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Santa Fe to sell part of Summit mine’s gold production to Sandstorm Resources

Published: 21:37 14 Sep 2009 BST

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Santa Fe Gold Corp (OTCBB: SFEG) said it has it has entered into an agreement with Sandstorm Resources Ltd (TSX-V: SSL) to sell a portion of the life-of-mine gold production from its Summit silver-gold mine, located in southwestern New Mexico.

Santa Fe will receive a cash deposit of US$4 million as well as ongoing payments for each ounce of gold delivered under the agreement.

"The transaction represents an attractive source of financing to bring Summit into production while still giving Santa Fe shareholders full upside exposure to 100 percent of the silver and the majority of the gold production at Summit," said Pierce Carson, President and CEO.

Sandstorm will make an upfront cash deposit of US$4 million plus make ongoing production payments equal to the lesser of US$400 per ounce and the prevailing market price, for each ounce of gold delivered under the agreement.

Gold production subject to the agreement includes 50 percent of the first 10,000 ounces of gold produced, and 22 percent of the gold thereafter. The amount of payable gold can be reduced from 22 percent to 15 percent provided that within 36 months the Summit mine reaches certain performance levels in line with prefeasibility estimates.

Sandstorm will immediately pay an initial deposit of US$500,000. The balance of the upfront cash deposit will be paid to Santa Fe upon the satisfaction of certain funding conditions, which include Santa Fe having received all necessary permits to build, operate and commercially extract gold from the Summit mine.

Should the funding conditions not be satisfied by January 11 2010 and should Sandstorm seek to terminate the agreement, the US$500,000 initial deposit will become a loan due and owing from Santa Fe to Sandstorm.

Santa Fe has the option, for the next nine months, to increase the size of the transaction by US$1 million to US$5 million. If Santa Fe exercises this option, the percentage of payable gold that Sandstorm will be entitled to purchase will increase by 25 percent.

The Summit mine is an underground silver-gold mine being developed on an epithermal vein deposit. For the past several months, in connection with mine development, Santa Fe has been mining and stockpiling ore. Ore from the Summit mine is transported to Santa Fe's mill located in Lordsburg, New Mexico, where a marketable gold-silver concentrate will be produced.

The mill is fully operational and will begin processing ore upon receipt of final permits and construction of the tailings dam impoundment. Santa Fe anticipates that the project will achieve commercial production in 2010.

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