sandstorm taking a 30% stake in a project. Sometimes when you're restructuring the streams, the operating company, isn't the strongest one in the world, would you ever just take over a project and run it as opposed to conceding a stream?

Randy Smallwood

Okay. John, Unclear on the old formula versus new formula, what I can tell you at the San Dimas is the current stream agreement gives us 100% of the silver production up to 6 million ounces per year and then 50% of whatever is produced over that. That was an amendment from the very – the original agreement, which we had with Goldcorp where it was just 100% of the silver production.

For the first four years, the Primero had the asset. That was a lower sharing threshold. That was over a fixed time period. It was designed to give Primero a firm foundation to build on as they started into the operating space. So yes, the current formula is that we received 100% of the silver up to 6 million ounces and then share 50% of that after that. There's obviously a bunch of discussions with some of the people involved in there, some of the other companies involved in strategic either Primero is competing, but none of those have been finalized and it has to be to the agreement of ourselves to Primero obviously and to whoever actually ultimately steps into the space.

Going to the second question. Our business model is not an operating business model. We tend to think that there's a bit of a different mindset that's required to be successful with that and we tend to prefer leaving that in the hands of the operators themselves, so not a lot of interest in terms of stepping in and doing this and taking over operations.

We would if we had to in terms of protecting our shareholders value, but it would never be a long-term vision, it would be something that would only be done if absolutely required. We don't see that as being required. We do think that there's a healthy process going on with San Dimas and there's a lot of interest in that asset and we look forward to getting away through this one.

John Tumazos

Thank you.

Randy Smallwood

Thanks John.

Operator

[Operator Instructions] Our next question comes from Anita Soni with Credit Suisse. Your line is open.

Anita Soni

Good morning. It’s Anita Soni from Credit Suisse. So my question is a follow-up for John's on San Dimas. So I think you indicate – both you and Primero indicated in your press releases that you're working on restructuring the deal, but there's no guarantee that you come to a solution. So what happens with the guaranteed credit facility if you do not come to a solution before that guarantee is up?

Randy Smallwood

Well we step in and supported Primero by providing a guarantee on that because it was due to expire back in July or earlier this year. And we asked them how much time they needed to get through their strategic review process and we agreed on November being the timeframe.

And so that's – as far as our guarantee is therefore – and therefore that's the timeline that Primero has to work with in terms of working their way through the strategic review process. We don't intend to – I mean the reason we provided the guarantee was to give Primero enough time to work their way through the strategic review. And so it comes down to their desire to work their way through this process.

Anita Soni

And second question, so they also announced the sale of Black Fox. Was that in line with what your expectations on how the strategic review would go?

Randy Smallwood

Yes, I mean Black Fox has been – we don't know – we don't have access to the asset, it's off directly. We knew it was one of the assets in their portfolio that put a lot of effort into it and a lot of capital into it. And unfortunately, aren’t going to see a lot of return on that investment.

In terms of value, it's not far off of what we expected it to be worth and so that money from the Black Fox sale goes directly against the revolver. So I think it ultimately lessens the amount owing on this revolving credit facility that's due in November. So that's a positive. So yes, we're quite comfortable with that.

Anita Soni

All right. And last question, any further intelligence you're sort of – do you have any sense of when the Mexican tax authorities will come up with the decisions? I think it was around the same time that this credit facility guarantee expires?

Randy Smallwood

Again, it's something that's in Primero’s hands in terms of working with. We've received a number of different guidance’s on that from Primero. I can tell you it's still an active process. They've still also got substantive VAT and some income taxes that are outstanding down there, some debt refunds that are outstanding.

So it's a combination of a number of different things down in Mexico that are outstanding. Yes, unfortunately I can't give you any firm guidance on that. What I can tell you is that through the strategic review process, there's a number of parties that have studied it and feel it's a manageable issue.

Anita Soni

All right. Thank you very much.

Randy Smallwood

Thanks Anita.

Operator

Your next question comes from the line of Dan Rollins with RBC Capital. Your line is open.

Dan Rollins

Yes, thanks very much. Randy, just wanted to get your feeling just on yesterday's Primero’s press release, obviously challenging share price move yesterday. But they also noted that they're going to be cutting spending in the capital side on that asset. And we do know that’s an asset that really needs a lot of capital to continue to occur. The cutback on spending, does that change the impetus to get a deal done from year end with either Primero or third-party within this sort of restructuring process on going?

Randy Smallwood

Well, the timing here is not in our control. The timing is in Primero’s control. And I think there's a number of different issues. The cutback, given that the RCF is due in November. I think that they've got some deadlines coming up that they have to work their way around. And it's up to Primero as to how rapidly they move their way through that and get there.

What we've seen is some healthy interest in this asset. We think that there's a way forward through here. We've been supportive all the way through and we've made some proposals that we think – our objective is to come through this and make sure that the asset is well set up to continue the long history of successes that San Dimas has had, and we're going to do everything we can to do that. Unfortunately, we just don't control the timing. These are the decisions that Primero has to make and we're ready to work with them.

Dan Rollins

Okay, perfect. And just on the RCF, once the proceeds from Black Fox are used to reduce the full amount drawn. To confirm, Gary, the RCF can no longer be drawn back to $75 million, the amount available drops to what's currently drawn correct?

Gary Brown

That’s correct.

Dan Rollins

Okay, so they can draw again on it. Okay, perfect. And then Gary, Haytham, maybe you could talk on the competitive landscape we're seeing right now in the space. Obviously, there's – when a number of new participant coming in, the deal flow side is sort of changed to one, is not the big capital one that sort of more manageable, $100 million to $400 million. Are you starting to see more competition from new parties or is it really still the same competitive landscape and from the newer entrants just really don't have the capacity to compete with yourselves and some of your other peers?

Haytham Hodaly

Thanks for the question Dan, it’s Haytham. With regards to new parties obviously we saw the same competitors that we've always had. We have seen the private equity guys start to become a little bit more prominent a little more aggressive, but in terms of looking at large scale operations or really smaller scale operations.

We still have a pretty strong niche as the other primary streamers and royalty companies. We're not really worried about competition, if it's a quality asset, if it's an asset that falls in lowest half of the cost and if its asset that adds to already high quality, low cost portfolio, we will make sure we put in a competitive business.

Dan Rollins

And just on the early stage projects are you seeing improvement in some of the quality of the opportunities coming that are being shown to you. I know a couple of years ago, you had stated that there's not many high quality opportunities and that's why you have been sort of reluctant to put a lot of money to work on the early deposit, but with rebound in prices and some changes in hand to some of these assets are you starting to see better quality opportunities out there on the early stage side.

Haytham Hodaly

Yes, which I could say there was a lot of early stage opportunities that are high quality from a lowest capital cost curve. I can tell you that we've looked at over 150 different opportunities in the last three or four years and now we've done three Early Deposit streaming agreements. So I think that answers the question. We're very excited about the future project. We think it's a high quality asset and internal rate returning before the stream of just approximately 28% post-tax and it's a low capital intensive asset, which we think can be in production in the next five years. So we're very, very happy to be aligned with Desert Star on this.

Randy Smallwood

Dan, it’s Randy here. I just want to reinforce, this early deposit structures it's an excellent mechanism for companies that don't have feasibilities studies complete, where we come in and they’ve got scoping or pre-feasibility studies in place. Typically those companies the only access to capital that they have is to dilute their existing shareholders and this is an alternative source of capital for them I think it's a fantastic option for them to finance without doing their existing shareholders at a time that's probably very, very dilutive for their existing shareholders and so there's definitely a lot of interest in that side and as Haytham just alluded to, it’s tough to find in the quality though.





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