SABINA GOLD & SILVER ANNOUNCES FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2019 - Seite 2

Throughout 2019 the Company has continued to advance development of an Engineering, Procurement, Construction (“EPC”) proposal for the bulk of the physical plant at the Goose site.  The proposed vendor for this critical project component is a joint venture between Sedgman Canada and CGT Industrial (Clark Builders, the Gisborne Group and Tarpon Energy Services), collectively (“SCGT”). The EPC contract structure was proposed as fixed price with a performance guarantee.  Additionally, the Company revisited the Project execution plan and made some scope changes expected to result in less capital risk with a more robust operating plan.

Subsequent to the end of the year, negotiation of the EPC contract which envisaged the delivery of a fixed price for all components of the processing plant was well advanced.  The preliminary EPC contract price had been estimated to be $196.1 million which compares to an EPCM estimate of $125.1 million in the 2015 FS.  The increase of $71.0 million (or 36%) resulted from: (a) change of execution strategy (to EPC from EPCM); (b) inflation and escalation costs since 2015 (approximately 12%); and (c) various changes to scope ($36.8 million).  Changes to scope facilities and equipment which would provide for lower risk and increased equipment reliability and/or lower operating costs include, for example, purchase of an oxygen plant rather than a third-party contract service.  It also includes the estimated cost of logistics for all process plant materials and equipment which is a transfer of scope to the EPC contractor from owner managed execution.

However, as a result of factors impacting the business model of the service provider (CIMIC Group Limited, the parent company of Sedgman Canada), a modified EPC structure has been recently proposed.  The proposed structure would be comprised of two components: a fixed, lump sum price for engineering and procurement of all equipment and materials; and a target price for construction and commissioning with a fixed fee.  The fixed price component would maintain performance and schedule guarantees as initially envisaged for the EPC contract terms.

Given recent ongoing market volatility, disruptions and fluctuation of foreign currency exchange rates, largely driven by global impacts of the evolving coronavirus crisis, the Company has made the decision to decelerate project development activities and to put efforts on advancing the EPC contract on hold.  Management’s view is that given the increased uncertainty of the economic impact resulting from the COVID-19 pandemic, it is prudent to delay the negotiation process for a fixed price contract until there is more stability in financial markets and global supply chain.  As the EPC is integral to the balance of facility capital cost review, the Company has also put a CAPEX update on hold.