Why Sandstorm Gold’s Progress Story Does not Add Up
Sandstorm Gold Ltd. (NYSE:SAND) has reported its This fall 2022 and full-year 2022 monetary outcomes. Its newest earnings report reveals promising outcomes with document manufacturing and rising money flows.
Nevertheless, whereas the firm forecasts substantial development within the coming years, with a number of growth initiatives anticipated to come back on-line, a few of these initiatives have confronted quite a few delays. And I consider the potential dangers related to mining jurisdictions the place its property are situated are too nice to disregard.
Right here’s an entire breakdown of Sandstorm’s newest earnings, and key dangers to contemplate.
Sandstorm Gold’s Earnings Evaluation
Sandstorm produced 82,376 ounces of gold in 2022, an enormous improve from the 67,548 ounces produced in 2021.
Its low-cost streaming and royalty enterprise mannequin led to common money prices per ounce of simply $284, resulting in document working margins of $1,511 per ounce.
It reported document revenues ($148.7 million), working money circulation ($109.8 million), and web earnings ($78.5 million).
This fall 2022 was a powerful quarter specifically, with a rise in attributable gold equal ounces for This fall 2022 at 21,753 ounces in comparison with 16,586 ounces in This fall 2021. Working money circulation (excluding modifications in non-cash working capital) was $29.9 million in comparison with $22.1 million in the identical interval final 12 months.
In August, the corporate modified its revolving credit score settlement, which now permits the corporate to borrow a most of $625 million. As of Feb 21, the corporate has $486 million excellent underneath the credit score facility.
The corporate is presently producing greater than $100 million in working money circulation yearly (at spot metals costs) and expects its debt to be repaid in full by 2027 (see slide 5 of its quarterly outcomes presentation).
Large development anticipated
Sandstorm Gold Ltd. has projected that their attributable gold equal ounces for 2023 can be between 85,000 and 100,000 ounces, based mostly on their current royalties. That represents strong development over 2022 numbers.
Issues get rather more fascinating trying additional into the longer term. The corporate is forecasting that its attributable gold equal manufacturing can be round 140,000 ounces in 2025. That development is pushed by a number of of its key growth initiatives coming on-line earlier than then, together with Coringa, Greenstone, Platreef, Blackwater, and Hod Maden.
Moreover, Sandstorm has fascinating development potential after 2025, specifically from the Oyu Tolgoi streams (Hugo North Extension). This asset is a copper-gold porphyry deposit in southern Mongolia. Beforehand, Sandstorm Gold Ltd. acquired gold, silver, and copper streams for the Hugo North Extension from Entrée Assets Ltd, which has a 20% three way partnership curiosity with Oyu Tolgoi LLC.
Whereas manufacturing isn’t anticipated till 2028, it might find yourself being certainly one of Sandstorm’s prime property given the huge measurement of Oyu Tolgoi (possible reserves embrace 712,466 ounces of gold, 16.7 million ounces of silver, and 1.4 billion kilos of copper).
Sandstorm’s money circulation potential
Primarily based on its present property and utilizing conservative metals costs ($1,750/oz gold, $22/oz silver, $3.75/lb copper), Sandstorm is estimating money flows of near $200 million per 12 months by 2025. That’s wonderful development from the $122 million reported in 2022, and, once more, it assumes fairly conservative metals costs.
Its projections additionally cease at 2026, and it is going to be actually fascinating to see how rather more money circulation its long-term growth and exploration property add to the profile – specifically, the Hugo North Extension, and Robertson Complicated property.
Now, for the not-so-positive.
The Affect of Share Dilution and Stalled Tasks
It is necessary for traders to notice that Sandstorm Gold has raised its share rely considerably to realize its development (and future potential development).
In 2016, the corporate had 125 million shares, which rose to 190 million in 2019, and it now has almost 250 million shares. Acquisitions just like the Hod Maden deal and the newer Nomad Royalty takeover have added to its share rely, plus a $92 million fairness financing.
Whereas Sandstorm is rising as an organization with larger income, money flows, and earnings, it has largely utilized shares to fund the acquisition of key growth property. And I consider it hasn’t generated extra worth per share with that cash. You’ll see above that its share value is actually flat over the previous 5-6 years.
No large updates on Hod Maden or Turkey
I anticipated to obtain extra details about Hod Maden, an asset that Sandstorm acquired in 2017 as a part of a takeover of Mariana Assets.
As a reminder, in its preliminary 2017 press launch Sandstorm defined that Hod Maden is an:
“anchor asset which is predicted to extend the corporate’s attributable gold equal ounces to greater than 135,000 by 2022, rising working money circulation to greater than US$100 million (based mostly on a US$1,250 per ounce gold value).”
Nevertheless, the mission’s growth clearly hasn’t gone in accordance with plan – it is now been nearly six years for the reason that acquisition, with Hod Maden nonetheless a minimum of two years away from manufacturing!
Sadly, Sandstorm’s replace on the mission was minimal, indicating that the mission has moved into the subsequent stage of growth, which incorporates securing mission debt financing and initiating early works development.
I hoped for a clearer timeframe for the subsequent steps in getting the mine into manufacturing and maybe an replace on Turkey’s horrible earthquake catastrophe and if that’s had any influence on the mission.
I am going to verify again to see if Sandstorm feedback on Hod Maden in its earnings convention name.
Sandstorm’s jurisdiction danger: Increased than ever
In case you’re considering of investing in Sandstorm Gold Ltd., it is necessary to know the potential dangers related to the mining jurisdictions the place the corporate’s property are situated.
Presently, over 30% of Sandstorm’s web asset worth is located in nations which are thought of larger danger, comparable to Turkey, Mongolia, and South Africa.
The Fraser Institute’s Annual Survey of Mining Corporations supplies a rating of 86 jurisdictions based mostly on components together with environmental rules, authorized and tax methods, infrastructure, political stability, and labor rules.
In accordance with the most recent survey, 4 out of Sandstorm’s prime 5 jurisdictions fall within the backside half of the rankings, with solely Peru being thought of barely favorable.
Mongolia and South Africa are notably unfavorable, which means that there’s a danger that these nations could both: Change their mining rules, improve taxes and royalties on the mission’s operators, nationalize mines or expropriate property. Any of those occasions would probably negatively influence Sandstorm’s manufacturing, money circulation, and earnings.
Sadly, Sandstorm’s latest deal to accumulate Nomad Royalties didn’t assist scale back its jurisdiction danger with the addition of property situated in South Africa. In comparison with its different royalty and streaming friends, Sandstorm has only a few producing property in tier-1 jurisdictions like Canada, the U.S., and Australia.
Sandstorm Gold: The Backside Line
Sandstorm Gold’s newest earnings report confirmed optimistic outcomes, with a document manufacturing of 82,376 ounces of gold in 2022, a substantial improve from the 67,548 ounces produced in 2021. And the corporate’s enterprise mannequin is working, with common money prices per ounce of $284, resulting in document working margins of $1,511 per ounce.
Seeking to the longer term, the corporate is forecasting a rise in attributable gold equal manufacturing of roughly 140,000 ounces in 2025 and near $200 million in working money circulation, which represents appreciable development from 2022 ranges.
Nevertheless, that development in manufacturing and money circulation is much from a certain factor – particularly because it requires a number of growth initiatives to achieve manufacturing by then, together with the oft-delayed Hod Maden mine.
Sandstorm Gold Ltd.’s latest presentation notes that its estimated price-to-net asset worth ratio is 24% decrease than Osisko Gold Royalties (OR), which makes it look undervalued in comparison with its friends. Nevertheless, Sandstorm’s larger jurisdiction danger is far larger, and its monitor document of failing to ship development (See: Hod Maden, Oyu Tolgoi) ought to be thought of. So, I consider Sandstorm Gold Ltd. deserves to commerce at a decrease a number of.